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Smaller business panel chief raises doubts over self-insuring of FSCS

The chairman of the Smaller Business Practitioner Panel last week questioned whether having the FSCS as a self-insured system is affordable and fit for purpose in its current form.

Guy Matthews, chairman of the SBPP, made the comments at the FSA’s Annual Public Meeting.

While he welcomed the fact that the FSA had launched the FSCS funding review, he argued that going foward, the regulator should be responsible for looking at the impact of the FSCS levy on the viability of firms.

Matthews says: “We also feel that now would be the most appropriate time to question whether such a self insured system is affordable and fit for purpose in its current form.

“In most cases, the well run and compliant companies are the ones that are penalised and have to finance the compensation payments to the clients of errant firms.”

The FSCS levy for the 2012/13 financial year is £265m, up £44m from the previous year.

The main driver of this increase is the potential claims resulting from high profile investment failures such as MF Global and CF Arch Cru.

The higher costs fall mainly on the investment intermediation and life and pension intermediation sectors, which both see an increase in the levy compared with the provisional numbers that were published in January.

But payment protection insurance claims have also added to the bill with a string of firms over the past year closing down their lending arms deliberately to avoid paying any potential claims, dumping their liabilities on the rest of the industry as a result.

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