March 2007

CP 07/5: FSCS funding review

DP 06/1, published in March 2006, set out for discussion a range of possible models for funding compensation costs for the FSCS. In the light of that discussion, CP 07/5, published on 20 March 2007, sets out concrete proposals for consultation (the deadline is 20 June) with a view to changes being introduced in April 2008.

The proposed funding model is described as a "widening circle" one: costs of defaults are initially carried by other firms in the relevant industry sub-sector, but when costs reach a certain level they are then shared more widely within a broader industry sector, and at a higher threshold still they then become shared across the retail sector as a whole. The FSA are also looking at the possibility of a further "wholesale pool" - essentially a mechanism for raising a contribution from wholesale firms to be called upon in the event that the entire retail pool were to be exhausted. This is to be the subject of a further CP in about 6 months time and would not take effect until 2009.

The supplementary CP will also consult on changes to the tariff base, where the intention is to move away from tariffs (in certain current classes) based on numbers of approved persons to tariffs based on eligible income. The FSA will need to seek some additional information, relating to existing tariff measures, from certain firms later this year.