FSCS, Stick a pony in me pocket, I’ll fetch the suitcase from the van

An adviser contacted me recently regarding a very interesting dinner party conversation about the FSCS and it’s supposed ‘pot less’ state.

It was his understanding, from an individual at that party who had recently carried out some HM Treasury consultancy work in the financial services sector, that the FSCS really had no money, that it would be impossible for the industry to ever fund it and that if it were not for substantial government loans it would in fact be broke.

So, with this in mind we set about some FOI requests to ascertain the truth. It should be remembered that the FSCS is not bound to respond to FOI requests as these only relate to the “disclosure of information held by public authorities or persons providing services for them” so our enquiries were directed toward the FCA and HM Treasury.

It is puzzling as to why the FSCS is not bound by the FOIA?

We asked both organisations the following:

  • Are you able to confirm that the funds held on account by the Financial Services Compensation Scheme (FSCS) are in the form of a repayable loan from HM Treasury and not amounts accrued or paid for by industry levies made by the FSCS?
  • Are you able to confirm the amount of monies held on account in the form of a loan from the HM Treasury, if applicable (pending settlements) by the Financial Services Compensation Scheme (FSCS) as at 18th December 2013?
  • As you set the rules, are you able to confirm what happens to levies paid to the scheme if the FSCS funds are in the form of a loan from the HM Treasury i.e. how are these accounted for and distributed and in addition to covering interest charged by HM Treasury what other expenses do these levies cover? 

The reply from the FCA was:

I have discussed your questions with colleagues in both the FCA and the PRA. As you are aware, the funding rules for the FSCS are set out in the FCA and PRA Handbooks; however as the focus of your request is the loan arrangement between the FSCS and HM Treasury, and we are not able to provide a response to your second point in particular, we would recommend that you refer your full request to HM Treasury to consider under the Freedom of Information Act. 

I hope this is helpful.

Err……….. no!

The reply from HM Treasury was and you can read it in full here. It confirms that there are indeed considerable sums of money that the Treasury has advanced as “repayable loans”.

If you follow this links it will take you to HM Treasury’s latest published accounts. The reader is referred to note 15.1 that in turn refers you to note 30.

Additionally the Treasury refers the reader to the latest FSCS accounts

They state that £37,343,000 is due to HM Treasury as a debt

The accounts go on to say:

Principal terms and conditions

During the year, FSCS made drawings from HM Treasury which were used to pay compensation, some of which was on behalf of HM Treasury. Those amounts that were paid on behalf of HM Treasury were subsequently used to reduce the loan balances with HM Treasury.

Our good friends at FTAdviser were intrigued by our findings and a conversation ensued with Simoney Kyriakou.

She did manage to get some response from the FSCS confirming that the main FSCS uncertainty is around Icesave. A spokeswoman at the FSCS said:“If no further recoveries are received from Icesave before 2016, an additional £222m would need to be recovered by levy in the next two years.”

£222m is a very big ‘pony’ indeed and highlights once again the reason for a fundamental reform of the FSCS levy system. HM Treasury does eventually get monies from the FSCS but it would seem that the current system means that the ‘pony’ really should be in the knackers yard and a more nimble and functional method of compensation delivery should be found.

C’est magnifique, St Botolph Street.

Let us know your thoughts on this – please comment below!


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