Financial Services Sample Issue (non members)
Update
31.12.10 - Deadline for implementation of the FSA's new rules on faster payout. Preparations for this have required systems changes for financail services providers.
Issue Overview & relevant provisions
On 6 January 2009, the FSA launched a consultation on the financial services compensation scheme reform (CP09/03). The media reported that the proposals could ultimately cost the banking industry an estimated £5 billion over the next five years. The FSA’s consultation looked at proposals designed to ensure that the majority of compensation payments could be made in seven days and how to raise awareness of the FSCS.
The Financial Services Compensation Scheme is a "statutory fund of last resort" in the United Kingdom, set up under the Financial Services and Markets Act 2000 to compensate customers of "authorised financial services firms" in the event of their insolvency. It consolidated previous compensation schemes into one combined scheme. The scheme covers deposits, insurance policies, insurance brokering, investments, mortgages and mortgage arrangement.
A key element of these reforms is the requirement on deposit takers to develop a capability to generate a 'single customer view'. The SCV should put the FSCS in the position where it has the information required in order to make a fast payout, with a payout target of seven days from default. The SCV has been a long-term goal of many financial institutions. The SCV would enable a company to record and manage all of a customer’s ‘touch points’ across the organisation. Advantages for the deposit-takers include the potential to provide a more bespoke customer service and the development of more precise marketing strategies. As such, on paper, the proposed reforms present an opportunity for the banks to achieve this aim and comply with the new regulations.
In July and November 2009 the FSA published its final rules on reforming the UK banking compensation regime. PS09/11 set out the new consumer awareness and fast payout requirements and PS09/18 set out the SCV verification plans.
The FSA set a deadline of 31st of December 2010 for financial institutions to become compliant. Changes have also been made to the Deposit Guarantee Schemes Directive (DGSD) which included changes requiring faster speed of payment.
Technology Implications
The requirement for a ‘Single Customer View’ (SCV) required a significant injection of spending on technology in order for financial institutions to fulfill the requirements of the Scheme. The estimated costs of changes to the IT infrastructure of deposit takers – circa £1 billion - outlined in the feasibility study alongside the consultation are huge, at a time when IT expenditure is also required on a host of other issues in the financial services sector. The proposals will have significant implications for IT systems within banks, building societies and credit unions. For example, the FSA are proposing to ‘impose systems requirements on firms to enable them to provide a single customer view (SCV) of each depositor’s position within each authorised entity, including eligibility flags and data cleansing requirements over an 18-month implementation schedule’. Chapter Four specifically focuses on ‘Changes to the IT infrastructure of deposit takers and the FSCS’.
• Seven day payout - FSCS has decided not to go with electronic payment, but with cheques instead. Regardless, there are significant capacity issues that the FSCS needs to deal with to ensure that the seven day payout is possible, especially with regards to accuracy of data, anti fraud measures and logistics around printing and distributing millions of cheques
• Data accuracy – for the FSCS to work effectively, and the seven day payout to be hit, data accuracy needs to be high. Intellect believes that special consideration should be given to the process of verification of SCV compliance
• Security – The information that is currently proposed as part of the single customer view is lucrative and dangerous, should it fall into the wrong hands. Data sharing is imperative, therefore so is high quality security procedures and requirements
• Communication with customers – In light that the ‘Run on the Rock’ was not helped by Northern Rock’s website crashing, there is significant need for companies to ensure its online communications can handle high volumes of traffic
• Time frame – Intellect expressed deep concern in its consultation response, about the tight timeframe for implementation of a Single Customer View within FS companies, especially when procurement is taken into consideration. The timeframe remains and companies have until the 31st December 2010 to implement their IT systems
• Engagement with industry – alarmingly, engagement with industry was non-existent before the FSCS consultation was published
Key stakeholders
Members only
Key dates
• 31.12.10 – Deposit takers will be required to submit an interim report on how SCV is progressing to the FSA by 31 July 2010, in order for the FSA to assess whether SCV systems will be implemented by the 31 December 2010 deadline
• 31.01.11 – Each deposit taker will need to submit a representative sample of 10% of their SCV records or 10,000 records (whichever is the smaller figure) to the FSCS to check by 31 Jan 2011
FSCS implementation timeline
Intellect Activity to date
• Intellect’s Financial Services Group held a special meeting to discuss its response to the consultation
• Intellect submitted response to the consultation, based upon internal consultation with Members. The response can be viewed here
• Intellect has also met with a series of external stakeholders to inform its response
Members comments
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