Out-Law News 3 min. read
05 May 2016, 4:56 pm
The changes include increasing the amount that insured individuals can claim in respect of certain non-investment insurance products purchased through an intermediary from 90% to 100%, and allowing trustees of occupational pension schemes run on behalf of employers of any size to claim in respect of money purchase benefits. The FCA consulted on its proposed changes last year.
The FCA has made the changes ahead of its wider review of FSCS compensation limits and the way in which the scheme is funded, which is due to take place later this year. This is because they will have no impact on the wider review, and will "provide benefits to consumers and the FSCS" without significant cost implications for levy payers, the FCA said.
The FSCS is the UK's statutory compensation scheme for customers of authorised financial services firms, and is funded by levy contributions from those firms. It is able to pay compensation to customers if a firm goes out of business or is otherwise unable to pay claims made against it.
The FCA's November 2015 consultation covered changes to FSCS eligibility in three different scenarios: claims in relation to sales by insurance intermediaries of certain non-investment insurance products; claims by trustees of occupational pension schemes; and claims against unauthorised 'successor firms' that have taken over the business of an authorised firm. The final rules, which have been incorporated into the FCA's compensation sourcebook, do not differ substantially from the draft in the consultation, the regulator said.
The change in respect of claims against insurance intermediaries is designed to ensure that customers receive full compensation "in circumstances analogous to the failure of an insurer", the FCA said. This will include circumstances where a consumer's claim was not paid because of the actions of the intermediary, for example because the intermediary failed to pass premium payments to the insurer or claim payments to the customer; and will apply in respect of pure protection, professional indemnity and general death or sickness insurance cover, it said.
"We believe that it is important that consumers receive consistent protection in relation to insurance claims that have not been paid, regardless of whether the failure to pay is the fault of the insurer or the intermediary," the FCA said in its consultation response. Prudential Regulation Authority (PRA) rules require 100% of a claim against an insurer to be covered by the FSCS, it said.
Trustees of money purchase occupational pension schemes sponsored by large employers will now also be able to claim on the FSCS in respect of these benefits, in the same way as they are currently entitled to in respect of smaller defined contribution (DC) schemes. This is because it is "not clear that the size of the employer is relevant in the case of money purchase benefits", as these are not guaranteed by the employer, the FCA said.
The change will particularly benefit those operating 'master trusts' on behalf of multiple employers, and members of DC schemes who will have the same FSCS protection regardless of the size of their employer, the FCA said.
The FCA has also clarified its rules to confirm that claims against 'successor' firms that take over the liabilities of an authorised firm are covered by the FSCS, regardless of whether or not that successor firm is itself authorised by either the FCA or the PRA, according to its policy statement.
"The rules will require that the claim is based on acts or omissions of the predecessor firm that occurred prior to the transfer under which liabilities were assumed by the successor," the FCA said.
"Our proposal does not change our current regulatory approach which is to ensure that the interests of consumers are appropriately protected when the business of a regulated firm passes to a new firm. One of the ways we achieve this protection is by generally requiring the new firm to be jointly and severally liable with that predecessor firm for the acts and omissions of the predecessor firm in carrying out regulated activities," the FCA said.
Last month, the FCA confirmed that investors who put their money into peer to peer (P2P) investment opportunities following a personal recommendation by a financial adviser would be able to claim compensation from the FSCS in respect of certain failures by that adviser, including in the event that the adviser went out of business. This particular extension to the remit of the FSCS came as part of a general extension of existing rules that already apply when financial advice is provided on other products in the retail investment market to cover advice on P2P platforms.