The critical importance of the Financial Services Compensation Scheme (FSCS) in paying out compensation to depositors has been emphasised by the events of recent months. As part of the wider banking reform work the Tripartite authorities and FSCS have committed to ensuring faster payout from the FSCS.
Hector Sants, chief executive at the FSA, said: "Experience in the last year has highlighted how essential compensation is and that it is imperative consumers understand and trust that they will be reimbursed if a bank, building society or credit union fails. Our current scheme has worked well in these unprecedented times, compensating hundreds of thousands of savers in a matter of weeks.
"But today's consultation paper seeks to learn the lessons from those events to produce an even better system. We recognise that to help underpin confidence in our banking system consumers must feel confident that their money is well protected - regardless of whether they ever have to claim compensation."
Today's consultation paper makes the following recommendations:
Simplifying eligibility for deposit compensation to include all private individuals and small entities;
Gross payout, which would ignore any debts the depositor has with the same firm;
Ensuring the firm holds up to date information to allow quick processing of claims;
Ensuring firms provide information on the existence and basic coverage of the FSCS for deposits; and
Requiring firms proactively to tell consumers which trading names are covered by a particular authorisation.
The set up and maintenance costs of new IT systems for quick claims processing are estimated at £891.8m over five years. Firms' obligations to tell customers about the FSCS scheme, along with telling customers which trade names are covered by a particular authorisation, would have estimated set up costs of £34.6m and ongoing annual maintenance costs of £4.2m.
The consultation paper also includes proposals on how the FSA aims to increase the awareness and understanding of the FSCS among consumers.
The consultation paper will be open for responses until 6 April 2009.
