FSA to consult over scheme for brokers' clients

The Financial Services Authority (FSA) is looking at setting up a compensation scheme for brokers' clients.

The regulator is in the early stages of consulting the industry and the Financial Services Compensation Scheme (FSCS).

The FSCS would almost certainly oversee any broker compensation scheme.

A source close to the FSA said compensation was the flipside of regulation and, as the FSA prepared to regulate the general insurance broking industry, it also had to consider compensation for clients wrongly advised by brokers.

Issues such as who contributes to the scheme and what it covers are likely to be fraught.

The FSA confirmed it had started to consider whether brokers and mortgage firms should be included in the FSCS.

FSCS chief executive Suzanne McCarthy said the scheme would be consulted by the FSA on the issue.

"Although it's too early to say what our opinion will be, our views will be added to the melting pot and we'll see what emerges at the end of the process," she said.

The FSCS already runs compensation schemes for the building and friendly society, depositor, investment, general and life insurance sectors.

These sectors are all overseen by the FSA.

Meanwhile, the Treasury will attend the next meetings of the General Insurance Standards Council's (GISC) working parties, including those covering the controversial issues of travel cover and extended warranty.

The Treasury is yet to decide whether the travel and extended warranty industries will be covered under its regulation of general insurance brokers, to the chagrin of brokers who claim lack of regulation will give those industries an unfair advantage.