Three in five investigations by the Financial Services Compensation Scheme result in no declaration of default by the body as firms can meet the costs of claims themselves, interim FSCS CEO Martyn Beauchamp has told Financial Planning Today editor Kevin O’Donnell in an exclusive interview.

Because of this factor the majority of probes do not result in any claim on the levy as there is no declaration of default, he said.

Of the remaining 2 in 5 that were declared in default over the past year, the FSCS stepped in to pay compensation to customers and in many cases pursued compensation from the failed firms. The recoveries secured are then used to reduce the levy.

Failed firms must be declared in default - unable to meet claims - for compensation to be paid by the FSCS which funds an industry consumer safety net through a levy on regulated firms. 

Many in the industry have complained about the rising cost of the FSCS levy over the years and how little influence they have over it but Mr Beauchamp says most cases do not result in a levy burden, a fact not always known, he said.

The Financial Services Compensation Scheme (FSCS) cannot control how much compensation is due, added Mr Beauchamp, but it can work hard to keep costs down, he said. 

When asked what the FSCS was doing to reduce the cost of its levy for Financial Planners, Mr Beauchamp said that as compensation costs are key, the body has stepped up efforts to pursue recoveries from failed financial providers and third parties like professional indemnity insurers. This is in addition to the large amount of ‘invisible work’ that goes into investigating failed firms, he said.

He told Financial Planning Today: “While we can’t influence how much compensation is due, we work hard to ensure our operations represent value for our levy payers.

"Not a single hour goes by at FSCS without colleagues actively considering how we can be more efficient to keep levy costs down.

“Over the last year, three in five of our investigations found the cost of claims should be met from failed firms’ assets rather than rely on levy payer funds.”

Last year the FSCS recovered over £54m from failed firms. Mr Bauchamp said the compensation body expects to recover at least £33m in 2024/25.

The full interview appears in the latest issue of Financial Planning Today Magazine. Subscribe now to receive every issue.

• To read about Mr Beauchamp’s post-graduation flirtation with journalism and music promotion and why he was drawn to financial services view the Jan-Feb issues of Financial Planning Today magazine.