Financial Services Compensation Scheme: Credit

(asked on 9th February 2021) - View Source

Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what discussions he has had with the Financial Conduct Authority on extending the Financial Services Compensation Scheme to payday lending companies.


Answered by
John Glen Portrait
John Glen
Paymaster General and Minister for the Cabinet Office
This question was answered on 16th February 2021

The Financial Services Compensation Scheme (FSCS) is the compensation scheme of last resort for customers of failed UK-authorised financial services firms and is funded by a levy on the financial services industry. The FSCS is an independent non-governmental body and carries out its compensation function within rules set by the Prudential Regulation Authority and the Financial Conduct Authority (FCA), they have the power to decide which activities are given FSCS protection. In 2016, the FCA decided not to extend FSCS protection to most consumer credit activities because it believed other regulatory requirements were sufficient.

The FCA’s reasoning for not extending FSCS protection was set out in a letter on 15 February 2019 from its Chief Executive to the Chair of the Treasury Select Committee. This reasoning was that consumer credit firms did not generally hold client assets; losses to consumers had reduced since the FCA had taken over regulation of consumer credit; and, because the cost of providing FSCS cover for high-cost short-term credit would likely need to be subsidised by levies on other regulated firms. A copy of that letter can be found here: https://www.parliament.uk/globalassets/documents/commons-committees/treasury/correspondence/2017-19/fca-chief-executive-to-chair-re-wonga-150219.pdf.

Treasury ministers and officials meet regularly with the FCA, and the Government will continue to work closely with the FCA to ensure consumers of financial services are treated fairly.

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