FS22/5: Compensation Framework Review

Read FS22/5 (PDF)[1]

What we are changing

Increasing compensation costs have prompted questions about the fairness of The Financial Services Compensation Scheme (FSCS) levies and how the FSCS should be funded. 

We want to ensure that the compensation framework continues to provide appropriate and proportionate consumer protection with costs distributed across industry levy payers in a fair and sustainable way. So we are setting out our plans to:

• continue to tackle the underlying causes of high FSCS compensation costs 
• improve our understanding of the impact of FSCS protection on consumer decision making, confidence and behaviour, and the effect of FSCS protection on firm behaviour and incentives 
• consider the appropriate scope of FSCS protection and how best to communicate the availability of FSCS protection 
• review compensation limits 
• review funding class thresholds 

Who this applies to

This discussion paper will interest:

• consumers
• groups representing consumers’ interests
• regulated firms, including FSCS levy payers
• trade bodies for regulated firms

Next steps

We will progress the key actions set out in this Feedback Statement over the next year. 
We expect to consult on any proposed changes to the compensation rules during 2023/24 with a view to confirming any changes by the end of that financial year.

Background 

The FSCS is the UK’s statutory 'fund of last resort’ for customers of authorised financial services firms. The FSCS provides compensation when certain authorised financial services firms are unable, or likely to be unable, to meet claims against them. In December 2021 we published DP21/5[2] to start a discussion with stakeholders on the compensation framework and the purpose, scope and funding of the FSCS.