Plan and Budget: 2015/16 Financial Services Compensation Scheme

Chairman’s foreword >

Chief Executive’s overview >

The levy

>Update on seven imperatives >

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Contents

Chairman’s foreword 4

Chief Executive’s overview 6

The levy 10

Claims assumptions 12

Management expenses 17

Major banking defaults levy 22

Update on seven imperatives 24

4

Chairman’s foreword

LastyearwelaunchedourfiveyearVision for a Confident Future.InitwesetoutsevenimperativestoensureFSCSmeetsbothitsstakeholders’,andconsumers’,expectations.Toremindyou,thoseimperativesare:

• Modernisingourserviceto consumers

• Diversifyinghowwedelivercompensationtoprovidemaximumconvenienceandcontinuityforconsumers

• RaisingawarenessofFSCSprotectiontoboostconfidence

• Improvingvalueformoney,transparencyandaccountability

• Achievingexcellenceasacreditortomaximisethevaluewerecoverfromfailedbusinesses

• DeepeningcontingencyplanningtobereadytorespondtofailuresalongsideourkeyPartners

• Engagingourpeopleandourorganisationtobeevenmoreagileandprofessional

Iampleasedtoreportwehavemadegoodprogressoverthepastyearintheseareas,whilealsofacingchallenges.MarkNealeprovideshisthoughtsonourworkinhisoverview.Youwillalsofindmoredetailedaccountsofourprogressfrompage24ofthisdocument.

AsChairman,I’dliketofocusontwooftheseimperativesinparticular.

Thefirstisourcommitmenttoraisingawareness.Thissometimesattractscriticalscrutinybecauseitisoftenassumedthatwearespendinglevypayers’moneytopromote FSCS.

Wearenot.Ourobjectiveisinsteadtounderpinfinancialstabilityandconfidenceinfinancialproductsbyensuringthatconsumersunderstandtheprotectionweprovide.Withoutthisunderstandingconsumersmayavoidusefulproductsbecausetheyassumetheyareriskierthantheytrulyare,or,alternatively,takerisksunknowinglybecausetheyassumeFSCScanprotectthemwhenwe can’t.

LawrenceChurchill

Chairman

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£3.6mmarketing spend

Withthisinmind,ourinitialefforthascentredondepositstomakesure,inanycrisis,thatliquidityproblemsarenotmadeworsebydepositorsseekingtowithdrawneedlesslyfundsupto£85000whicharefullyprotectedbyFSCS.

TheGovernment’sreformsonretirementsaving–whichcomeintoeffectfromApril–underlinetheneednowtoextendawarenessfurther.Amongotherthings,peoplenearingretirementandmakingcrucialdecisionsabouttheinvestmentoftheirpensionpotswillneedtounderstandthescopeofFSCSprotectionfortherangeoffinancialproductstheymightchoose.WeshallworkcloselywiththePensionAdvisoryServiceandotherstoachievethis.

ThereisanotherpointIshouldmakeaboutraisingawareness.Webelievethe“heavy-lifting”shouldbedonebytheindustryitself,notthroughFSCSspending.So,yes,weprimethepumpwithsomerelativelymodestmarketingspendof£3.6m,butwelooktobanksandbuildingsocietiestoinformtheirowncustomersaboutourprotection,includingbyincorporatingFSCSmaterialintotheirmarketing.Cooperationwiththeindustryiscentraltoour strategy.

Andthatbringsmetothesecondimperative:valueformoney.

TheFSCSBoardneverlosessightofthefactthatwearefundedbylevypayersandmustbeabletodemonstratethatweareachievingourstatutoryobjectivesefficientlyandeffectively.

SotheBoardhasaskedtheExecutiveTeamtodevelopaclearvalue-for-moneystrategytosupportthisimperative.Thatstrategyisnowinplace.Wearealreadyseeingbenefits,includingfroma morestrategicandprofessionalapproachtotheprocurementofexternalservices,includingtheoutsourcedhandlingofclaims,which account foronequarterof FSCS’soperational budget.

Aswemoveinto2015/16Ishallbe lookingtoFSCStopublishmoreandbetterinformationtoenableour stakeholderstojudgeforthemselvestheprogresswe’remakinginthis respect.

6

Chief Executive’s overview

WelcometoourPlanandBudget2015/16.

TransparencyisveryimportantforFSCSandthispublicationenablesustolayoutclearlyourplansfortheyearahead.ItisalsoanopportunitytoreportagainstourfiveyearVisionforaConfidentFutureandthesevenimperativeswepublishedlastyear.We thinkitisimportantthatyou,aslevy-payers,can seeandunderstandthefuturedirectionofFSCS;wearegratefulforyourcontinuedsupport.

Ourfirstpriorityfortheyearaheadwill,ofcoursebetodealquickly,accuratelyandresponsivelywiththeclaimswereceivefromconsumers.

Asalways,thereisasignificantmeasureofuncertaintyaboutthenatureandvolumeofclaims,butitisalreadyclearthatthetrend,whichIhighlightedlastyear,ofgrowingclaimsarisingfrombadadvicetoswitchpensionsavingsintoself-investedpersonalpensions(SIPPs)willcontinue.Sofar,wehavecompensatedeligibleinvestorsforthepensionlossesincurred.Manyoftheseinvestorshavealso,however,sufferedsignificantinvestmentlossesasaresultofadvicetoinvestinrisky,non-standardassetssuchasoverseaspropertydevelopments.FSCSisnowclosetofinalisingitsviewaboutwhethertheselossestooareeligibleforcompensation.Ifweconcludethatcompensationisdueforsuchinvestmentlosses,

thecostsoftheseclaimsfallingonLifeandpensionintermediarieswillrisesignificantlyaboveourcurrentforecast.Weshall,accordingly,updateourcurrentforecastwhenwepublishfinallevynumbersinApril.

Subjecttothisuncertainty,weexpecttoraisealevyof£287mfor2015/16.Thatwillfundboththecompensationcostsweexpecttoincurandourmanagementexpensesbudgetfortheyearaheadof£69m–downfrom£75mthisyear.ThecostsofrunningFSCSaresetoutingreaterdepthintheManagementExpensesBudgetonpage18.Themainpointsarethatwe’rereducingourinvestmentinstrategicchangeaswewinddownourinvestmentinenhancingFSCS’scapability.We willalsobespendingaround£4mlessonmajorrecoveriesaswemoveintothenextphaseofourKeydata action.

MarkNeale

ChiefExecutive

£6mfall in operational expense

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ThispublicationissupportedbythejointPrudentialRegulationAuthority(PRA)andFinancialConductAuthority(FCA)consultationpaperissuedontheannualFSCSmanagementexpenseslevylimit.

AsimportantasFSCS’sservicenow,istheScheme’sabilitytorespondefficientlyinfuturetonewchallengesandrisingconsumerexpectations.So,inlinewithourfiveyearstrategy,ourBusinessPlanfor2015/16takesforwardworktoenhanceFSCS’scapability.

Centraltothisismodernisingourservicetoconsumers-thefirstofthesevenimperativesshapingourstrategy.Duringthepastyearwehaveinvestedagreatdealoftimeandeffortonthedesign,buildandimplementationofConnect,anewstreamlinedclaimshandlingsystemandonlineclaimsportalforconsumers.ConnectisthesinglebiggestbusinessandsystemstransformationFSCShaseverundertakenandwillprovidethefoundationforFSCS’soperationsforyearstocome.Consumerswillbeabletomakeclaimsandchecktheirprogressonline.Connectwillalsodeliverimportantefficiency,scaleandcontrolbenefitstoFSCSbecauseclaimswillbedealtwithelectronically.Our outsourcepartners,whohandle

themajorityofclaims,willalsousethesameplatform,helpingto streamline processes.

Duringthecourseof2014,weidentifiedanumberofexistingandpotentialdesignandtestingissueswithConnectthatweneededtoaddress.Weknewthiswouldresultindelay,sowerevisedourplanandhavemovedourlaunchdateforConnecttoApril2015.Connectwillalsocostmorethanweexpected,althoughwehavecontainedthisadditionalcostwithinourbudgetfor 2014/15.Wehavebudgeted£3.6mforthenextphaseofConnect-whichwe’recallingConnect2-in 2015/16.

Thecounterpartofmodernisingourownclaimshandlingcapabilityisourwork,withourregulatorypartners,tofindnewwaysofdeliveringcompensationwhichsecurescontinuityofserviceforconsumers.Achequeinthepost,howeverswiftlydelivered,doesnot achieve that.

Withthisendinview,boththeindustryandconsumerswillbeinterestedinourworkin2015/16toimplementtheproposalscontainedwithinthePRA’sDepositorProtectionconsultationpaper(CP20/14)andPolicyholderProtectionconsultationpaper(CP21/14).

TheproposedchangeswithintheDepositorProtectionconsultationpaperincludeimprovementstoFSCSprotection:namely,additionalcoverfortemporaryhighbalancessuchastheproceedsofahousesaleorotherlifeevent;and,continuityofaccessbytransferringaccountsfromafailingfirmtoanotherprovider.

Alongsidethesechangestoprotection,weneedtoupdateourdatahandlingcapability.Specifically,wemustensurethatweareabletoverifytheSingleCustomerView(SCV)filesproducedbybanks,buildingsocietiesandcreditunionswhichunderpinFSCS’sabilitytocompensatedepositorswithinsevendaysinaresolution.WewillbeworkingonthedevelopmentsofSCVfilesandtheverificationprocesswiththebanksandbuildingsocietiesandwillbereachingouttothecreditunionsectortoo.

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FSCSalsoremainscommittedtopursuingrecoveriesinordertoreducethecostsofcompensationtolevypayers.Ourrecoveriesstrategyisworking.Thesignificantrecoverieswehavealreadymadedemonstratethis.InDecemberwegaveback£50mtofundmanagersfollowingthe2010failureofKeydata,andrecovered£1.36bnforFSCSandHM TreasuryfromtheestateofIcesave,oneoftheIcelandicbankstofailin 2008.

Finally,Iwouldliketotouchuponanotherimportantimperative:toengageourpeople.Inordertohelpsupportthisimperativeweidentifiedsixkeyobjectives;youwillfindthedetailsonpage30.Oneoftheseobjectivesrelatestolearninganddevelopment,soIampleasedtoreportthatwehavedeliveredmoreinthelastyearthanwehavedeliveredintheprevioustwoyears.

ThissuccessisreflectedinourannualPeopleSurveywhichshowedan11%increaseinemployeesatisfactioninthequalityofthelearningopportunitiesthatweprovide.Wewillcontinuetoinvestinourpeople.

IwouldalsoliketohighlightthatFSCShasbecomeactivelyinvolvedwithanumberofequalityprogrammesincludingOpportunityNow,RaceforOpportunity,StonewallDiversityChampionsand mostrecently,the30%Club.The 30%Clubaimstoincreasewomen’ssuccessatworkandcreateabettergenderbalanceforleadershipprogression.IrecentlyhadmyfirstsessionmentoringsomeoneanditwasfascinatingtotalkoverstrategiesandshareinsightsintothesuccessfulwomenleadersI’vebeenfortunatetoworkwith.

IamconfidentthecommitmentofFSCS’speopletoexcellentservice,alongwiththelaunchofConnect,willhelpusachieveouraimsinto2015/16andbeyond.

11%increase in employee satisfaction

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Connect programme will allow us to respond quickly, efficiently and accurately to consumer claims for compensation.

•Duringthepastyearwehaveinvestedagreatdealoftimeandeffortonthedesign,buildandimplementationofConnect.

•WeidentifiedanumberofissueswithConnectthatwehaveaddressedbyrevisingourplanandmovingourlaunchdatetoanewdateinApril2015.

•AspartofConnectwewilllaunchanonlineclaimsportalforconsumers.

•Akeyinvestmentof£3.6min2015/16willfundthenextphaseoftheConnectprogramme.

•AnimportantpartoftheConnectprogrammeinvolvedreorganisingourOperationsdivision.Wearealsorecruitingstaffwithnewskillswhicharemorecloselyalignedtoouroperationalchallenges.

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The levy

Since1April2014,exceptinthecaseofthedeposittakingclass,FSCShasbeenabletolevythegreaterofone-thirdofthenext36months’expectedcompensationcostsorthecostsexpectedoverthenext12monthsfromthe dateofthelevy.Thesecostsaresubjecttotheannualclassthresholds.This isthesecondyearFSCShasusedthe36monthfundingmodel.

FSCSexpectsthe36monthmodeltohelpreducethevolatilityofannualleviesandthelikelihoodofinterimlevies,sogivingtheindustrygreatercertainty.Ourapproach

isbasedlargelyonpastclaimsexperience,whichweadjusttoreflectcurrentclaimstrendsandmarketintelligence.Whensettingthelevy,FSCSreviewstheclaims

andcostsofthepreviousyearsandcomparesthoseagainsttheinformationavailabletoinformtheassessmentofcostsexpectedoverthenext36months.

£287mindicative annual levy for 2015/16

The36monthcompensationcostlevyhasafivestepprocessasfollows:

1.calculatetheaveragefigureforcompensationpaidbytheclassoverthe lastthreeyears;

2.identify,andadjustfor,anyinflatingorexceptionalfactorsinthelastthreeyears(wherethelevelofcostsisnotexpectedtoberepeated);

3.addcostsofknownorexpecteddefaultsforwhichclaimshavenotyetbeenpaid,buthavebeenidentifiedaspayableoverthenext36 months;

4.factorinanyneworcurrentupwardsordownwardsclaimstrendsexpectedoverthenext36months;and

5.accountfortheopeningbalancesforeachclass.

Managementexpensesattributabletospecificindustrysectorsarethenaddedtothefinalamountrequiredattheendofthefivestepprocess.Theforecastcostsformanagementexpenses,includingtheoutsourcingcosts,arecalculatedforthefollowing12months(not36months).EachyearthePRAandFCAconsultonFSCS’sannualmanagementexpenseslevylimit.

Theannuallimitonthelevythatcanberaisedoneachindustrysector–theclassthreshold–appliestoboththespecificcostselementofmanagementexpensesandcompensationcosts.Wheretheaggregatecompensationcostsandmanagementexpensesexceedaclassthreshold,theannuallimitcapapplies.

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Annual Levy 2015/16 Theindicative2015/16annuallevyamountsto£287m.Thiscomparestothe£276mfinallevyraisedin2014/15.WewillreviewandconfirmtheannualleviesinApril2015.

Our calculationsTobeabletolevyforthehigherof theexpectedcostsunderthe36 monthapproachorthetraditional12monthbasis,wecalculatedtheexpectedcompensationcostsonbothbases.Aspreviouslyexplained,weusea

fivestepprocesstocalculatethe36 monthcompensationcosts.In eachrelevantclasswehaveappliedthehistoricalthreeyearaveragecompensationcosts,exceptforlifeandpensionsintermediationandhomefinanceintermediation,wherethelevelofclaimswearereceivingindicatearisingtrend.Wehavethereforeupliftedthelevyamountforthoseclassestoreflectthistrend.Wehavenotdeductedfromthecalculationsanycostsforpastexceptionalitems.Figure 2setsoutthealternativefigures.andwetakethehigherofthetwo,exceptforinsuranceintermediation

wherewebelievethereisafallingtrendinclaims.Theamountsinfigure 2arethenadjustedforopeningbalances,managementexpensesandrecoveriesbyfundingclass.Theresultofthisisthefundingrequirementforthelevy.Thehighlightednumbersaretheindicativecompensationamountstobeleviedforin2015/16.Theeffectontheforecastfundbalancesfor2015/16ofraisingtheseamountsisshowninfigure3.Anysurplus/deficitcreatedbythislevywillthenformtheopeningbalanceofthecalculationfor2016/17.

Figure1:2014/15finallevycomparedwith2015/16indicativeleviesbyfundingclass

Funding classes 2014/15 final levy

(£ million)

2015/16 indicative levy

(£ million)

Variance

(£ million)

Deposits(SA01) 16 10 6

GeneralInsuranceProvision(SB01) 71 68 3

GeneralInsuranceIntermediation(SB02) 38 - 38

LifeandPensionsProvision(SC01) - - -

LifeandPensionsIntermediation(SC02) 33 57 (24)

InvestmentProvision(SD01) - - -

InvestmentIntermediation(SD02) 112 125 (13)

HomeFinanceIntermediation(SE02) 2 3 (1)

Basecosts 4 24 (20)

Total 276 287 (11)

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Claims assumptions InforecastingtheclaimstoFSCSoverthenext12monthswemakecertainassumptionsaboutclaims/defaultvolumesandtrendswherewehavesufficientinformationtoquantifytheexpectednumbers.Theoutsourcingexpenseswithinthemanagementexpensesarealsobasedontheseassumptionsaboutourlikelyfutureclaims.

OurassumptionsreflectourexperienceofcurrentclaimstrendsaswellasotherinformationfromtheFCA,PRA,theFinancialOmbudsmanServiceandtheindustry.Clearly,theseassumptionsmaychangeovertime.Recentyearshaveshownthatsomeunexpectedlargerfailureshavesignificantlyimpactedourestimates.Accordingly,wecontinuallymonitorclaimstrendsanddefaultprospectsandreviewandupdatetheseassumptions,tohelpusdeterminetheresourcesandexpensesrequiredtopaytheclaimsweexpectwithintargetservicelevels.

Weexpecttoseeareductioninoverallclaimsvolumesin2015/16,reflectinglowervolumesofnewPPIandmortgageendowmentsclaims.However,FSCSisseeingincreasingvolumesofclaimsinrelationtopensionsadvice,particularlyclaimsinrelationtoadvicetoinvestintoSelfInvestedPersonalPensions(SIPPs).Weexpectthistrendtocontinueandthereisconsiderableuncertaintyastotheamountofcompensationwemayhavetopayinrelationtotheseclaims.Investmentclaimsvolumesareexpectedtoreduce,asFSCS

Figure2:Forecastcompensationcostsbyfundingclass

2015/16 Funding class 12 month

forecast3 year historical

averageTrend Forecast Used

in Levy

Deposits(SA01) 4 n/a n/a 4

GeneralInsuranceProvision(SB01) 104 91 n/a 104

GeneralInsuranceIntermediation(SB02) 10 38 - 10

LifeandPensionsIntermediation(SC02) 51 27 50 51

InvestmentIntermediation(SD02) 107 120 n/a 120

HomeFinanceIntermediation(SE02) 1 1 2 2

Total 277 277 291

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Figure3:ForecastfundingrequirementsbyfundingclassFunding class Adjusted

Opening Fund Balance

01/07/2015 (£ million)

Compensation 1/7/15 – 30/6/16

(£ million)

Recoveries

(£ million)

Mgt exps 1/4/15-31/3/16

(£ million)

Annual Levy receipts 2015/16

(£ million)

Forecast Closing Balance

30/06/2016

(£ million)

Deposits(SA01) 9 (4) (15) 10 0

GeneralInsuranceProvision(SB01)

37 (104) 7 (7) 68 1

GeneralInsuranceIntermediation(SB02)

19 (10) (7) 0 2

LifeandPensionsProvision(SC01)

0 0 (0) 0 0

LifeandPensionsIntermediation(SC02)

0 (51) (6) 57 0

InvestmentProvision(SD01)

3 0 (0) 0 3

InvestmentIntermediation(SD02)

(4) (120) 13 (12) 125 1

HomeFinanceIntermediation(SE02)

(0) (2) (1) 3 0

Basecosts (2) (21) 24 1

Total 64 (291) 20 (69) 287 8

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Figure4:Claimsassumptions2014/15and2015/16

Sub class Default/Type of claim 2014/15 2015/16

Newclaimsassumptions

Estimateofcompletedclaims

Newclaimsassumptions

Estimateofcompletedclaims

SA01 Deposits* 5,584 5,585 10,000 10,000

SB02 InsuranceIntermediaries(incPPI,butexcludingWelcomeFinancialServicesLimited)

6,682 7,041 4,230 4,230

SC02 Life&PensionsIntermediation

4,958 5,194 5,407 6,207

SD02 InvestmentIntermediation

10,325 11,223 5,353 7,153

SE02 HomeFinanceIntermediation

559 490 600 600

Total claims* exc insurance payments 28,108 29,533 25,590 28,190

Notes: *Excludingmajorbankfailures

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resolvestheclaimsinrelationtosignificantrecentfailuressuchasCatalystandtheCFArchCrufunds.However,FSCSwillcontinuetobefacedwithasignificantnumberofvariedandoftencomplexclaimsinrelationtoinvestmentadvicegivenbyintermediaries.Wheretherecontinuestobevolatilityinclaimslevels,wewillfactortheseintoourassumptionsasnumbersbecome clearer.

Ourassumptionsaboutourlikelyfutureclaimsareshowninfigure4.

Deposits (SA01) Basedonourrecentexperienceofcreditunionfailures,weallowforasmallnumberofcreditunionfailuresintheyearahead.Ourassumptionsdonotprovideforthefailureofanyotherdeposittaker(s)althoughwehaveinplacetheappropriateplanstodealwithlargerdeposittakerfailuresifnecessary.

General insurance provision and intermediation (SB01 & SB02) WeexpectPPIclaimstocontinuetobeasignificantworkstreamforFSCSin2015/16butatreducinglevelscomparedtorecentyears.ThismirrorstheexperienceoftheFinancialOmbudsmanServiceandwiderindustry.Asaresultoffallingclaimsandahigheropeningfundbalance,wedonotexpecttoraisealevyagainstthegeneralinsuranceintermediationsectorin2015/16.

Forgeneralinsuranceprovisionweexpectthat2015/16willseeanincreaseincompensationcosts.OntheestatesofChesterStreet,BuildersAccidentInsuranceandIndependentInsurancewecontinuetoseeclaimscostsarisingfromsignificantlyincreasednumbersofnoiseinducedhearinglossclaims.Weexpectcompensationformesotheliomaclaimswillcontinueataratesimilartolastyear.We willalsocontinuetoreceiveclaimsarisingfromthe2012/13defaultsofMunicipalMutualInsuranceandLemmaInsuranceEuropeLtd,the2013/14defaultofMillburnInsuranceCompanyLtd,aswellastherecent2014/15defaultsofBalvaAASandEuropeanRisksInsuranceCompany.ThemajorityofourworkonBalva,EuropeanRisksInsuranceCompanyandLemmawillbeinrespectofclaimsarisingfromsolicitors’professionalindemnitypolicies.Weassumethatapproximately12,000newinsuranceclaimswillbemadein2015/16.For generalinsuranceprovision,FSCSisprimarilyresponsibleformakingpaymentstoclaimants,with claimsbeingprocessedbyrun-off agents.

12,000new insurance claims expected in 2015/16

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Life and pensions intermediation (SC02) FSCShasseenincreasingnumbersofclaimsagainstindependentfinancialadvisorsinrelationtolifeandpensionsadvice.Inparticular,weareseeingclaimsinrelationtoadvicegiventotransferfundsfromexistingpensionschemestoSIPPs.InmanycasestheSIPPfundwastheninvestedinrisky,non-standardassetclasses,manyofwhichhavebecomeilliquid.FSCS’sexperienceoftheseclaimsisconsistentwithwarningspublishedbytheFCAinrelationtoSIPPsandtheconductof somefirms.Thistrendisexpected to continuein2015/16.

FSCSexpectstoreceive5,407suchclaimsin2015/16,anincreasecomparedwith4,958suchclaimsexpectedin2014/15.However,thisisaprovisionalforecastbasedoncurrentexpectations,anditispossiblethatclaimscouldincreaseabovetheselevels.Inaddition,itispossiblethattheforecastcompensationcostscouldalsomateriallyincrease,particularlyintheeventthatFSCScompensationpaymentsincludeinvestmentlossesresultingfrompensionsadvicereceivedbyinvestors.Thiscould

haveasignificantimpactonthecostsfallingtolifeandpensionsintermediaries.FSCSwillkeepclaimantsandlevypayersupdatedondevelopmentswithimplicationsfor thelevy.

Investment provision and investment intermediation (SD01 & SD02) Claimsagainstinvestmentintermediariesareexpectedtoreduceinnumbersin2015/16asaresultoftheendofrecentsignificantwork-streamssuchasclaimsagainstCatalystInvestmentGroupLimitedandinrelationtoadvicetoinvestintoCFArchCrufunds.However,othertypesofinvestmentclaimswill continuetobereceivedinsteady volumes.

FSCSisnotcurrentlyexpectingclaimsinrelationtoinvestmentfundmanagementactivitiesinthenextfinancialyear.

Home finance intermediation (SE02) Wedonotexpectanysignificantincreaseinclaimsvolumesfortherestofthisyearandintothenext.Wemaintainsimilarassumptionsfor 2015/16.

5,407Life and pensions claims expected in 2015/16

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Management Expenses Management expenses budgetFigure5breaksdownFSCS’smanagementexpensesbudgetfor2015/16alongsidethebudgetfor2014/15andthelatestexpectedoutturnforthisyear.

Similartolastyear,wehavefurthersplitthe2015/16managementexpensesbudgetbetweenfirmsregulatedbythePRAandFCAinfigure6.

TheFSCSBoardhasapprovedamanagementexpensebudgetof£69.1mwhichis£5.5mlowerthanthe2014/15budgetand£4.8mlowerthanthelatestforecastfor2014/15.ThePRAandFCAareconsultingontheFSCSmanagementexpenseslevylimit.

Thekeydriversofthe2015/16budgetandfuturedirectionoftravel are:

• outsourcingcostsin2015/16include,forthefirsttime,anestimateofthecostsofhandlingclaimsagainsttheestateofIndependentInsurance,whichFSCSexpectstotakeoverfromtheadministratorduringthecourseoftheyear;

• downwardpressureonouroperational costbaseasourConnectinvestmentreducesoutsourcingcostsandenablesamodestfallinheadcount:transitionalcostsoffsetthisin2015/16,withthefullimpactofthistobefeltinfutureyears.;

• asubstantialreductioninStrategic Change investmentaswewinddowntheinvestmentinenhancedcapabilityandscalabilitythatbeganin2010withourinvestmentinfastpay-outfordepositsandreachesapeakthisyearwithour investmentinConnect;and

• afallofaround£4minspendingonMajor RecoveriesforourcontinuedlitigationagainstIFAsresponsibleformis-advisingconsumerstobuyKeydata products.

£4mfall in spending on major recoveries

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Figure5:Managementexpensesbudget

2014/15 Budget (£ million)

2014/15 Forecast (£ million)

2015/16 Proposed Budget (£ million)

Continuing Operations

-Staffcosts 16.4 15.9 16.5

-Contractorcosts(non-Change) 0.9 2.1 1.2

-Pensiondeficitfunding 1.6 1.6 1.6

-Facilities 2.2 2.2 2.1

-IT 2.4 2.2 3.3

-Communications 4.1 4.1 4.2

-Legal&Professional 2.9 2.7 2.6

-Externalproviders 0.7 0.8 0.8

-Other 0.3 0.3 0.3

-Contingency 0.3 0.9 0.3

Subtotal 31.8 32.8 32.9

Outsourcedclaimshandling 11.0 10.3 12.1

Outsourcedprinting&scanningservices 0.5 0.9 0.9

Operational total 43.3 44.0 45.9

StrategicChangePortfolio 16.3 18.5 12.4

Operational & Investment Expense total 59.6 62.5 58.3

Bankcharges 4.9 4.1 4.8

Interestreceived 0.0 (0.1) 0.0

KeydataInvestmentServicesLimitedrecoveryexpense

7.2 4.4 3.0

MajorbankingfailurerelatedManagementexpenses

3.0 3.0 3.0

Total Management expenses 74.7 73.9 69.1

Non-leviedReserveforMajorFailure 5.3 5.3 5.3

Total Management Expense Levy Limit 80.0 79.2 74.4

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£3.6minvestment in the Connect programme in 2015/16

Allocation to funding classesTheFSCS2015/16ManagementExpensesbudgetissplitbetweenthePRAandFCAindustrysectorsorfundingclasses.Allcostshavebeenidentifiedaseither“specific”or“base”costsandallocatedtothe relevantsectors.

Thebasisofthecostallocationis as follows:

i. coststhatarewhollyattributabletoatypeofbusinessareallocatedtothatspecificsector;

ii. overheadcostsaresplitbetweensector-specificonthebasisoftheproportionoffrontlinestafffulltimeequivalents(FTE),andbasecostsontheproportionofsupportstaffFTE.Thesector-specificoverheadcostsarethenallocatedacrosstheclassesusingtimesheetdata;and

iii. totalbasecostshavebeensplit50:50betweenthePRAandFCA(whowillthenapplytheiroverallclassallocationmatrixtospreadbetweentheirfeeclasses)inaccordancewiththeFEESrules(HandbookSection6.4.5).

2015/16 Strategic change portfolio – improving FSCS’s effectiveness and efficiencyFSCSiscontinuingtoinvestinitsbusinesstoenableittocarryoutitsfunctionsmoreeffectively.

Ofatotalof£12.4m,thekeyinvestmentof£3.6min2015/16willbethenextphaseoftheConnectprogramme.TheConnectProgrammehadlifetimeexternalcostasapprovedbytheBoardsubcommitteeinAugust2013of£12.2m.Thisincreasedto£15.7mduring2014duetoadditionaldesignrequirementsandthecurrentpredictedspendontheprogrammeis£20.4m.Thisincorporatesdocumentscanningandtransmission,increasedtestingandstreamliningthedataexchangewiththeoutsourcers.ThisisbeingfundedbysavingsandcontingenciesinotherprojectsandthereprioritisationofworkcombinedwithlowerspendonKeydataandotherrecoveryexpenditurewhichhasnotmaterialisedthroughouttheyear.Asmentionedelsewhereinthisdocument,thefirstphaseisnowplannedtogoliveintheSpring of 2015.

Theothermainfocusin2015/16willbeontheneedtoimplementtheDepositGuaranteeSchemesDirective(DGSD).This includesthecompletionoftheprojecttobringin-housetheverificationofSCVfiles.Theseprovideasingle,consistentviewof eacheligibleclaimant’saggregateprotecteddepositswiththerelevantfirmandcontaintheinformationrequiredbytheCompensationrulesinthePRAHandbook(COMP).Thiswillenableustoprovideabetterservicetobanks,buildingsocietiesandcreditunionsatlowercost.

Provisionhasalsobeenmadeforcertainnewinitiatives(e.g.theintranetupgradeandtheHRandFinancesystemsupgrades)thatrequirefurtheranalysisandafullbusinesscasepriortoFSCSBoardapproval.Thesebusinesscaseswillincludevalue-for-moneyassessments,withcarefulappraisalandcorrectprojectgovernanceensuringthemostappropriatepathistakenduringtheimplementationoftheproject.

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Figure6:SplitofManagementExpensesfor2015/16

FSCS PRA FCA

Base costs total (£ million) 21.0 10.5 10.5

Specificcosts

-Deposits(SA01) 14.8 14.8 -

-GeneralInsuranceProvision(SB01) 7.2 7.2 -

-GeneralInsuranceIntermediation(SB02) 6.7 - 6.7

-LifeandPensionsProvision(SC01) 0.3 0.3 -

-LifeandPensionsIntermediation(SC02) 5.6 - 5.6

-InvestmentProvision(SD01) 0.3 - 0.3

-InvestmentIntermediation(SD02) 12.4 - 12.4

-HomeFinanceIntermediation(SE02) 0.8 - 0.8

Specificcoststotal 48.1 22.3 25.8

Total 69.1 32.8 36.3

Figure7:Comparisonof2014/15levieswithforecastleviesfor2015/16

Actual Levies for 2014/15 Forecast Levies for 2015/16

Defaults Loan interest cost

(£ million)

Capital Levy

(£ million)

Total Levy

(£ million)

Loan interest cost

(£ million)

Capital Levy

(£ million)

Total Levy

(£ million)

Icesave 11 125 136 6 - 6

KSF 9 127 136 5 91 96

Heritable 1 8 9 0 - 0

LSB 3 39 42 1 - 1

Dunfermline - 100 100 - 256 256

B&B 422 - 422 391 - 391

Total 446 399 845 403 347 750

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£5.3mproposed reserve for 2015/16Major recoveries expenses – reducing the costs of the levyTheSchemeactivelypursuesopportunitiestorecoverthecostsofcompensationwhereveritispossibleandcost-effectivetodoso.KeydataInvestmentServicesLimitedrecoverycostsareestimatedtobe£4.2mlowerthanthecurrentyear’sbudgetat£3.0m.FSCScontinuestopursuerecoveriesfromintermediariesinvolvedinthesaleofKeydataproductstomitigatethecostsofcompensationtolevypayers.Significantrecoverieshavealreadybeendelivered.FSCSconsidersthatcontinuingactionwillbenefitlevypayers.

In2008/09,theSchemepaidoutsome£20.4bntocompensatecustomersinrespectofthefivemajorbankfailures:BradfordandBingley(B&B);Icesave;KaupthingSinger&Friedlander;Heritable;andLondonScottishBank.ThiswasfundedbyborrowingfromHMTreasury,whichFSCSisrepayingwithinterest.

Followingrecoveriesandinitialcapitalrepayments,thebalanceof theseFSCSloansisapproximately £15.8bn.

Onpage22,weprovideanupdateontherecoveriesfromthesefailures.

Thebudgetforrelatedmanagementexpensesisbeingheldat£3.0m,whichisthesamelevelas2014/15,tocovercontinuingworkonthese estates.

Non-levied reserve for major failureTheManagementExpensesLevyLimit(MELL)includesanadditionalnon-leviedreserve,withinwhichtheSchemecanincreaseourmanagementcostswithoutfurtherconsultationinresponsetounforeseenfailures.Thisreserveisnotleviedontheindustryunlessinresponsetoamajorcrisisorurgentneed.Theproposedreservefor2015/16hasbeensetat£5.3m,whichisthesamelevelas2014/15.

Thereserveleveldoesnotreflectthespecificorknowncostsofanyparticularfuturefailures.Itisindicativeoftheshorttermcostsof,forexample,dealingwithlargedefaults,withintighttimeframesinanuncertainfinancialclimate.

Wedonotexpecttoraisemorethanourbudgetedexpenses,unlessthereisaspecificeventoreventsthatrequireustodoso.Inlinewithourusualpractice,wewillinformtherelevantparties,suchasthePRAandFCA,beforeraisingalevyagainstthis reserve.

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Major banking defaults levy Themajorbankingdefaultlevyisforecasttobe£750mfor2015/16(£845min2014/15).Thisisbasedonanumberofassumptionsdetailed below.

In2014/15theloaninterestaccruedisforecasttobe£403m,whichwillbeleviedin2015/16.Undertheloanarrangementswhichcameintoeffectfrom1April2012,theratesusedtocalculatetheloaninterestaresubjecttoafloor.The floorissetatthehigherof(a)theDebtManagementOffice(DMO)Giltreferencerateforagiltofasimilarmaturity(andisselectedconsistentwiththemethodologypreviouslypublishedonourwebsite),and(b) 12 monthGBPLIBORplus1 percent

2015/16willbethethirdandfinalyearthatFSCSwillraisealevytorepaythecapitalofthenon-B&BloansfromHMTreasury.Thesearedueforrepaymenton31 March2016.Wehavepreviouslylevied£363min2013/14and£299min2014/15topartiallyrepay these loans.

InDecemberwerecoveredatotalof£1.36bninadditionaldividendpaymentsfromtheIcesaveestate,increasingtherecoverytoalmost85%.FSCS’sshareofthiswas£435mwiththebalanceduetoHMTreasury.Afterallowingforthecapitalrepaymentsalreadylevied,thisenabledFSCStorepayalltheoutstandingcapitalonIcesave,as wellastheHeritableandLondonScottishloans,andpartoftheKaupthingSinger&Friedlander(KSF) loan.Accordingly,in2015/16wewillneedtolevyabout£91mtorepayKSFbytheduedate,basedonourestimateofdividendsthatmaybereceivedbetweennowandMarch2016.Ifthedividendswereceivearehigherorlowerthanexpected,wewillneedtoadjusttheamountwelevyonthisandtheotherlegacy estates.

ForDunfermline,FSCSisrequiredtopayacontributiontothecostsoftheresolutionin2009.Theindustrywillbeawarethatwehaveprovided£552minouraccountsforthesecosts.£100mhasbeenleviedandpaidtodate.Weareawarethattheadministratorsareworkingontheclosureoftheestateandoncethefinaldividends

tocreditors,in particularHMTreasury,areknown,theamountofFSCS’scontributiontothecostsofresolutioncanbefinalised.AtthattimeFSCSmaybeaskedtopaythebalanceofcosts,lessanyinterimpaymentsmade.Althoughthetimingremainsuncertainthereisastrongprospectofthecontributionbeingpayableinthenextcoupleofyears.FSCSthereforeproposestolevyforaboutonehalfoftheestimatedoutstandingamountineachofthenexttwoyears-sothatthe2015/16levywillincludeabout£256mwhichwillbeofferedasaninterimpaymentagainstthefinal contribution.

Thetotalamountoftheforecastmajorbankingfailurelevyof£750mtobeleviedin2015/16(£403minterest,£256mDunfermlinecontributionand£91mcapitalshortfall)isthereforebasedonanumberofuncertainfactors.The finalamountswillnotbeconfirmeduntilthesummerof2015.Wewillkeeptheindustryinformedofdevelopmentswhichmayimpactthelevy.Asbefore,thelevywillberaisedinJuly/August2015forpaymenttoHMTreasuryby 1 October2015.

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Figure9:Forecastrecoveryranges(latestassumptions)

Final recoveries expected 2015/16 Forecast 2014/15 Forecast

Defaults Final Recovery

Range

%

Recovery Rate Used In Model

%

Capital Shortfall To

Be Levied

(£ million)

Recovery Rate Used In Model

%

Shortfall To Be Levied

By 31/3/16

(£ million)

Recovery Rate Used In Model

%

Shortfall To Be Levied

By 31/3/16

(£ million)

Icesave 90-100% 95% 72 85% 308 70% 432

KSF 85-86.5% 85% 386 84% 386 85% 387

Heritable 94-100% 95% 15 95% 15 95% 23

LSB 52-58% 55% 79 55% 79 50% 119

Dunfermline n/a n/a 577 n/a 356 n/a 200

B&B 100% 100% 0 0 0

Total 1,129 1,144 1,161

Figure8:Majorbankingfailureloans

Defaults Drawdown to 31/12/14

(£ million)

Recoveries to 31/12/14

(£ million)

Recoveries received to

31/12/14 %

Capital Levy in 2013/14

(£ million)

Capital Levy in 2014/15

(£ million)

Loan balance at 31/12/14

(£ million)

Icesave 1,441 1,234 85% 183 125 -

KSF 2,581 2,142 83% 133 127 165

Heritable 465 437 94% 7 8 -

LSB 237 98 42% 40 39 -

B&B 15,654 - 0% - - 15,654

Total 20,378 3,911 363 299 15,819

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Update on seven imperatives

Howwe’redoingandwhatwe’llachievein2015/16

a. Modernising our service to consumersClaimant experience strategy HowclaimantsexperiencetheSchemeisofprimaryimportancetous.Itisattheheartofourmissiontoprovidearesponsiveandefficientclaimsservice.Ourstrategyincludesasetofprinciplestodriveourdesignanddeliveryofourclaimsprocesses.Thesecover:

• focusingourclaimantexperienceonminimisingunduestressasclaimantsgothroughaclaim;

• engagingourpeopleanddevelopingourcultureinprovidingadeliberateclaimantexperiencethatisprofessional,trustworthyandfair;

• consideringclaimantneedsindevelopingthechannelsweusetocommunicatewiththemwhilemaintainingvalueformoney;

• understandingtherequirementsofclaimantswithadditionalneeds;and

• measuringandreportingtheclaimantexperiencetomonitorperformanceagainstourstrategyandtosupportimprovementsinourservice.

Wehavedevelopedanewclaimantfeedbacksurveytomeasuremoreaccuratelyhowwearedoing.ThestrategyandunderlyingprincipleshavebeencentraltotheprocessredesignwhichisbeingdeliveredthroughourConnectprogramme.

Meeting our service standards Ourtoppriorityin2015/16istoprovidearesponsiveandefficientservicetopeoplewhohavelostmoneyasaresultofthefailureofaregulatedfinancialservicesbusiness.

OurcurrentservicelevelsreflectourunderstandingofwhatconsumerswantofFSCS,aswellasthepracticalconstraintswefaceindealingwith claims.

Wesetdifferenttargetservicelevelsfordifferentactivitiesandtypesofclaims.Wherepossible,wegiveprioritytopeoplewhomaybefacinghardshipwhenmakingaclaim.Many factorsaffectourturnaroundtimesforclaims.Theyincludethetypeofclaim,itscomplexity,theruleswehavetoapplyandwhetherwehavetowaitforinformationfromthirdparties(suchasliquidatorsorotherproviders).

During2015/16wewilllooktoreviewtheservicestandardswithaviewtomakingchangesfortheyear2016/17.ThiswillreflectthedeliveryofourConnectprogramme.

90%compensation paid within 10 working days of acceptance of an offer

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Figure10:Ourcurrenttargetservicelevelsfor2015/16

Activity Claim Type Service Standard

AnsweringTelephoneCalls All 80%within20seconds95%within90seconds

RespondingtoComplaints All 90%within20workingdays

RespondingtootherCorrespondence All 90%within10workingdays

SendingApplicationForms Deposits Notapplicableasapplicationformsarenotusedfordepositclaims

Non-deposits 90%within5workingdays

ConfirmingClaimDecisions Deposits Majorityofcompensationwithin20workingdays(target7days)

WelcomeFinancialServicesLimited

90%ofclaimswithin8weeksofreceivingacompletedapplicationform

PPI 90%ofclaimswithinthreemonthsofreceivingacompletedapplicationform

Other 90%ofclaimswithinsixmonthsofreceivingacompletedapplicationformOftheremaining10%,noclaimsshouldbeolderthan12 months,unlessexceptionalcircumstancesapply

MakingCompensationPayments 90%within10workingdaysofacceptanceofacompensationoffer(whereapplicable)

Connect programme OurConnectprogrammewillachieve bettercustomerserviceatthesametimeasimprovingoperationalefficiencyandeffectiveness.This will benefitbothconsumersand levypayers.We are redesigningand

standardising ourclaimshandlingprocessesanddevelopingonlineservices.Thiswillallowpeopletocompleteapplicationsonlineandgivethemmorechoiceswheninteractingwith FSCS.

Specifically,theConnectprogrammewillallowusto:

1. respondquickly,efficientlyandaccuratelytoconsumerclaimsfor compensation;

2. ensurethattheSchemeoperatesascostefficientlyaspossible;and

3. bereadytorespondtodefaultsinthefinancialservicesindustrytoprotectconsumersandfinancial stability.

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2014sawtheConnectprogrammeprogressthroughdesignandbuildphasesintotesting.Wehavejustcommencedthefourthphaseoftheprogramme,implementation,andareaimingtogoliveinApril2015.Goinglivewillnotonlymeantheabilityinternallytooperateonthenewplatformwithnewprocesses,butalsoprovidethesamecapabilityforourbusinessprocessoutsourcers(toberolledoutaftergolive).Mostimportantly,golivewillalsomeanthelaunchofouronlineclaimssystem.ThiswillallowclaimantstointeractwithFSCSelectronicallyandtosubmitclaimsonlineforthefirst time.

Inpreparationforgoinglive,FSCShasstartedtoreorganiseitsstructure.Recruitingthepeopleweneedtocompletetheneworganisationisalreadymorethanninetypercentcomplete.A number ofpeoplehavealsolefttheorganisationandwethankthemfortheirserviceandwishthemwellforthefuture.

SincetheNewYear,wehavebeenconductingoperationalreadinessactivitieswith‘dry-runs’ofthenewprocessesandplatform,andtheneworganisationalstructure.Thatstructurewillbeattheheartofourcapabilitytodelivertheefficientandfirst-rateclaimantexperienceforwhichConnectwasconceived.

b. Diversifying how we deliver compensation to provide maximum convenience and continuity for consumersDuring2014FSCSworkedcloselywiththeUKAuthoritiesonthedevelopmentofthePRA’sdepositorprotectionandpolicyholderprotectionconsultationwhichopenedinOctober2014,andclosedon6January2015.FSCSawaitstheoutcomeoftheconsultationandtheexpectedpolicystatementsduring 2015.

TherecastDepositGuaranteeSchemeDirectivewillintroducerequirementsforbothFSCSanddepositfirms,includingamovetosevenworkingdaypay-outfordepositorswithintheSCVfileby 2023.

Otherchangesproposedwithinthe DepositorProtectionconsultationpaper(CP20/14)relatetocontinuityofaccess.TheproposedrequirementsforfirmsareintendedtoensurethatcontinuedaccessfordepositorstoFSCS-covereddepositsremainsfeasibleintheeventofthefailureofafirm.FSCSwillcontinuetoworkwiththePRAandtheResolutionDirectorate

attheBankofEnglandonsupportingtheBankofEngland’sobjectivesforexecutinganorderlyresolutionunderthespecialresolutionregime.

ThePolicyholderProtectionconsultationpaper(CP21/14)setsoutanumberofproposedchangestotherulesforinsurancepolicyholderprotection.The proposalswereaimedatincreasingthefutureoperationaleffectivenessofFSCSinprovidingcontinuityofcover,paymentofbenefitsfallingdueandcompensationintheeventofafailureofafirm.WearealsokeentopickupanylessonsorissuesfromtheinternationaldebateoninsuranceresolutionofbothsystemicinsurersandgenerallyforFSCS’sroleinbothprovidingcontinuityforpolicyholdersaswellasclaimssettlement.

FSCSexpectstocontinuetoworkcloselywiththeUKAuthoritiesduring2015/16onimplementingtheproposalscontainedwithinthedepositorprotectionandpolicyholderprotectionconsultation papers.

AsHMTreasurydevelopsitsresponsetothe“Bloxhamreport”recommendationsforthespecialadministrationregimeforinvestmentfirms,weshallassistwiththeAuthoritiesontherecommendationsthatimpact

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FSCS.WeshallalsocontinuetokeeptheCOMPRulesunderreviewgenerallyforimprovementstothehandlingofclaimsanddeliveryof compensation.

c. Raising awareness of FSCS protection to boost confidenceBuilding confidence and stability through awarenessConsumerconfidenceisvitaltocompetitivemarkets,aswellasahealthyeconomy.Thusconsumerconfidenceiscentraltofinancialstability.ThatiswhyourvisionincludesanimperativetoraiseconsumerawarenessoftheprotectionFSCSprovides.IndependentresearchshowsthemoreawarepeopleareofFSCS,themoreconfidenttheyareandthemorelikelytobuyproducts.

Ourfocusin2014/15isondeposits.That’sbecausethisareatouchesalmosteveryone’sliveseveryday.Wewillcontinuetofocusonbanks,buildingsocietiesandcreditunionsin2015/16aswesetoutbelow.Only thedepositsclassfundsthecostsofthecurrentconsumerawarenessprogramme.

WereportregularlytotheFSCSBoardonconsumerawarenessandthekeyperformanceindicatorsforourprogrammeandwidercommunications.They,alongwith

ourConsumerAwarenessAdvisoryPanel,helptomakesurethatweheadintherightdirection.Wehavemadesoundprogresstowardsdeliveringourvisioncommitmentsin2014/15.

Chiefamongtheseishittingourgoalofachieving70%awarenessofFSCSoraprotectionschemeby2019.Awarenesscurrentlystandsat63%ofalladults,accordingtoindependentresearchbyGFKNOPduring2014.Thisfigurerisesupto76%forthosepeoplewhorecognisethecampaign;ithits71%forthosewhorecogniseourin-branchmaterials.SoallofourchannelsareworkingtogethertoboostawarenessofFSCSprotection.

Inthecurrentyearwehave:

1. introducednewcreativedesigns;

2. developedthebadgefortheindustrymaterials;

3. updatedouraudienceresearch;

4. launchedthenextphaseoftheprogrammeworkingwiththeMail Online,andcertainpersonalitiestoenhanceandpromoteFSCS relevance;

5. establisheddigitalmediaincludingshortvideos.

Wehaveretainedthesamebudgetfornextyear.Wearecurrentlydevelopingourstrategyfornextyearbutanticipatethebroadshapeandscopeofitmaybesimilarto

2014/15.Thismeansstrivingtoengagepeoplewithourmessageusingarangeofchannels,especiallydigital,whichworkwellforFSCS.

ProvidingsoundinformationtoconsumersaboutFSCSprotectionfortemporaryhighbalancesandpensionswillalsofeatureinourworkin2015/16.TheformerresultsfromtheDGSDandthelattercomesfrompensionchangesfollowingthe budget.

ThereisapowerfulroleforfirmstoplayinexplainingFSCSprotectiontoconsumersatthetimewhenitismostrelevantforthem.Andthat’swhenpeopleareconsideringinvestingtheirpensionpotorwhentheyhaveatemporaryhighbalance.

Inbothcases,ourstrategyisputting astrongemphasisonpartnershipaswellasonlineinformation.Weplantoprovidethe detailedinformationconsumersneedworkinginpartnershipwiththe industryand others.

Fortemporaryhighbalances,thechallengeistostrikeabalancebetweenpointingpeopletotheinformationtheyneedwhilenotunderminingthe£85,000limitmessage.Weareworkingcloselywithourpartnersathomeandabroadtodothis.ThisincludesworkingwithotherEuropeanschemestodevelopconsumercommunications.

63%adult awareness of FSCS or a protection scheme

28

Wehaveproducedourmessagesfortemporaryhighbalancesandaredevelopingthematerialstosupportourcommunications.Wehavedonethesameforthepensionarea.

Thereispotentialforconsumermisunderstandingaboutthepensionchangesaswell.DependingonthechoiceaconsumermakesthelevelofFSCSprotectiontheyhavewill vary.Forexample,iftheydecidetobuyanannuity,theinsurancelimitwillapply.Ifaconsumerputstheirpensionpotinabank,buildingsocietyorcreditunionaccountthedepositlimitwillapply.

Onceagain,weareworkingwithotherorganisationssuchastheMoneyAdviceServicetohelpeducatepeopleaboutFSCS.They,andyou,havethedirectcontactwithconsumersthatcanmakearealdifference.Workingwiththeindustrywillagainbekeysothatpeoplegetgoodinformationatthepointatwhichtheyconsiderwhattheymightdowiththeirpensionpot.FSCSwillalsopublishinformationonlineforconsumersanddrivethemtoitfromGoogle.

ItisworthnotingherethatFSCSisnotplanninganyradio,pressordigitaldisplayadvertisingforeitheroftheseareas.

Duringthecomingyearwewillalsodevelopinmoredetailourplansforexpandingourconsumerawarenessworkintotheinsuranceandinvestmentareasinthefuture.Atthisstage,itistooearlytopredicttheshapeofthiswork.However,weexpectitwillemphasiseworkingwithindustry.Advertisingandmarketingmaynotbethebestoptionforthisimportantarea.

Working with the industry to build awarenessOurworkwithindustry,tobuildconsumerawarenessandunderstanding,iscriticalforFSCStodeliveritsmission:tobeawell-understoodservice,whichraisespublicconfidenceintheindustry.

During2014,aspreviouslymentioned,wedevelopedanewFSCSbadgeforusebytheindustryonsimpleproductsthatFSCSprotectssuchascurrentaccounts,savingsaccountsorcashISAs.TheFSCSbadgeisalreadybeingusedinFSCS’sownadvertising.Wearenowfinalisinganupgradetoallourmaterials,fortheindustrytouseinallchannelsincludingmobileapps,websites,andtherequiredin-branchmaterials.WewillreleaseallthenecessaryartworkonourwebsitesoonafterthecurrentDepositerProtectionconsultationpaperisreleasedasapolicystatement,during2015.

Aswehavealreadymentioned,ourresearch,conductedbyGfKNOPduring2014showedthatthepresenceofFSCSinbank,buildingsocietyandcreditunionbranchesaddedsignificantlytooverallawarenessofFSCS.ItshowedthatapproximatelyonethirdofFSCSawarenesswasdrivenbytheindustry,withanotherthirdcomingfromouradvertisingandthefinalthirdfromourPR.

Withthesenewmaterialsin2015,wearealigningindustryandawarenessprogrammematerials,socustomersrecogniseFSCSprotectionwhethertheyseeitin-branch,inanewspaper,orhearaboutitontheradio.

Wearealsoupdatingoure-learningmodule,incorporatingthechangesduetoDGSD,totrainfront-linestafftoprovideaccurateinformationaboutFSCS.Mysteryshoppingshowsthereisstillmuchroomfor improvementonthis.

Wewillcontinuetoworkcollaborativelywithfinancialservicesfirmstobridgeinformationgapsandhelpbringreassurancetocustomers.Thisinturnhelpstorestoretrustinfinancialservices.We needthesupportoffirmstobuildtheawarenesswhichiscriticaltoconsumerconfidence.

29

Threekey areas for improving accountability and transparency

d. Improving value for money (VFM) to drive value and strengthen accountabilityFSCSisrequiredbytheFinancialServices(BankingReform)Act2013tohaveregardtotheneedto“ensureefficiencyandeffectivenessinthedischargeof[its]functions”aswellasaneedto“minimisepublicexpenditure….forthepurposesoftheScheme.”

AVFMstrategyhasbeenadoptedduringtheyearwhichfocusesondrivingaccountabilityandtransparencyacrosstheSchemeandweshallcontinuetodevelopthisfurtherthroughout2015/16focusingonthreekeyareas.

Firstly,weshallapplythevalue-for-moneytesttomajorstrategicdecisions.WecontinuetojudgethatoutsourcingthegreatmajorityofclaimsrepresentsthebestvalueapproachforFSCSgiventhevolatilityofourworkloadbecauseittransfersthevolumerisktoorganisationsbetterplacedtoabsorbit.Weshall,however,keepthisdecisionunderreviewtoensureitisstillappropriateasthecomplexityofourclaimschange.

Secondly,wearereviewingallbusinessasusualactivitiestoensureVFMisadheredtoindaytodayworkinglife.Thisinvolvesreviewingallourprocessesandprocedurestoensuretheyareperforminginthemosteffectiveandefficientmanner,alongsideformulatingbenchmarksandmetricstomeasuretheoutputs.Inadditiontothis,weareraisingawarenessbyencouragingstafftotalkaboutandbecuriousaboutwhatVFMmeanstothemandstarttochallengehowthingscanbedonetothegreaterbenefitofclaimantsandourstakeholders;thishasbeenevidencedinthisyear’sbudgeting round.

Finally,buyingbetterandmanagingsupplierrelationshipsisanimportantareaofvaluefortheSchemeasabouttwothirdsofthemanagementbudgetisspentwiththirdparties.Thishasbeenachievedbystrengtheningourprocurementpolicy,processesandthewayweinteractwithoursuppliers,togetherwiththeintroductionofcategorymanagementstrategies.

TheoverallimpactoftheseandotheractivitiesistodemonstratehowFSCSusesitsresourcesinavalueformoneyway.

e. Achieving excellence as a creditor to maximise the value we recover from failed businessesMakingrecoveriesisacoreFSCSfunction,andtheindustryrecentlyreceivedthebenefitofrecoveriesattributabletoKeydataclaims.FSCShasmadesignificantprogressinitscourtproceedingsagainstalargenumberofIFAfirmsinconnectionwiththesaleofKeydataInvestmentServices’financialproducts.Todate,FSCShasachievedconfidentialsettlementswithalargeproportionofthedefendantsintheproceedingswhohaveelectedtosettletheclaimsagainstthemforvariousreasons,andinturnFSCShasmadesubstantialrecoveriesforitslevypayers.FSCSiscontinuingitsclaimsagainsttheremainingdefendantstomaximisetheprospectsforadditionalrecoveriesandFSCSremainsoftheviewthatithasgoodclaimsagainstthesedefendants.Agroupofremainingfirmshasbeenidentifiedasthe“leadcasedefendants”andafurthercasemanagementmeetingshallbescheduledonorafter23 March2015,atwhichtimeitisanticipatedtheCourtwillsetthetimetabletotrial.

30

FSCSisalsopursuingandremainsalerttorecoveryopportunitiesacrossitsportfolio,whetherininsolvencyproceedingsand“exit”options,orforparticularproductswherethirdpartiesmayshareresponsibilityforclaimants’ losses.

f. Deepening contingency planning to be ready to respond effectively to crisesTohelpensurethatwemeetoneofourkeyvisionimperativesofdeepeningcontingencyplanning,weworkcloselywiththeAuthoritiestoidentifyandrespondtoemergingrisks.Thisworkismostdevelopedinthedepositsector,withFSCSinvolvementattheappropriatestagesofresolutionandcontingencyplanning,therebyprovidinggreaterassurancethatweremainreadytorespondquicklyandefficientlytoafailure.FSCShasagreedcontingencyplans,protocolsandworkingarrangementsinplacewiththeAuthoritiesincludingclarityoftherolesandresponsibilitiesofthedifferentAuthoritiesduringaresolutionprocess.FSCSiscloselyinvolvedwithitspartnersintheon-goingdevelopmentofresolution

planningoptionstoensurethemostappropriateoutcomesforconsumers,withminimumdisruptiontotheirabilitytoaccesstheirmoney.

WorkcontinueswithourpartnerstomakesurethatprocessesandcontingencyplansaredevelopedandtestedacrossthefullrangeofFSCSprotection.InadditionattentionisbeinggiventoimprovingFSCS’sdisasterrecoveryprovision.Theseactivitieswillreinforceourabilitytorespondtofailureandensurethatintimesofstress,thereisnodoubtaboutroles,responsibilitiesandresponsivenessoftheimportantsafetynetthatFSCSprovides.

g. Engaging our people and our organisation to be even more agile and professionalAsreportedlastyear,ourBoardapprovedourPeopleandOrganisationalDevelopmentStrategyfor2013to2016tohelpsupportthiskeyimperative.Weidentifiedsixkeyobjectivesagainstwhichwearetrackingourprogress.Ouraimsfor2015/16inrelationtotheseareoutlinedhere.

Organisational development–ThemainfocusofourworkagainstthisobjectivewillbetoensurethesuccessfulimplementationoftheConnectProgrammein2015.A reorganisationoftheOperationsDivisionduringtheyear,alongwiththerecruitmentofstaffwithnewskillssets.AsaresultofthisreorganisationanumberofpeoplehavealreadylefttheScheme.Thenewstructurewillbeinplacethismonth,andwillbebuiltaroundourendtoendprocesses.During2015/16wewillexplorehowweimplementtheseorganisationaldesignprinciplesacrossthewiderorganisationtoenableittobemoreagileandresponsivetofuturedemandsandminimisekeypersondependencies.

Management development–ThisisdesignedtoprovideacohesiveandconsistentapproachtomanagementacrossthedifferentservicesatFSCS.Akeydeliverablehasbeenthedevelopmentandlaunchofournewcompetencyframework.WeworkedwithCEBSHLtodeveloptheirownuniversalcompetencyframeworkforFSCS.InthecomingyearwewillcontinuetorolloutnewinterventionsincludingagreaterfocusonTraintheTrainer–usingourmanagerstodeliveranddeveloptrainingtobuildmanagement

31

capability;theuseoftheInstituteofLeadershipandManagementprofessionalqualificationframeworkandextendingourCoachingCircles programme.

Learning and development–OurcorelearninganddevelopmentprogrammeisdevelopedinconsultationwithManagersandisa complementaryapproachblendingbothtraditionalmethods(training)withincreasedlearningopportunitiessuchascoaching,mentoring,and e-learning.SincelaunchingourstrategyinJune2013onaverageeveryemployeehasenjoyedthreedaystrainingperannum.OurPeopleSurveyshowedan11%increaseinemployeesatisfactionwiththequalityofthelearningopportunitiesthatweprovide.In 2015wewilllaunchFuse–ournewdynamice-learningenvironment.Fusecombinessociallearning,performanceandworkplacesupport;distributedmentoringandcoachingalongwithformal,fullytrackedlearningpaths.

Recognition and reward–HumanResourcesundertookacomprehensivemarketpayreviewofsalariesacrosstheScheme.WehavealsocompletedanEqualPayAudit.Wehavemostrecentlycommissionedananalysisofourbenefitsexpenditureandhowwecouldmaximisethereturnonthis

investmentwhilstincreasingtheamountofchoiceavailabletoouremployees.Inthecomingyearwe’llbeputtingthisintopracticeandrollingoutanonlineflexiblebenefitsportalandtotalrewardstatements.

Talent management–We attendedandfacilitatedtalentmanagementdiscussionsacrossallthedivisions.Thishasenabledustobuildacomprehensivetalentmapofthewholeorganisationforthefirsttime,andidentifyandagreeactionstosupporttheirdevelopment.Inthecomingyearwe willworktoprovideawiderrangeofsecondmentopportunitieswithotherorganisationsincludingtheBankofEngland,MoneyAdviceService,FinancialOmbudsmanServiceandourlegalpartners.

Human resources services–We haveworkedcollaborativelywithourcolleaguesinprocurementandlegaltoappointaMasterVendortomanageallFSCSrecruitment.AfterarigorousprocurementprocesswehaveappointedHyphen,partoftheAdeccoGroup.During2015we’llberollingoutanewreportingsystemcalledPeopleFluentacrosstheSchemetomanage,trackandreportonallvacancieswithsignificantimprovementsinmanagementreportingtodrivegreatertransparencyandvalueformoney.

Inadditiontotheseinitiatives,aspartofourultimateaimtoengageourpeople,wehavebecomeactivelyinvolvedwithanumberofequalityprogrammestoensurewe’releadingbyexample.Theseinclude:

• OpportunityNow

• RaceforOpportunity

• StonewallDiversityChampions

• 30%Club

• BusinessDisabilityForum

VeryrecentlywehavebeenaccreditedasanInvestorinPeoplefollowingourfirsteverassessmentforthisagainstthecorestandard.

ThisPlan and Budget: 2015/16isforconsultation.Wewelcomeyourfeedback,whichshouldbesenttoplanandbudget@fscs.org.ukby 20February2015.

FinancialServicesCompensationScheme

10thFloor

BeaufortHouse,

15StBotolphStreet,

London,EC3A7QU

08006781100

www.fscs.org.uk

FSCSLinkedin

FSCSonTwitter@FSCSnews

FSCSYouTubechannelFSCSProtected

January2015