In its annual report, issued yesterday, the Financial Services Compensation Scheme placed offshore failures among “large business failures” and “complex structured investment products” as the main external risks affecting its financing of compensation payments.
It said that it has integrated the “International Organisation for Standardisation”, an enterprise-wide approach to risk management, to combat the risks, and aims to be classified as “risk managed” under the Chartered Institute of Internal Auditors criteria for levels of risk maturity in an organisation.
The compensation fund added that managers and staff have been trained in risk management techniques and said all risks are now kept under active management where they are subject to frequent review by its Executive Committee.
The report also underlined the fund’s attempts to counteract the complexity offshore financing brings to the complaints it handles.
“Failures can be extremely complex, sometimes involving multiple products that are structured in opaque ways, covering various overseas jurisdictions,” the report said. “We have worked at being better prepared for such complexity while assessing how the FSCS will cope in response to sudden demand and high volumes of claims.
“We are also active and enthusiastic contributors to the discussions about potential improvements to the FSCS across all sectors.”
In his introduction, chief executive Mark Neale also voiced concerns as the rising number of complaints the FSCS has seen from consumers encouraged to invest their retirement savings within “risky” Self-Invested Personal Pensions (SIPPs).
“We strongly support the action the FCA has taken to address this,” he said, in reference to the Financial Conduct Authority’s guidelines and disciplinary actions aimed at SIPPs throughout the year.
He used the failure of Catalyst Investments last year as an example of such failures: “[It] highlighted the intricate demands arising from multiple products, difficult quantification issues and the involvement of numerous third parties and jurisdictions.”
He finished by referencing the fund’s “Connect” scheme which is due to be released in the coming year and will enable customers to make claims directly to FSCS via the Internet.
“We must respond to the ways that consumers themselves want to deal with their finances and how they wish to seek compensation from FSCS. This is why we are investing in our Connect programme, a top priority.”
