FSCS poised for overhaul

The Financial Services Au-thority has deemed the present funding system for the Financial Services Compensation Scheme \"not fit for purpose\".

A consultation paper has been published by the FSA, with reforms that would see fundamental revamp of the funding structure.

The scheme would see the finance industry divided into five groups – life and pensions, investments, general insurance, deposits and home finance.

Each group would have two sub-classes, and above the groups would be a general retail pool.

The proposals introduce a model under which the first portion of compensation costs emerging from a particular sub-class of firms is borne by that sub-class alone, while higher costs are shared more widely.

The home finance pool, in which brokers would be classed, would in-clude lenders who lend direct, meaning they too will be mutually responsible for any compensation claims thatmay be made.

The initial portion of costs would fall on the relevant sub-class, the next portion to the relevant group and above that on the general retail pool.

Rob Griffiths, associate director of the Association of Mortgage Intermediaries, says: “For the first time lenders that deal direct will be brought in, which is something we welcome. It is only fair a sector that benefits from the FSCS should contribute to claims.

“We are looking closely at this paper as it seems the maximum liabilities for brokers would go up, meaning brokers’ risk profiles will rise. This is our only concern.”