The FCA recently published its third consultation paper on its review of the FSCS (CP18/11) and is proposing to require providers to pay a quarter of the cost of funding the FSCS in a radical shake-up that is set to take effect from April 2019. This recent consultation follows on from the FCA’s second consultation (CP17/36), which was published in October 2017.

The FCA sets out a range of proposed amendments to the Interim Prudential sourcebook for Investment Businesses, including requiring personal investment firms (PIF) to have professional indemnity insurance (PII) that does not limit claims where the policyholder or a third party is insolvent or where a person other than the PIF (such as the FSCS) is entitled to make a claim. The FCA recognised that some PII providers were seeking to limit their liability by preventing the FSCS from making a claim on the policy and this proposal aims to address this point. The FCA decided against requiring PIFs to pay capital into a trust account or purchase a surety bond (in lieu of or in addition to existing capital requirements), which it proposed in its second consultation (CP17/36).

The FCA intends to go ahead with its proposals regarding FSCS compensation limits in the compensation sourcebook and seeks to increase the FSCS compensation limit for investment provision, investment intermediation claims, home finance intermediation claims and debt management claims, from £50,000 to £85,000. In addition, the FCA proposes to change the limit for claims in relation to the intermediation of long-term care insurance to match the limit for other kinds of pure protection intermediation, to 100% of the claim, from the current limit of £50,000.

The FCA intends to proceed with the reforms proposed in its second consultation (CP17/36) concerning funding classes and provider contributions and proposes to merge the life and pensions intermediation funding class with the investment intermediation class. The FCA is further seeking to (i) extend the retail pool so that it applies to all FCA funding classes (except deposit acceptors), (ii) require providers to contribute 25% of the funding requirements for insurance/investment intermediation funding and (iii) move pure protection intermediation from life and pensions intermediation funding class to general insurance distribution funding class.

The FCA is seeking responses to the consultation and the deadline for receiving them is 1 August 2018, which the FCA will publish in a notice. Appendix 1 and Appendix 2 contain the text of the proposed handbook (Professional Indemnity Insurance (Insolvency Exclusions) for Personal Investment Firms Instrument and the Financial Services Compensation Scheme (Funding Review) Instrument respectively). The new rules are set to take effect from April 2019.

A copy of the full consultation paper can be accessed at and a copy of the second consultation published in October 2017 can be accessed at: