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I’d like to begin by saying what a pleasure it is to be here tonight.
I would also like to thank Mark Neale for inviting me speak this evening.
As Mark has just pointed out this awareness campaign is something extremely positive that we should all get behind.
Building on the events of the last few years it’s essential that public faith in financial services is restored, that consumers have confidence that their deposits, savings and investments are safe and that a proper compensation scheme - the FSCS - is in place when there is a failure.
Yet it’s clear that the success of the next stage of the campaign depends in no small part on the joint efforts of many of you here today: whether it be banks, building societies, investment companies, insurance firms and other FSA registered businesses.
As I’m sure everyone is aware, the FSCS has recently endured a turbulent time.
It had to react quickly to compensate depositors following a number of major bank failures in 2008 including Bradford and Bingley and a number of Icelandic institutions.
During the 2008/09 financial year alone, the FSCS protected the holders of over 3.5m bank accounts, paying out over £21 billion worth of compensation which is no small undertaking.
More recently it has paid compensation to investment customers following the failure of a number of investment firms, including Keydata.
I’m particularly aware that the recent imposition of an interim levy on investment intermediaries and fund managers has not been universally popular, but this is the right thing to do to protect the interests of customers.
Indeed, it is this focus that gives the FSCS its strength, and will help preserve trust in the financial sector.
A big part of this is ensuring a high level of public awareness in the level of compensation available to ordinary people.
As you will know the depositor protection limit is now £85,000.
This new limit ensures the vast majority of ordinary people, in fact around 99% of depositors, will be fully protected from loss.
Along with the bank resolution tools that now exist this will help safeguard financial stability in the event of a bank or building society failure.
But I should point out that the new £85,000 level for compensation represents a real limit. Let me be clear: the public should not assume that there is an unlimited Government guarantee on the money they hold in banks.
There should certainly be some degree of personal responsibility, even if the onus is firmly on the industry to communicate the strengths and limits of the scheme.
And while high and credible depositor protection is important, I appreciate that many in this room are equally as interested in the other side of the ledger; where the FSCS gets its funding.
This is an issue that certainly bubbles under the surface.
I know some of you have concerns with the current structure, and I have received letters to that effect as both Financial Secretary and as a constituency MP.
But I’d like to offer you some reassurance.
As you know the current FSCS funding model was brought in following consultation between the FSA and the industry. The FSA had begun a review of the current structure.
This review is now on hold due to the upcoming changes in the regulatory architecture, both at home and in Europe. Whilst there is now clarity about the FSCS position within the new UK financial architecture, as you know the European debate on compensation schemes has yet to be resolved.
Once it has been the FSA will be in a position to restart the review.
Let me now briefly turn to the upcoming changes to the regulatory architecture and how the FSCS fits into this.
The Government is committed to maintaining a strong and effective compensation scheme within the new framework.
As many of you will be aware we published a further consultation document in February and are holding workshops and seminars with interested parties.
The consultation closes later this month and I’d strongly encourage all of you to respond to help influence our thinking and develop these proposals.
The FSCS will play a key role in minimising the impact should a firm fail by ensuring swift and reliable payout to consumers.
This will support the PRA in promoting the stability of the financial system and underpin consumer confidence in financial services and markets - thereby supporting the FCA’s wider objectives.
It is for this reason that the Government proposes both the PRA and FCA should have rule-making powers over the FSCS, aligned to the regulators’ respective remits, and they will take joint responsibility for ensuring that the FSCS can fulfil its functions.
But at the same time we must ensure that the FSCS remains operationally independent.
Yet this is a tricky balance to strike.
So I would welcome your views on these proposals and on the other measures suggested in the consultation document.
I’m clear that financially well informed and capable consumers are essential for a well functioning and fair financial sector.
Awareness of FSCS protection is an important part of this, but it is by no means the be all and end all.
I’m pleased to say that today marks the launch of the Money Advice Service, formerly the Consumer Financial Education Body, and its free and impartial advice service.
This will be available online, over the phone and face-to-face across the entire UK.
The idea behind this is to give consumers a better understanding of the products on offer.
With this is mind we’re introducing annual statements which will set out the costs of servicing a credit card.
We’ve also consulted on a new range of simple financial products and I know a number of you here have submitted detailed responses.
These simple products will help consumers make better choices by helping them compare products and understand product features.
They will initially be focussing on deposit savings and protection insurance products but there may be scope for extending it further.
I will be announcing the next steps shortly.
But in the meantime, I’d like to say that the FSCS has made an excellent start at developing their brand and that we all have an interest in the FSCS being seen as a “badge of trust”.
We also know that many consumers are not engaged in their finances, and that getting this message across to the public can be challenging at times.
The Government fully supports the approach the FSCS has taken and recognises the importance of this awareness raising campaign but it’s clear that we still need your help with some basic elements:
- Whether it’s putting up posters and leaflets in your branches,
- promoting the FSCS on your website and marketing materials,
- or ensuring your customer facing staff understand the role of the FSCS and are aware of the level of protection available to customers.
And if this exercise is successful confidence in the wider financial system will be significantly enhanced.
People will take a greater account of their personal finances.
Look again at where they should invest their money.
And take more of an interest in the products you have on offer.
This is something we all want.
What the industry needs.
And I’m sure the FSCS will help achieve.