Financial Services and Markets Appendices to the Minutes of Evidence


Memorandum by the Investors Compensation Scheme (ICS)

  The ICS Board has considered and responded to the consultation document on the provisions for the new compensation arrangements set out in Sections 142 to 150 to the draft Financial Services and Markets Bill. Amongst its detailed submissions, the Board made comments on clause 142(4) on the appointment of directors of the new management company and clause 148 by which it is intended that by the rules the FSA will be able to control the amount which the new scheme may levy to cover its management costs. These particular points may be of interest to the Joint Committee.

CLAUSE 142(4)

    "ICS notes that the FSA intends to appoint or remove directors. It considers that the present make-up of the Board representing the financial services industry and public interest members should be continued in some form.". . .

    . . . "However the ICS recommends that the Chief Executive of the scheme is both a director and is appointed by the Board. ICS would anticipate that the appointment of a Chief Executive to the scheme would be discussed with FSA in any event."

  The Chief Executive is the key link between the Board and Executive. As the new scheme is likely to be a sizeable operation, it would be important for the Chief Executive to take part in Board decisions which is the current state of affairs with the present management company.


    "Whilst the ultimate sanction of the removal of directors lies with the FSA, the scheme manager needs to be able to control its own budget including not just the levy, but also its management expenses. FSA intends to prescribe the maximum amount that the scheme manager may levy in respect of its running costs, which would fetter that ability. The scheme must be in a position to devote the resources necessary to handling any major default or large numbers of claims, should the need arise, in particular (for example) in case a bank were to be declared in default, for which contingency adequate resources may not have been prepared. ICS considers that the mechanism of accountability and annual report would be sufficient, particularly as a Memorandum of Understanding would also be in place, so that this clause is unnecessary and unwarranted."

  At present, the Scheme's budget and levy are set by the ICS Board after consulting with the regulators.

31 March 1999

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