Memorandum by the Investors Compensation
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.
"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