This relatively straightforward clause tries to formalise something that already exists. It concerns the powers to require the Financial Services Compensation Scheme to act in relation to other schemes. Under the provisions, the FSCS can make payments on behalf of other compensation schemes, including arrangements that do not relate to other authorised financial services firms under the Financial Services and Markets Act 2000.
The impact assessment is quite instructive in explaining the motivation behind the provisions. It states:
In 2008 the FSCS went beyond its formal remit to ensure that eligible claimants in failed banks were fully compensated for their deposits, including those in the UK (Icesave) branch of... Landsbanki...by paying the compensation due from the Icelandic deposit-guarantee scheme.
The key word in that passage is formal, because what we have seen, in effect, is the FSCS acting in relation to other schemes. It would appear to have done so successfully last year, but I suspect that it is probably one of those areasthere are several cases in the Billwhere people have acted to do the right thing but have not necessarily had the legal basis to do it, so it would be helpful to put such things on a more formal footing.
I do not think that there is anything particularly objectionable in the clause, but a couple of points emerge. The Association of British Insurers has pointed out that the EU is looking at compensation schemes on a cross-border basis at present, and whether it should plan to include one compensation scheme acting as the agent of another as part of its reform of the deposit guarantee schemes directive.
As we clearly have interim arrangements that work, is it appropriate for us to push ahead with the measures in the Bill when we may have to revisit them as a consequence of an EU directive? Given that there are moves around the EU to harmonise rules in this area, why should we react now? Why not wait until the directive is formalised?
The British Bankers Association in its representation suggested that the Bill as drafted will permit the FSA to make rules that allow the FSCS to levy UK deposit takers for irrecoverable management expenses incurred in respect of overseas schemes. I am all for UK deposit takers picking up the tab for resolving problems around UK institutions, but are we sure that we understand the true extent of the additional liability that deposit takers will take on if they are to recover the FSCS management expenses as a consequence of administering overseas schemes? In the discussions Ministers have had with their counterparts in Europe about the move to a harmonised directive, have they discussed any provision for a scheme acting as an agent on behalf of another scheme recovering such costs from the home states deposit protection scheme and its levy payers, rather than having to recover them from UK levy payers?