The most recent annual report from Financial Services Compensation Scheme [FSCS] shows that the level of complaints received and compensation paid were slightly lower when compared to the previous year, but the levels are still too high and continue to show no signs of a really significant slowdown in the FSCS workload.
Before looking at the numbers, it is worth remembering that as the UK’s statutory fund of last resort for customers of financial services firms it can only pay compensation to consumers if a financial services firm is unable, or likely to be unable, to pay claims as required. So to receive compensation via FSCS there has to have been a relevant event, such as a failed investment business or mis-sold product sale by a failed firm. Fundamentally, the firm has to be in default in respect of its financial obligations for FSCS to step in.
What were the key numbers?
During 2012 – 2013, FSCS handled over 350,000 enquiries and received over 62,000 new claims. Excluding sums paid out that related to the major banking failures of 2008 – 2009 and Welcome, FSCS paid out £326m. These figures do show a marginal improvement over those in the previous year, but when coupled with the number of complaints handled by Financial Ombudsman Service [FOS] they simply show that the financial service industry has a long way to go in terms of ‘treating customer fairly’ – a regulatory requirement.
PPI Claims, a key driver of costs
The numbers continue to show that the workload at FSCS was adversely affected by the Payment Protection Insurance [PPI] mis-selling scandal with nearly a third of the claims (excluding Welcome claims) being as a result of mis-sold PPI products. Mis-sold PPI claims totalled 19,000 out of the 62,000 claims and these claims resulted in a raised interim levy on the insurance intermediation sector of £16m. Not surprisingly, FSCS expect PPI claims to be a driver of FSCS costs over the next two or three years.
The annual report shows that Claims Management Companies [CMC’s] assisted consumers with just over 40% of the claims made to FSCS showing that large numbers of consumers require the assistance of a specialist when pursuing a claim. Over half of the PPI claims received by FSCS were sent to them by CMC’s.
The outlook looks busy for year to come!
The outlook for a significant downturn in the work of the FSCS does not look likely. The Financial Services Ombudsman [FOS] predict that the PPI mis-selling debacle will take many more years to sort out and the FSCS report shows that the sale of endowment and mortgage products continue to provide significant volumes of claims. When coupled claims relating to new product types the FSCS will be busy for years to come!