The FSCS can now deal with the peaks and troughs more efficiently, and provide a faster and more convenient service
We have just published our Plan and Budget for 2017/18, which supports the consultation that the FCA and Prudential Regulation Authority are undertaking on our management budget.
I often think this annual document well illustrates the enduring tension between strategy and tactics.
Any business plan should be informed by a clear, strategic sense of direction. It describes how the organisation will take forward its strategy in the year ahead. But any given year is also dominated by the contingent – and the FSCS’s job is, after all, highly contingent: to protect consumers in the face of unpredictable firm failures.
So there’s a strategic story, a tactical story and a story about how strategy and tactics are combined.
The strategic story centres on the strides that the FSCS has made since the financial crisis to ensure it has the people, processes and IT it needs to respond to major failures or a future crisis.
The investment we made in 2009 and 2010 in a fast pay-out capability for deposits means we’re able to restore people’s savings in a failed bank, building society or credit union in seven days.
And our subsequent investment in a new claims-handling platform for non-deposit claims is now, after a difficult start, delivering the benefits we foresaw. Claims are handled electronically. They move rapidly and safely between the FSCS and our outsource partners, which handle the majority of claims and share the platform. We can draw on the capacity of our partners to meet spikes in demand, as we’re doing this year in response to rising claims volumes.
Our customers can now make and track claims online, enabling us to provide a better service; customer satisfaction is at 77per cent and rising. It also provides a better-value service for our levy payers, with like-for-like claims-processing costs expected to fall by around 14 per cent by March 2017.
We intend to build on these benefits in 2017/18. We shall further improve customer service by opening our online service to representatives. And we will bear down even more on our costs, including our change budget that will fall to roughly half what it was at its peak.
Excluding the variable costs of handling non-deposit claims, our budget for 2017/18 falls by £2.7m.
Tactically, however, we expect to have to deal with significantly higher volumes of often complex claims than we budgeted for this year. That’s most notably true of Sipp-related claims driven by bad advice to hold risky illiquid assets within a Sipp wrapper.
We forecast that compensation costs in 2017/18 could rise to as high as £163m for these claims. That is above the annual limit and triggers a contribution from other industry sectors.
We shall also continue to deal with the aftermath of the failures of the Enterprise and Gable insurance companies. These higher claims volumes have already made themselves felt in the supplementary levies we have had to announce for 2016/17 to meet higher compensation costs.
Of course, more claims add also to our management costs. We expect our outsourced claims-handling costs in 2017/18 to be £4.5m up on this year’s budget.
Not all contingencies work against our levy payers, however. Because we have seen fewer unexpected failures of investment advisers in 2016/17, we have been able to make a refund of £50m to these firms (£5m set against this year’s cross-subsidy).
So the FSCS is adhering to its five-year strategy – Vision for a Confident Future – of building the capacity and resilience it needs to both deal with the unexpected and support consumer confidence.
And that capacity and resilience will be tested in the year ahead by short-term demands arising, principally, from Sipp-related claims and recent insurance failures.
What we can say is that the FSCS can deal with the peaks and troughs more efficiently than in the past, while also providing a faster and more convenient service to our customers.
Mark Neale is FSCS chief executive