FSA to launch review of compensation scheme for bank failures

According to newspaper reports, the FSA has agreed to reassess the system for compensating customers of failed financial institutions.

The FSA said that it will launch a consultation on possible changes to the Financial Services Compensation Scheme (FSCS) next year, including the way in which it is funded, with a view to new rules being in place by 2011.

The announcement comes after building societies, insurers, brokers and asset managers complained that the FSCS’s annual levy was disproportionate and anti-competitive. They argued that the FSCS funding through cross-subsidies by five categories of firms does not account for the higher risks posed by banks and the relatively low chances of a different type of financial company collapsing.