FSCS Fast Payout Vs Market Confidence

The Financial Services Compensation Scheme (FSCS) is the UK’s statutory compensation fund for financial defaults. This means that it is responsible for the payment of compensation to eligible customers of a financial firm if that firm – including banks, building societies and credit unions (deposit takers) – is unable to pay claims against it.

Under the Banking Bill, the FSCS can be required to contribute to the costs of resolving a troubled deposit taker pre-insolvency.  The changes required are designed for faster payout and to raise consumer awareness. The FSCS rules are now being proposed a change to ensure that it can provide the depositors of a deposit taker in default with access to at least a proportion of their funds within a target of seven days.

The requirements laid out by the FSCS seem simple but in reality they are anything but. Achieving a reliable SCV will require a fundamental change in the way data is captured and stored in most banks. It will require closer integration of a number of different systems, systems that are used for different products and often run on incompatible technologies.

Systems must be capable of maintaining regularly updates in order to keep the eligible account ‘flag’ up to date. It will also require a robust datamart along with an analytical reporting solution inorder to churn out accurate compensation entitlement information.  All of this will have to be achieved before FSCS’s Dec 2010 deadline making it an immediate priority for banks.

Important Links:

•    www.fsa.gov.uk/pubs/cp/cp09_03.pdf

•    http://www.fsa.gov.uk/pages/Library/Policy/CP/2009/09_03.shtml