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					              The Way Ahead




                         Annual Report 2001/02
of the Financial Services Compensation Scheme




                       Financial Services Compensation Scheme
                  Financial Services Compensation Scheme




                               Annual Report and Accounts

                                              2001/02




Photography: Grantly Lynch Photography Ltd
Design: Orbital   Print: Newnorth Print Ltd
THE BOARD




                                                         The Board
                                                         Directors of the Financial Services Compensation Scheme




                  The conduct of the compensation scheme is the responsibility of its Board of directors, appointed by the Financial Services Authority
                  (FSA). Under the Financial Services & Markets Act 2000 (FSMA), the FSA appoints the directors on terms which secure their
                  independence from the FSA in the operation of the Scheme. The Chairman’s appointment is also subject to the approval of the Treasury.




                          Nigel Hamilton                 Michael Blair, QC              Kenneth Culley, CBE           Graeme MacLennan                 Luke March
                          (Chairman)

                          Consultant Ernst & Young       In independent practice at     Formerly Chief Executive      Chartered accountant with        Chief Executive of Mortgage
                          UK; former Chairman of         the Bar; Chairman SFA,         of the Portman Building       experience in fund manage-       Code Compliance Board;
                          Corporate Restructuring at     PIA and IMRO 2000-02;          Society; a past Chairman      ment; formerly member of         non-executive Director of
                          Ernst & Young UK; former       Chairman, Review Body on       of the Building Societies     advisory committees on           the Investors Compensation
                          President of the Society of    Doctors’ and Dentists’         Association; Director of      Scottish financial services      Scheme since 1999; formerly
                          Practitioners of Insolvency;   Remuneration; formerly         Fleming Managed Growth        and committee member at          Corporate Governance
                          former member of the           General Counsel FSA,           plc, Fleming Managed          the Association of               director of British
                          Council of The Institute of    General Counsel then           Income plc, Brit Insurance    Investment Trust                 Telecommunications;
                          Chartered Accountants in       Deputy Chief Executive at      Ltd and Marks and Spencer     Companies.                       previously director
                          England & Wales (ICAEW)        the Securities and             Financial Services                                             TSB Bank; Chair, National
                          and past Chairman of the       Investments Board;             Companies.                                                     Association of Citizens
                          Insolvency Practitioners       Treasurer of the Bar                                                                          Advice Bureaux;
                          Committee at ICAEW.            Council 1995-98.                                                                              non-executive director,
                                                                                                                                                       Barts and London NHS
                                                                                                                                                       Trust.




                                                         Sarah Brown                    Tim Vogel                     Suzanne McCarthy                 John Young, CBE
                                                                                                                      (Chief Executive)

                                                         Former director of company     A forensic accountant and     Member of the Senior Civil       Chairman of the Regulatory
                                                         law at the Department          member of the Institute of    Service; non-executive           Board and independent
                                                         of Trade and Industry;         Chartered Accountants;        director of the Royal            Deputy Chairman of the
                                                         reporting member of the        founder of the Chamber of     Brompton and Harefield           Council at Lloyd’s; formerly
                                                         Competition Commission;        Experts (January 2001), an    NHS Trust; formerly Chief        director of policy and
                                                         non-executive director of      association of expert         Executive of the Human           planning at the Stock
                                                         Investigation and Discipline   witnesses based in Norfolk;   Fertilisation and Embryology     Exchange, Chief Executive
                                                         Board Ltd and South West       experience in forensic        Authority; previous posts        of the Securities and
                                                         Kent Primary Care Trust.       accountancy and               held in HM Treasury and          Futures Authority and then
                                                                                        insolvency at Lovell Lake,    Home Office; earlier career      Chief Executive of the
                                                                                        KPMG, Howard Clark            as an academic lawyer and        Securities and Investments
                                                                                        Whitehill, Grant Thornton     solicitor in private practice.   Board; earlier career in
                                                                                        and Ernst & Young.                                             institutional stockbroking.




            2   FSCS Annual Report 2001/02
contents
The Board                                              2

What is the Financial Services Compensation Scheme?    4

Chairman’s statement                                   6

Key facts and figures                                  8


Chief Executive’s statement                           10


The work of the Industry Committees                   12

Organisation chart                                    13

The work of our departments                           14

Corporate Governance                                  20

Report & Accounts
   Directors’ Report                                  24
   Report of the Auditors                             26
   Financial Statements                               27
   Notes to the Financial Statements                  30
   Sub-Schemes and Contribution Groups                40
                                        What is the Financial Services
                                        Compensation Scheme?

      The Financial Services Compensation Scheme (FSCS) acts as a 'safety net' for customers of finance sector firms. The primary aim of
      the Scheme is to provide protection for private individuals and small businesses. FSCS compensates consumers if an authorised firm is
      unable or likely to be unable to pay claims against it, usually because it has gone out of business or is insolvent. The Scheme covers
      investments, deposits and insurance.


                                        The Scheme is funded by the financial services            been placed in liquidation or provisional liquida-
                                        industry. Its existence promotes financial                tion. If this should happen the Scheme will seek
                                        stability and lessens the risk of a single failure        to take measures to safeguard policyholders, for
                                        triggering a wider loss of confidence in that             instance, by trying to ensure that policies are
                                        sector.                                                   transferred to another firm. If this is not possi-
                                                                                                  ble, compensation may be payable.

                                        Deposit protection                                        The level of protection depends on the type of
                                                                                                  insurance policy.
                                        FSCS provides protection for customers of
                                        deposit-taking firms, for example, banks and

           FSCS was created
                                        building societies. Credit unions will be included        Investments
                                        in the Scheme from July 2002.
           under the Financial                                                                    The Scheme covers losses should an
         Services and Markets           The Scheme is triggered when an authorised                authorised investment firm be unable or likely to
        Act 2000 (FSMA), and            firm goes out of business, for example, if it is          be unable to pay claims made against it:
        became operational on           subject to an insolvency action, such as
                                                                                                  w   when it cannot return its customer's invest-
            1 December 2001.            liquidation or administration, or when the FSA
                                                                                                  ments or money; or
                                        considers that it is unable to repay its depositors
        At that time it replaced
                                        or is likely to be unable to do so.                       w   for loss arising from bad investment advice
        eight existing compen-
                                                                                                  or poor investment management.
      sation schemes1 and the
        assets and liabilities of       Insurance                                                 FSCS can only pay compensation for the latter
                the pre-existing                                                                  if such advice was given or the investment
                                        Policyholders are eligible for protection if they
                 schemes were                                                                     management took place only after the date of
                                        are insured by an authorised insurance firm
          transferred to FSCS.                                                                    the firm's authorisation which, in any event,
                                        under a contract of insurance issued in the UK,
                                                                                                  must be on or after 28 August 1988.
          FSCS also assumed             or, in some cases, within the European
          responsibility for any        Economic Area (EEA), Channel Islands or the
        outstanding claims that         Isle of Man. Re-insurance, marine, aviation,              Eligibility for compensation
      had been made to those            transport business, credit insurance and Lloyds
                                                                                                  Notwithstanding FSCS' existence, consumers
             schemes before 1           policies are excluded, as are risks outside the
                                                                                                  still have responsibility to take care of their
               December 2001.           EEA.
                                                                                                  money. There are limits to the amount of
                                        Policyholder protection is triggered if an                compensation that FSCS can pay, depending on
                                        authorised firm is unable or likely to be unable          the basis of the claim.
                                        to meet claims against it, for example, if it has



                                                  1
                                                      The eight schemes are the Building Societies Investor Protection Scheme, the Deposit Protection
                                                   Scheme, the Friendly Societies Protection Scheme, the Investors Compensation Scheme, the PIA
                                             Indemnity Scheme, the Policyholders Protection Scheme, the Section 43 Scheme and the arrangement
                                                  between the Association of British Insurers and the Investors Compensation Scheme Ltd for paying
                                                           Pension Review compensation to widows, widowers and dependents of deceased persons.

4   FSCS Annual Report 2001/02
                                                                                                                                                         WHAT IS FSCS?
                                                                                                                                                         ABOUT FSCS
To qualify for compensation claimants need to                When we can help - a few
be eligible under the Scheme's rules. These                                                                           For further information
form part of the FSA's Handbook.
                                                             examples
                                                                                                                      about FSCS, visit our
                                                             Mr X was advised that he would be better off if          website at
                                                             he transferred his pension from an occupational          www.fscs.org.uk,
Compensation limits                                          pension scheme to a personal pension.                    telephone our Helpline
The maximum levels of compensation                           When he discovers that the advice had been               on 020 7892 7300 or
payable are2 :                                               inappropriate and he has lost money as a result,         email
                                                             he finds that the independent financial adviser          enquiries@fscs.org.uk
Claims against deposit takers:
                                                             he dealt with is no longer in business.
£31,700 (100% of £2,000 and 90% of the next
£33,000).
                                                             Mrs Y's car was damaged in an accident and
Deposits in all currencies are covered.
                                                             she wishes to make a claim against an insurer
                                                             that goes into provisional liquidation. Her policy

Claims against investment firms:                             still has six months cover left on it.

£48,000 (100% of £30,000 and 90% of the next
£20,000).                                                    Mr & Mrs Z have a current and savings account
                                                             with a bank that goes out of business.

Claims against insurance firms:

w       Long-term insurance (such as pensions                Mr B was advised to buy an investment product

        and life assurance): 100% of the first £2,000        that was inappropriate for his needs.

        plus 90% of the rest of the claim.                   The investment firm that sold it to him is no
                                                             longer in business.
w       General insurance: 100% of the first £2,000
        plus 90% of the rest of the claim.

w       Compulsory insurance: 100% of claim.                 Mrs K has a claim for flood damage on her
                                                             home insurance policy, but the insurer has gone
                                                             into liquidation.




    2
        These limits apply to claims against firms declared in default after 1 December 2001. For claims against
                 firms declared in default before this date the rules (and compensation limits) of the pre-existing
                                        compensation schemes apply, although FSCS will still handle the claim.




                                                                                                                        FSCS Annual Report 2001/02   5
                                        Chairman’s statement
                                        Nigel Hamilton




      This is our second Annual Report, and our first as the UK's single financial services compensation scheme. Our first report, On our way,
      explained how we were preparing to take over responsibility for financial services compensation. We anticipated that changeover when
      we made our "early start" on 1 February 2001 when the Investors Compensation Scheme (ICS) became our subsidiary.




                                        At that time we also started providing opera-         Prime objectives
                                        tional resources to the Deposit Protection
                                        Board, and throughout 2001/02 we worked               Our prime objectives are to ensure that eligible

                                        closely with the Policyholders Protection Board.      consumers, be they protected depositors,
                                                                                              investors or policyholders, have access to
                                        I would especially like to thank the Chairmen,        appropriate compensation in a timely fashion,
                                        the Boards and staff of those schemes not only        and to provide our services as efficiently and
                                        for their past work, but also for their support and   effectively as possible.
                                        co-operation during the building of FSCS.
                                                                                              Having a single scheme promotes cost efficien-
                                        On 1 December 2001 FSCS was officially born.          cies, and provides a single point of contact for
      Nigel Hamilton                    I am delighted to confirm that the transition went    both consumers and levy payers. It also enables
                                        smoothly.                                             us to pursue operational improvements that the
                                        I am further pleased to report that at the end of     previous, smaller schemes found difficult to
                                        FSCS' first year our management costs were            introduce.
                                        some 23% less expensive than if the separate
           “You dealt with a            compensation schemes had continued to
         difficult matter and                                                                 Raising awareness
                                        operate. Rationalisation does make excellent
             have had many              financial and operational sense!                      Raising awareness about the work of the
      others to deal with at                                                                  Scheme has also been a key aim during the
       the same time. Your                                                                    past year.
                                        Operational controls
      service dealt with me                                                                   During November we published the first issue of
          as an individual.”            Important to the creation of a thriving FSCS was      our bi-annual newsletter, Outlook, specially
                                        the design during the year of strong operational      written for the financial industry.
                                        controls, not only to ensure that our services
                                        continue to be robust during periods of normal        In addition, we have been working closely with
            - FSCS Customer
                                        operations, but also for those times when             professional trade bodies to ensure that their
           Satisfaction Survey
                                        business continuity may be threatened by              members understand the Scheme's role, and to
                    2001-2002
                                        unforeseen events. FSCS takes risk manage-            ensure that we are aware of issues that may

                                        ment extremely seriously, and will work with its      impact on FSCS.

                                        internal auditors to make certain that its            Developing these relationships has proved valu-
                                        procedures are tight and sufficient for their         able, and I look forward to their continuation.
                                        purposes.
                                                                                              We also commissioned MORI to conduct
                                        During the coming year we will continue to            research into consumer attitudes towards the
                                        concentrate on improving our processes and            safety of their money and investments, and their
                                        procedures for the benefit of all our                 general awareness of compensation.
                                        stakeholders.




6   FSCS Annual Report 2001/02
                                                                                                                                         CHAIRMAN’S
                                                                                                                                         STATEMENT
                                                                                                                                         CHAIRMAN
The results of the survey prompted the              I am delighted to welcome Tim Vogel, a forensic
production of our consumer guide and the            accountant, to the Board. I also look forward to    “I, like most people,
implementation of several awareness-raising         welcoming Bernard Day OBE, a Chartered                find pensions very
strategies that include working closely with        Insurer, who joins the Board in June.
                                                                                                                hard to follow.
consumer advice centres.
                                                    I would also like to thank Keith Woodley, who        I am therefore very
                                                    acted as ICS' Independent Investigator for over            grateful for this
Maintaining good links                              ten years and then on FSCS' behalf during its         service which was
                                                    early months. I am sure that Rear Admiral          carried out efficiently,
Maintaining good links with the FSA is extremely
                                                    Richard Irwin, who has assumed this role, will        despite my lack of
important to us. Although independent from the
                                                    continue to provide us with the same level of
FSA, we are accountable to it. I would particu-                                                                   knowledge.”
                                                    excellent service.
larly like to thank Sir Howard Davies and his
colleagues for working with us so constructively.
                                                    This report                                        - Pension Review claim
We recognise that our most valuable asset is
our staff. We are committed to being a good         This report focuses on our achievements so far,
employer, and to ensuring that our staff work       and our aims for the future. I hope you find it
within a positive environment. Our Chief            interesting and informative.
Executive in her statement refers to the work we
are doing to deliver and sustain our commit-
ments to our staff.

As a single scheme we have had an interesting
first few months, and, I believe, a successful
start.

I would like to thank my Board members, our
Chief Executive, Suzanne McCarthy, and all the
staff for all their hard work and commitment
during the past 12 months.

I would also like to send a particular vote of
thanks to Kit Jebens, who retired as a member
of the FSCS Board in February 2002. Kit gave
many years of valuable service, first as a
director of ICS, and later on the FSCS Board
and as Chairman of our Investment Industry
Committee. I would like to wish him a long and
happy retirement.




                                                                                                        FSCS Annual Report 2001/02   7
                                       Key facts and figures
      w   Management expenses from 1 December 2001 (N2) to 31 March 2002 were £2.9m, a 26% saving against the projected budget.
      w   Compensation payments from 1 December 2001 to 31 March 2002 amounted to £40.9m, with recoveries of £9.2m receivable.
      w   The levy on general insurance business firms raised £145.7m.
      w   Fund balances at 31 March 2002 amount to £219.3m.




      Accepting Deposits Sub-Scheme                           1 December 2001 to 31 March 2002

                Bank                  Rejections               Payments                Amount paid

          London Trust Bank               14                        3                     £5,000

                BCCI                       0                        1                     £14,000


      w   The majority of rejection decisions on the London Trust Bank (LTB) default relate to claims where depositors have received
          dividends from the administrators of LTB in excess of the compensation due. (Total dividend payments to unsecured creditors
          represent 66p/£ to date).
      w   A BCCI claim was received in November 2001. The depositor made a claim in the liquidation at the same time as making a claim
          with the Deposit Protection Board (DPB). As such the depositor had not received any dividends and was entitled to 75% of his
          sterling deposit from FSCS. FSCS expects to receive the dividend in respect of this compensation payment in due course.
      w   Two new claims against LTB were received in the period.
      The assets and liabilities of the DPB were transferred to FSCS as at 1 December 2001, with net funds of £9.4m being received by
      FSCS into the Accepting Deposits Sub-Scheme.




       Insurance Sub-Scheme                    1 December 2001 to 31 March 2002
       The following graphs show the payments made since FSCS became responsible for insurance compensation, as from 1 December
       2001. Payment levels are determined by demands received.
       Summary of payments made from December 2001 to March 2002




8   FSCS Annual Report 2001/02
                                                                                                                   FACTS AND FIGURES
                                                                                                                   NOTES
Designated Investments Sub-Scheme                 1 April 2001 to 31 March 2002


a) Claims Received

The chart right shows the number of application
forms (claims) received during the financial
year 2001/2002 (ICS to 30 November 2001,
FSCS from 1 December 2001).




b) Payments made to investors and
amounts paid

The chart right shows the total number (3,019)
and value (total £44.93m) of final payments
made to investors during the financial year
2001/2002. The average amount paid per claim
remains fairly constant, rising only 3% to
approximately £14,900.

Breakdown of payments:
Compensation Paid (£)           Percentage
   0 to 4,999                         34.4%
   5,000 to 9,999                     22.2%
   10,000 to 14,999                   12.2%
   15,000 to 19,999                    9.4%
   20,000 to 24,999                    3.6%
   25,000 to 29,999                    4.0%
   30,000 to 34,999                    2.8%
   35,000 to 39,999                    2.9%
   40,000 to 44,999                    1.7%
   45,000 to 48,000                    6.8%


c) Compensation amounts paid to investors
between 1 December 2001 and 31 March 2002
(£'000), by Contribution Group




                                                                                  FSCS Annual Report 2001/02   9
                                         Chief Executive’s statement
                                         Suzanne McCarthy




       If 2001/02 was a year of transition for the Financial Services Compensation Scheme, 2002/03 will be one of consolidation. Over the
       next 12 months the changes inaugurated at midnight 1 December 2001 will be bedded down. This financial year will be a testing time for
       the new Scheme, giving us our first opportunity to assess the workability of our rules, policies and procedures as we take decisions on
       claims, seek recoveries, assess our funding requirements and raise any necessary levies.


                                         During 2001/2002 FSCS progressed through              claims, but also several difficult and sensitive
                                         various stages following on from its "early start"    issues, as is often the case with complex
                                         on 1 February 2001. Our work towards mould-           insurance insolvencies. We are pleased that,
                                         ing the different compensation schemes into           working with the provisional liquidators, the
                                         one continued throughout the year.                    Association of British Insurers and others, we
                                                                                               were able to overcome these obstacles.
                                         An important stage was taken towards achieving
                                         this objective when the Scheme moved to its           Recognising the volume of claims that would
                                         new offices at Lloyds Chambers in June. With          flow into the Scheme principally as a result of
                                         the co-operation of the Policyholders Protection      these failures, FSCS successfully raised its first
                                         Board, their staff joined us in October.              levy in January 2002 of some £150m on the
                                                                                               general insurance contribution group.
                                         These various steps contributed to ensuring that
                                         all was ready for the change-over, and its
                                         success is testament to the intensive planning        New challenges
                                         done by both the Scheme's Board and its staff.
                                                                                               What of the coming year? New challenges
      “It was a bolt from the            Our Chairman has mentioned in his statement           continue to face us.
          blue, I was jollying           the economic value that has flowed from
                                                                                               From July 2002 depositors with credit unions
      along and thought my               combining the various schemes.
                                                                                               will come under our protection, the first time that
               finances were
                                         We are determined to demonstrate that we can          customers of these financial institutions have
              relatively safe.
                                         provide first-rate value for money, and, to that      had the benefit of a compensation scheme.
         I didn't even know              end, we are putting in place mechanisms that
                                                                                               Further, our insurance team will be working
        that the investment              will facilitate the measurement of our
                                                                                               throughout the year to refine the 'tools' that they
      company had stopped                performance.
                                                                                               need.
                    trading.”
                                                                                               Much of the work of the investment group will
                                         Novel issues                                          continue to be the processing of Pension

       - Pension Review claim            2001/02 produced novel issues and new                 Review cases. Working in partnership with the
                                         problems, to which we have taken a pragmatic          FSA, we have identified significant improve-
                                         approach.                                             ments to the processing of these claims. We,
                                                                                               like the FSA, are determined to complete the
                                         In the investment sector FSCS (through its
                                                                                               departed firms Pension Review as quickly as
                                         subsidiary ICS) negotiated an agreement with
                                                                                               possible, but without sacrificing quality or cost-
                                         Towry Law plc and AMP plc to secure recover-
                                                                                               effectiveness. Our two organisations will be
                                         ies for the levy payer of up to £20m to help
                                                                                               maintaining our efforts to achieve this goal.
                                         meet the cost of claims flowing from the default
                                         of Advizas Limited and minimise disruption to         Our ability to realise our objectives for this year
                                         investors' claims.                                    and in the future depends fundamentally on our
                                                                                               staff. FSCS is committed to being an employer
                                         The failures of Chester Street and Independent
                                                                                               that provides a supportive, modern working
                                         Insurance produced not just a large volume of


10   FSCS Annual Report 2001/02
                                                                                                                                              CHIEF EXECUTIVE
environment based on equal opportunities,           Our commitment to our
visible leadership, open communication,                                                                    "We always felt that we
teamwork and well targeted staff development
                                                    stakeholders
                                                                                                            were pressured into it,
with rewards linked to achievements.                FSCS is committed to meeting its responsibili-
                                                                                                         that it was wrong. Just by
                                                    ties to its various stakeholders.
Several special initiatives aimed particularly at                                                               telling us that it was
promoting good management behaviour and             To claimants: to provide a high quality                           wrong gave us
training and development are being taken            compensation scheme that is efficient, fair,             confidence really. You
forward this year to make certain our practices     approachable and responsive and, where
                                                                                                           certainly helped us and
reflect our goals.                                  appropriate, to work proactively with insolvency
                                                                                                             we are very pleased.”
                                                    practitioners and other persons and organisa-
Relevant to achieving many of our business and
                                                    tions in securing cost-effective redress for
employment aims is the use we make of our IT
                                                    claimants and delivering compensation.                   - Bad investment advice
systems. 2002/2003 should see the first
products of the IT strategy we commissioned         To our industry stakeholders: to provide an                                claim
last year.                                          accountable and cost-efficient compensation
                                                    service funded to the correct level, and to work
The results should create an office that is able
                                                    proactively to secure recoveries from firms in
to communicate with greater speed and
                                                    default.
efficiency both internally and externally, to
process claims more quickly and to provide          To the Financial Services Authority (FSA):
greater IT support to all its functions.            while acknowledging our independence, to be
                                                    accountable to the FSA as required by
We recognise that there is a need to raise the
                                                    legislation, and generally to work together in
level of public awareness of the Scheme not
                                                    partnership for the benefit of the UK's regulatory
only amongst our levy payers, but also with the
                                                    system.
public generally.
                                                    To FSCS staff: to provide a supportive, modern
We will continue to work with levy payers, trade
                                                    working environment based on equal opportuni-
associations and consumer groups throughout
                                                    ties, visible leadership, open communication,
the coming year to make sure our message is
                                                    teamwork and well targeted staff development
heard. Complementing this is our website which
                                                    with rewards being linked to achievement.
is currently being improved to make it even
more user-friendly.                                 To the general public: to provide timely,
                                                    relevant, accurate and accessible information
This report explains our recent achievements
                                                    about FSCS and its activities.
and our expectations for the year ahead. But
this is only part of the story, for FSCS is
committed to ensuring the long-term provision
of a secure, effective and cost-efficient
compensation scheme for the UK.

The groundwork we are laying now is focused
on obtaining this objective, and, in so doing,
delivering a service that is innovative,
pragmatic, responsive and accountable.




                                                                                                          FSCS Annual Report 2001/02     11
                                             The work of the Industry
                                             Committees
     The FSCS Board recognises the importance of keeping abreast with developments and events taking place within the different financial
     sectors. To that end it created three Industry Committees, to cover each of the three main sectors - deposit-taking, insurance and invest-
     ment. Their specific remit is to look generally at FSCS' flow of work within their respective area, likely future workloads and industry
     trends. The Committees consist of several non-executive directors together with the Chief Executive and experienced practitioners. The
     following summarises the work that each Committee did during 2001/02.




         Details of Industry
                                        Deposit-taking Industry                                 The Committee was especially committed to
                                                                                                making certain that all necessary actions were
       Committee members                Committee                                               taken to ensure a smooth transition of responsi-
        can be found in the             In addition to receiving reports from the               bilities from the Policyholders Protection Board
     Corporate Governance               co-opted members, Gordon Pell of Royal Bank             to FSCS.
      section of this Annual            of Scotland, and Matthew Wyles of Portman
      Report (see page 20).                                                                     Regarding FSCS' own activities, the Committee
                                        Building Society, about their respective sectors,
                                                                                                was kept aware of the flow of work and
                                        this Committee kept under general review the
                                                                                                estimates of activity, the outcome of FSCS'
                                        work of the Accepting Deposits Sub-Scheme.
                                                                                                insurance levy and discussions held between
                                        This included noting the activities of the Deposit      FSCS and the Association of British Insurers on
                                        Protection Board to which FSCS was providing            various matters.
                                        operational support until 1 December 2001 and
                                                                                                Other issues considered included the subject of
                                        the Scheme's operations thereafter.
                                                                                                closures of schemes of arrangement.
                                        During the year the Committee has been
                                        particularly interested in the preparations being
                                        made for the inclusion of credit unions within
                                                                                                Investment Industry
                                        FSCS' remit.                                            Committee
                                        The Committee was also concerned with                   The co-opted members, Allan Daffern, former
                                        ensuring that good communication links existed          director of Willis National Ltd, and Chris
                                        between FSCS and the relevant trade                     Lyttelton of NCL Investments Ltd, updated the
                                        associations.                                           Committee on developments within this sector.

                                        As a result, meetings were arranged with                In addition to reviewing the Scheme's
                                        representatives of both the British Bankers             Investment Sub-Scheme work, (both pension
                                        Association and the Building Societies                  and non-pensions), the Committee also
                                        Association.                                            considered the FSA's consultation paper on the
                                                                                                handling of Endowment Mortgage Complaints in
                                                                                                the context of the Scheme's practices and the

                                        Insurance Industry                                      content and style of FSCS' quarterly reports to
                                                                                                the FSA on ICS/FSCS business activities.
                                        Committee
                                        As with the Deposit-taking Industry Committee,
                                        this Committee's co-opted members, Iain
                                        Lumsden of Standard Life, and Stephan Pater of
                                        Royal & Sun Alliance, gave presentations.




12    FSCS Annual Report 2001/02
                                                                                                                     ORGANISATION
                            Organisation chart

   INDUSTRY                         the Board                                FINANCE &
  COMMITTEES                        Chairman, Nigel Hamilton              ADMINISTRATION
                                                                            COMMITTEE,
                                    Chief Executive                            AUDIT
                                    Suzanne McCarthy                        COMMITTEE




SUB-SCHEMES                                                          SUPPORT
CLAIMS TEAMS                                                          TEAMS




SUB-
SCHEMES



Accepting Deposits                Insurance             Investment

Assistant Manager                 Group Manager         Group Manager (Pensions)
John Henman                       Ted Boucher           Robert York

Section Leader, Deposit Taking                          Group Manager (Non-Pensions)
Karen Gibbons                                           Deborah Evans


SUPPORT
TEAMS




Chief Executive’s Office          Customer            Finance                Human Resources & Facilities
                                  Services
Company Secretary                                     Head of Finance        Head of Human Resources
Mark Thomas                       Assistant Manager   Nick Gooderham         Mike Potter
                                  Tom Sheffield
Head of Communications                                                       Facilities Co-ordinator
Heather Tilston                                                              Marion Furlonger




SUPPORT
TEAMS




Information Strategy             Legal Services         Quality Programme Unit

Head of Information              Head of Legal          Senior Adviser
Strategy                         Services               Clare Griffiths
Mike Abbott                      Alex Kuczynski


                                                                                   FSCS Annual Report 2001/02   13
                                        The work of our departments:
                                        Claims teams
       FSCS' achievements are very much dependent on its staff. This section briefly explains how each team contributed towards delivering
       FSCS as a fully operational organisation on 1 December 2001, and how they continue to contribute to FSCS' success.



                                        Accepting Deposits                                   Deposits Sub-Scheme. From that time credit
                                                                                             union members will be entitled to the same level
                                        The Accepting Deposits Sub-Scheme deals with         of compensation currently only available to bank
                                        claims made against failed banks and building        and building society depositors. This team has
                                        societies. From 1 February 2001, under the           been working, together with the FSA, to ensure
                                        terms of a Service Level Agreement with the          we are ready for their inclusion.
                                        Deposit Protection Board (DPB), which was
                                        then responsible for handling such compensa-
                                        tion, FSCS began providing the necessary             Insurance
                                        operational resources to that Board.                 The Insurance team is responsible for dealing

                                        On 1 December 2001 the DPB's assets and              with claims for compensation that arise following

                                        liabilities were transferred to FSCS. The prepa-     the failure of an authorised insurance firm. It is

                                        rations made by the Accepting Deposits team          currently dealing with claims resulting from the
             “Thank you very
                                                                                             failure of 20 general insurers and two life
                                        for this transition ensured a seamless transfer of
         much for the service                                                                assurance companies. During the period 1
                                        responsibility from DPB to FSCS.
         provided. Without it I                                                              December 2001 to 31 March 2002 compensa-
         would have had little          No new failures were reported during 2001/02,        tion payments were made totaling £26,627,735.
              or no chance of           and the team continued to process claims
                                                                                             During 2001/02 FSCS faced two key challenges
                 achieving an           against London Trust Bank and BCCI. During
                                                                                             in relation to the Insurance Sub-Scheme. The
                    outcome.”           the period 1 December 2001 to 31 March 2002
                                                                                             first was the creation of the Scheme's own
                                        these totaled £19,482. Further, FSCS received
                                                                                             insurance team, and the second was to ensure
                                        £455,000 in recoveries (the bulk of this money
                                                                                             a smooth transfer of work from the
              - FSCS Customer           having been passed to it from DPB).
                                                                                             Policyholders Protection Board (PPB), the
             Satisfaction Survey        During 2001/02 FSCS representatives attended         body previously responsible for insurance
                      2001-2002         two deposit insurance conferences in Europe to       compensation.
                                        discuss developments. These meetings gave
                                                                                             Throughout 2001 FSCS worked closely with
                                        FSCS an important opportunity to make
                                                                                             the PPB to ensure a smooth transfer of
                                        international colleagues aware of the changes
                                                                                             responsibility. We were pleased that all the
                                        that were taking place in deposit insurance
                                                                                             existing PPB staff as at 1 December 2001
                                        within the UK.
                                                                                             chose to join FSCS until at least the end of the
                                        During the year FSCS has also had opportuni-         financial year. This allowed us to continue to
                                        ties to share information and experiences with       benefit from their experience.
                                        other deposit insurers, with visits from
                                                                                             During 2002/03 the Insurance team will move
                                        representatives of Slovakia, Korea and the
                                                                                             ahead in a number of areas. It will continue the
                                        Jersey Financial Services Commission.
                                                                                             review started in the previous year of the
                                        From July 2002 credit unions will join the           processes needed to handle existing insolvent
                                        scheme and become part of the Accepting              estates.




14   FSCS Annual Report 2001/02
                                                                                                                                            DEPARTMENTS
Already the team has made certain changes to        no longer authorised to conduct investment
speed up the delivery of compensation               business.) This work accounts for around 90%        “I found the service
monies. In line with this the team will also be     of the Sub-Scheme's activities, and this is like-   provided very helpful
creating and putting in place an improved audit     ly to continue to be the case during 2002/03.       indeed. I would also
regime.                                                                                                 like to point out that
                                                    The Pensions Group is split into a number of
The team will also carry on developing a            teams, each with its own specialism.                were it not for this
closer relationship with Insolvency                                                                     investigation I would
                                                    The Insolvency team assesses the ability of
Practitioners and their claims handling agents                                                          have lost out on my
                                                    the relevant departed Independent Financial
to ensure a good appreciation and understand-                                                           pension rights.”
                                                    Adviser (IFA) firm to meet the claims against it,
ing of the issues particular to any individual
                                                    while the Eligibility team establishes whether
estate, and play a full role in delivering a
                                                    the advice given to the claimants, by the firm,
quality service. In addition, we will be working                                                        - FSCS Customer
                                                    was responsible for any loss suffered and also
with Insolvency Practitioners to examine the                                                            Satisfaction Survey
                                                    whether the claims are eligible under our rules.    2001-2002
issues surrounding closure of schemes of
arrangement. FSCS has a particular interest in      The Redress team makes sure that loss
this area given its need to deliver service         calculations are updated where necessary and
efficiently, but also reflecting that our doors     that the appropriate form of offer is issued to
can never close to protected policyholders.         each eligible claimant.

We will be continuing our dialogue with various     Finally, the Payment team coordinates the
key stakeholders, including the FSA and the         receipt of accepted offers of compensation and
Assocation of British Insurers, to ensure that      any necessary third party documentation
we understand the important issues and trends       before completing the redress (compensation)
facing them that may impact on our insurance        process by issuing payments to occupational
activities.                                         pension schemes, personal pension providers
                                                    and claimants.

Investment                                          During 2001/02 several issues concerning
                                                    windfall benefits affected both the industry and
FSCS made an "early start" on 1 February
                                                    the Scheme's efforts to process pension
2001 when the Investment Compensation
Scheme (ICS) became its subsidiary.                 review claims. Recognising this obstacle, the
                                                    Group took steps to ensure that it should not
Full details of ICS' activities (pension and non-   unduly affect FSCS' ability to process these
pension work) carried out during the period 1
                                                    claims.
April 2001 to 30 November 2001 are contained
in the enclosed ICS Annual Report. FSCS took        Further, in order to enhance overall efficiency,

over full responsibility for this work on 1         the Group worked with the FSA's Pension Unit

December 2001.                                      during the year to identify improvements in the
                                                    way cases are handled. The resulting recom-
a) Pensions Group
                                                    mendations have been implemented. During
The Pensions Group, together with the FSA's         2002/03 FSCS in general, and the pensions
Pension Unit, processes the departed firm part      group in particular, will continue to work with
of the Pension Review into the sales of per-        the FSA in seeking ways to speed up the
sonal pensions. (A departed firm is one that is     processing of these claims.




                                                                                                          FSCS Annual Report 2001/02   15
                                    The work of our departments:
                                    Claims teams
                                    Investment
                                    b) Non-Pensions Group                                During 2001/02 this team has seen an increase
                                    The Non-Pensions Group covers those claims           in the number of claims relating to endowment
                                    arising from investment business that do not fall    policies connected with mortgage loans.
                                    within the FSA Pensions Review. During               c) Central Processing Claims (CPC)
                                    2001/02 this group made 654 decisions
                                                                                         The CPC team is responsible for administering
                                    resulting in around 300 payments.
                                                                                         the weekly download received from the FSA
                                    In recent years the number of non-pension            Pension Unit (Pension Review), sending
                                    defaults resulting in large numbers of claimants     application forms to all Investment Sub-Scheme
                                    has decreased, and during 2001/02 the team           claimants and ensuring the forms are correctly
                                    dealt with just one large default with around 300    completed and entered on our systems on their
                                    claimants.                                           return. In 2001/2002 the team dealt with over
                                    Various investments might give rise to a range       4,000 new applications.

          “Excellent service by     of claims, from assurance based savings              This team also deals with all commission-check
           all members of your      products to futures and options.                     queries, sends chaser and closure letters,
                         team.”     Negligent advice that encouraged an investor to      re-allocates and re-opens claims, and is
                                    enter into an unsuitable product is the most         responsible for the setting up of 'new' firms
                                    common reason for such claims being received,        (those against which we have not had previous
          “I would like to thank    but the team has also investigated claims for        claims) by entering their details on our

          everybody for all the     other reasons, such as misappropriation of           systems.

           help and assistance      funds.
            you have given. So

                                    The work of our departments:
          once again, thanks.”


               - FSCS Customer
              Satisfaction Survey
                                    Support teams
                       2001-2002
                                    Communications
                                    This team's principal focus has been raising         Not surprisingly awareness of FSCS was low,
                                    awareness of the Scheme amongst its stake-           but one key factor to emerge was that the first
                                    holders.                                             point of call for consumers when they need help
                                                                                         is often advice centres.
                                    For levy payers this work has included the
                                    publication of the first issue of our bi-annual      As a result we are working with a number of
                                    industry newsletter, Outlook, several special        these organisations. We also were able to
                                    events and various presentations.                    supply input for FSA publications and fact-sheets
                                                                                         offering advice for consumers who need to claim
                                    As the starting point of our awareness-raising
                                                                                         compensation.
                                    strategy amongst consumers we commissioned
                                    a MORI research poll aimed at discovering their      Publication of the MORI research, and the
                                    attitudes towards the safety and security of their   launch of our consumer guide generated media
                                    money and investments and their awareness of         coverage at both national and local levels, and
                                    the availability of compensation.                    we will continue to build on this during the year.



16   FSCS Annual Report 2001/02
                                                                                                                                                 DEPARTMENTS
Customer Services                                    How easy was our offer document to
                                                     complete?
                                                                                                               For further information
The Customer Services Team is dedicated to
                                                                  Relatively                                   about FSCS, visit our
answering queries from claimants, levy payers        Very Easy                 Adequate      Difficult
                                                                     Easy                                      website at
and the general public.
                                                        43%          43%          11%          3%
                                                                                                               www.fscs.org.uk,
Previously covering only investment issues,                                                                    telephone our Helpline
from 1 December 2001 its remit became                If you telephoned us for information did you              on 020 7892 7300 or
Scheme-wide. During 2001/02 it handled more          find our staff helpful?                                   email
than 17,000 telephone and written enquiries.                                                                   enquiries@fscs.org.uk
                                                     Yes       96%        No         4%
This team is also responsible for our Customer
                                                     If you wrote to us for information did you find
Satisfaction Survey, which covers both
                                                     our staff and response helpful?
investment and deposit-taking applicants.3
From 1 April 2002 this Survey will be extended       Yes       75%        No         25%
to cover our Insurance Sub-Scheme.
                                                     Those rejected asked to receive more information.
                                                     We are addressing that issue.

a) Customer Satisfaction Survey results

The Scheme's customer survey for the
                                                     b) Summary of complaints and
Investment Sub-Scheme began on 1 July 2001.
                                                     parliamentary correspondence
This was extended to include the Accepting
Deposits Sub-Scheme on 1 December 2001,              A total of 63 queries were received by the
and the insurance survey is due to start shortly.    Scheme during 2001/02 regarding decisions
                                                     made on claims. In addition, 29 complaints were
Investment Sub-Scheme
                                                     received about the Scheme's handling of claims
1,252 questionnaires were issued between 1           or alleged maladministration. There were no
December 2001 and 31 March 2002. 552 of              complaints made about the behaviour of staff
these were returned, a response rate of 44%.         towards third parties. During the year there were
                                                     32 letters received by the Scheme from MPs, 15
                                                                                                         3
                                                                                                             Deposit sub-scheme
The following tables show the key results: -
                                                     being requests for information or updates on        Only one decision has been
How helpful was our booklet?                         claims on behalf of constituents.                   made since 1 December
    Very                                                                                                 2001, and therefore no
               Helpful    Adequate Not Helpful       The vast majority of complaints or letters from
   Helpful                                                                                               relevant data is available.
                                                     MPs related to the work of the Investment Sub-
    32%         56%          11%           1%        Scheme, and were therefore dealt with by ICS
                                                     up to 1 December 2001 (N2) and by FSCS
How difficult was it to complete our                 thereafter. A small number of complaints and MP
application form?                                    letters were about matters dealt with by the
                                                     Insurance Sub-scheme since N2.
 Very Easy      Easy      Adequate       Difficult
                                                     FSCS has a formal complaints procedure, with
   18%          47%          28%           7%        the final step being reference to the Scheme's



                                                                                                               FSCS Annual Report 2001/02   17
                                   The work of our departments:
                                   Support teams



        “Very impressed with
                                   Independent Investigator. One referral,              Finance
                                   concerning an ICS case, was made by FSCS to
        the speed with which       him in 2001/02. This matter is still being           The finance team ensures timely and accurate
          my claim was dealt       investigated.                                        settlement of agreed compensation claims, and
                10 out of 10!”                                                          manages our internal financial information, pro-
                                   Another ICS case was reported in last year's         cedures and controls and our treasury function.
                                   Annual Report as having been referred to the
                                   Independent Investigator. His report was             In January 2002 the finance team issued and
              - FSCS Customer
                                   received by the FSCS Board during 2001/02.           collected FSCS' first levy raised on the General
             Satisfaction Survey
                                   He concluded generally that, whilst there were       Insurance Contribution Group. In future the team
                      2001-2002
                                   delays in the processing of that particular claim,   will be responsible for raising levies for the

                                   they were unavoidable in the circumstances.          scheme using the FSA as its collection agent.

                                   It was, however, recommended that the Scheme         In addition to its usual day-to-day business, the

                                   should continually review its procedures to          team this year undertook the changes necessary

                                   ensure that compensation calculations were           to cover FSCS' new financial requirements after

                                   done at the earliest possible date.                  1 December 2001, principally the handling of
                                                                                        claims for the Insurance and Accepting Deposit
                                                                                        Sub-Schemes, and work related to the various
                                   Facilities                                           contribution groups within FSCS' three separate

                                   Facilities has responsibility to ensure that FSCS    Sub-Schemes.

                                   staff work in a healthy and safe environment.
                                   During 2001/02 this team had primary                 HR
                                   responsibility for the Scheme's move to its new
                                   offices at Lloyds Chambers. In addition, the         A new HR Team was recruited over the summer

                                   team worked with the other support services          of 2001. It fell to them to tackle the crucial

                                   teams generally to deliver FSCS' smooth start.       personnel issues associated with the creation of
                                                                                        a new organisation, particularly remuneration,
                                                                                        pension provision, an appraisal process and
                                                                                        performance measurement.

                                                                                        In addition, this team was instrumental in
                                                                                        organising a special Staff Event aimed at
                                                                                        engendering a "one Scheme" ethos.

                                                                                        That in turn has produced a number of special
                                                                                        projects focused on the induction, training and
                                                                                        mentoring of employees, communication within
                                                                                        and between teams and general management
                                                                                        philosophy and corporate behaviour.

                                                                                        The results of these initiatives will be rolled out
                                                                                        during 2002/03.


18   FSCS Annual Report 2001/02
                                                                                                                                           DEPARTMENTS
Information Systems                                Legal                                               “The service received
                                                                                                       was excellent,
Working closely with Facilities, the IT team       The Scheme's legal department was closely
                                                                                                       professional and
ensured that, during the move to new premises,     involved in preparing for the assumption of
                                                                                                       courteous from
the transfer of the Scheme's functions was         FSCS' powers, and, in particular, the introduc-
                                                                                                       everyone we dealt
successful, with no interruption in FSCS'          tion of the new rules and associated policies.
services.
                                                                                                       with at FSCS - thank
                                                   This team continues to monitor the practical
                                                                                                       you.”
Recognising the important contribution IT can      application of the Scheme's rules and to advise
make to an organisation's efficiency, the FSCS     on novel issues when received.
Board authorised a major review of all FSCS'                                                           - FSCS Customer
                                                   In addition, the team has continued its advisory
systems during the past year and approved the                                                          Satisfaction Survey
                                                   work on individual claims (or classes of ) for
development of a new FSCS Information                                                                  2001-2002
                                                   compensation, and the management of the
Systems strategy.
                                                   Scheme's recovery function, relying on the rights
Work towards implementing this strategy began      assigned to it by compensated claimants.
in earnest during the latter half of the year.
                                                   Recovery work covers all three Sub-Schemes.
The strategy's objectives are to create a system   Where possible recoveries are pursued both
that will:                                         against firms that have been declared in default
                                                   and third parties. In some cases the Scheme is
w   enhance the interface between the Scheme
                                                   able to make further payments to claimants with
    and its customers;
                                                   outstanding losses from amounts recovered.
w   improve responsiveness to queries and
    generally accelerate the claims processes;
                                                   Quality Programme Unit (QPU)
w   be easily expandable to cope with additional
                                                   QPU's main function is to perform quality
    Sub-Schemes should they be needed in the
                                                   assurance reviews of work done by claims
    future;
                                                   processing teams. During 2001/02 the team was
w   provide the IT capability to handle a major    able to assure the Board that the quality targets
    failure (of an authorised firm) if one         set had been met.
    occurred;
                                                   Together with the legal team, QPU was heavily
w   a document management system that can          involved in preparing the Scheme for its new
    improve the flow of information both within    role. During the year this team was particularly
    FSCS and externally;                           instrumental in developing FSCS' approach to
w   provide a secure repository of all files       risk assessment, and it continues to be
    and correspondence.                            responsible for overseeing the ongoing review
                                                   and management of the Scheme's business
                                                   contingency plans.




                                                                                                         FSCS Annual Report 2001/02   19
                                         Corporate Governance


       The FSCS Board is committed to high standards of Corporate Governance. Accordingly, the Board has agreed to follow the provisions
       of the Combined Code produced by the Hampel Committee on Corporate Governance in June 1998. Whilst recognising that only UK
       listed companies are required to report on their compliance with the Combined Code, the Board decided that FSCS should report on
       the extent to which it complies with the Code's provisions.



                                         The Board                                            Directors are permitted to obtain independent
                                                                                              professional advice, as required, on any matter
                                         1. Composition of the Board                          that might assist them in the furtherance of their
                                         The Combined Code indicates that there should        duties.
                                         be an effective Board to lead and control the
                                         company, and that there should be a balance of
                                                                                              Committees of the Board
                                         executive and non-executive directors.
                                                                                              1. Finance and Administration Committee
                                         The FSCS Board currently comprises nine
                                         directors, eight of whom are non-executive           The Finance and Administration Committee
                                         directors, including the Chairman. The one           aims to meet approximately four times a year,
                                         executive director is the Chief Executive.           and comprises four non-executive directors and
                                                                                              the Chief Executive.
                                         All directors are appointed by the Financial
                                         Services Authority (the FSA) using appropriate       The Committee:
                                         Nolan principles, transparent recruitment            w   monitors and oversees all operational areas
                                         processes and public advertisement. The                  of FSCS;
                                         appointment (and removal) of the Chairman is
                                         also approved by HM Treasury.                        w   reports to the Board on key strategic,
                                                                                                  financial and operational issues; and
                                         This appointment mechanism means that there
                                         is no need for FSCS to have a separate               w   makes recommendations to the Board on

                                         nomination committee to advise the Board on              areas such as remuneration policy, the

                                         prospective new directors.                               Business Plan and Budget, the annual
                                                                                                  financial statements and levies.
                                         Biographical details of the directors are given on
                                         page 2 of the Annual Report.                         2. Audit Committee

                                         2. Operation of the Board                            The Audit Committee aims to meet approxi-
                                                                                              mately three times a year, and comprises four
                                         The Board usually meets once a month, and a          non-executive directors (with the Chief
                                         formal schedule of matters reserved to the           Executive normally in attendance at meetings
                                         Board for decision has been documented and           by invitation). The Committee is responsible for
                                         agreed. Directors are subject to a conflict of       reviewing, and reporting to the Board on, the
                                         interest policy to prevent any potential             following:
                                         interference with the independence of their
                                         judgement on Board matters.                          w   the annual accounts;

                                         The Company Secretary, appointed by the              w   the accounting policies;

                                         Board, attends all Board and Committee               w   the financial reporting system;
                                         meetings, and is responsible for ensuring that
                                                                                              w   the system of internal control;
                                         Board procedures are followed and that
                                         appropriate records are kept.                        w   risk management;

                                                                                              w   the audit processes.

20   FSCS Annual Report 2001/02
                                                                                                                                                      GOVERNANCE
3. The Industry Committees                          4. Composition of the Board Committees

The Board recognises the importance not only of
                                                     COMMITTEE MEMBERSHIP       Audit   Finance & Admin   Deposit   Insurance       Investment
considering the operational performance of
                                                     Non-executive directors:
FSCS, but also of being aware of significant
developments, trends or events in the financial      Nigel Hamilton                           ü                        ü
services industry.                                   Michael Blair QC                         ü               ü
                                                     Sarah Brown                 ü                            ü
To assist the Board in this, it has set up three
Industry Committees, one for each of the three
                                                     Kenneth Culley CBE          ü                            ü
main sectors of the industry, covering invest-       Kit Jebens CBE4             ü                                     ü               ü
ment, insurance and deposit-taking.                  Graeme MacLennan                         ü                                        ü
                                                     Luke March                               ü                                        ü
These Committees aim to meet two to three
times a year, to look generally at the flow of
                                                     Tim Vogel   5
                                                                                                                                       ü
work and likely future workloads for FSCS in         John Young CBE              ü                                     ü
their respective sectors, and to discuss relevant    Executive director:

issues.                                              Suzanne McCarthy                         ü               ü        ü               ü
                                                     *Co-opted members:
In order to assist the Committees in their
discussions, and as a means of fostering,
                                                     Gordon Pell                                              ü
developing and monitoring FSCS' relationship         Matthew Wyles                                            ü
with the financial services' sectors, experienced    Stephan Pater                                                     ü
practitioners have been co-opted.                    Iain Lumsden                                                      ü
Aside from these members, each Industry
                                                     The Hon Chris Lyttelton                                                           ü
Committee comprises three non-executive              Allan Daffern                                                                     ü
directors plus the Chief Executive.

                                                                                                          4
                                                                                                              Until February 2002

                                                                                                          5
                                                                                                              From April 2002


                                                                                                          * Each Industry Committee
                                                                                                          has two co-opted members.
                                                                                                          These are experienced
                                                                                                          practitioners, invited to join
                                                                                                          the respective Committee to
                                                                                                          assist in their discussions.




                                                                                                              FSCS Annual Report 2001/02         21
                                  Corporate Governance
                                  (continued)




                                  Internal Controls                                    during the year in readiness for FSCS assuming
                                                                                       responsibility for the new Scheme as from 1
                                  As with the Combined Code, the requirements          December 2001.
                                  of Internal Control: guidance for Directors on the
                                  combined code (the Turnbull Report) are              The Board also undertakes an annual review of

                                  mandatory only for UK listed companies.              the appropriateness and effectiveness of the
                                                                                       internal controls, drawing on reports from
                                  However, recognising its commitment to main-         management and advice from the Audit
                                  taining a sound system of internal control, the      Committee where required.
                                  Board has decided that it would be appropriate
                                  to follow the provisions of the Turnbull Report.     The following are examples of the work that
                                                                                       FSCS has carried out in order to satisfy itself
                                  A sound system of internal control is designed       that there are appropriate controls throughout
                                  to manage rather than eliminate the risk of fail-    the organisation:
                                  ure to achieve business objectives, and can
                                  only provide reasonable and not absolute assur-      1   FSCS has developed a risk register, which

                                  ance against material misstatement or loss.          identifies, analyses and prioritises key risks to
                                                                                       the organisation and highlights the relevant
                                  In the period covered by this Report, the            controls for each risk area. This register is
                                  Board's principal tasks, in addition to operating    reviewed and updated regularly by management
                                  the various schemes, have been preparing for         and is also considered by the Audit Committee,
                                  N2 and creating a unified organisation.              which reports to the Board after each
                                  The Board has received regular reports on            Committee meeting.
                                  these issues as well as on the performance and       2   The Board has reviewed the operating
                                  financial position of each of the Sub-Schemes        policies for each of the three Sub-Schemes for
                                  and on its own financial position.                   which it is responsible since N2.
                                  It receives regular reports from the three           3   The Audit Committee considers, at each of
                                  Industry Committees and the Finance and              its meetings, a report on the quality assurance
                                  Administration Committee. The Board also             (QA) reviews of certain claims processes.
                                  receives reports from the Audit Committee on,        These QA reviews are carried out by FSCS'
                                  amongst other things, the following:                 internal Quality Programme Unit (QPU), a team
                                  w   the quality, reliability and effectiveness of    that performs a quasi-internal audit function in
                                      the internal and external audit functions;       respect of claims processes.

                                  w   the procedures for the assessment and            4   FSCS has decided that a full internal audit
                                      management of risks; and                         function should be set up, utilising the services
                                                                                       of an outside firm to act as FSCS' internal
                                  w   FSCS' internal controls (which include
                                                                                       auditors. Deloitte and Touche were appointed as
                                      financial, operational and compliance
                                                                                       FSCS' internal auditors from April 2002
                                      controls).
                                                                                       onwards.
                                  The arrangements for internal control have been
                                                                                       5   During the year FSCS has given priority to
                                  in place throughout the year.
                                                                                       reviewing and revising its arrangements for
                                  These arrangements are kept under regular            ensuring business continuity in the event of
                                  review by the Board and were further developed       some kind of disaster. This might be due to



22   FSCS Annual Report 2001/02
                                                                                                                                                     GOVERNANCE
                                                                                                        The remuneration package of the Chief
either business interruption as a result of a       Board/Management
sudden loss of FSCS' premises and equipment                                                             Executive, being the only executive
or to a large or novel business failure resulting
                                                    Relationship                                        director on the Board, is considered by
in a significant rise in the number of claims for   Some specific areas of Board responsibility are     the Finance & Administration Committee,
compensation.                                       delegated to Committees of the Board or to the      whose terms of reference include
                                                    Chief Executive, as appropriate. The Board          consideration of all remuneration matters,
6   FSCS has also developed its treasury
                                                    receives and considers reports on all relevant      and approved by the Board (in both
management policy and the processes for
                                                    areas of activity to satisfy itself that FSCS is    cases, without the Chief Executive being
managing resources and budgets to ensure that
                                                    performing its functions satisfactorily and is      present).
there are appropriate controls in place.
                                                    using its resources efficiently and economically.
                                                                                                        The Memorandum of Association states
7   In addition, attention has been given to the    The Board regularly reviews the supply of
                                                                                                        that directors' appointments are to be
way in which the Board has delegated some of        information from management to ensure that
                                                                                                        made for periods not exceeding four
its decision-making powers to the Chief             such information is timely and appropriate.
                                                                                                        years, at which time directors may be
Executive, and, through the use of a set of
                                                                                                        submitted for re-appointment, although
policies, to management.
                                                    Compliance with the                                 the Combined Code recommends that
During the coming year, the Board will continue                                                         directors submit themselves for
                                                    Combined Code
to prioritise its review of risk management and                                                         re-election at least every three years.
the internal control arrangements in the light of   FSCS complied throughout the year with the
                                                                                                        Initial appointments to the FSCS Board
experience of operating the Scheme since N2,        Code provisions set out in Section 1 of the
                                                                                                        are usually staggered between two and
and will also consider the work of the new          Combined Code on Corporate Governance,
                                                                                                        four years. The existing four-year
internal audit function.                            except the following:
                                                                                                        provision, however, may be reviewed
                                                    w    A.5.1 (Nomination Committee)                   from time to time.
Directors' Remuneration                             w    A.6.2 (length of directors' appointments)

All remuneration matters, including the full        w    B.1.7 to B.1.10 (Service Contracts and
                                                                                                           For further information
remuneration package for the Chief Executive,            Compensation)
                                                                                                           about FSCS, visit our
are considered initially by the Finance &
                                                    w    B.2.2 (composition of Remuneration                website at
Administration Committee with recommenda-
                                                         Committee)                                        www.fscs.org.uk,
tions made to the Board for its approval (in both
                                                                                                           telephone our Helpline
cases the Chief Executive is not present when       w    B.2.4 (remuneration of non-executive
                                                                                                           on 020 7892 7300 or
her remuneration package is being considered).           directors)
                                                                                                           email
Remuneration details of directors are given in      w    B.3.2 to B.3.5 (report on directors'              enquiries@fscs.org.uk
the Directors' Report on page 24, and in note 5          remuneration policy)
to the financial statements.
                                                    As explained earlier, all appointments to the
Non-executive directors' fees are reviewed          FSCS Board are made by the FSA, with the
annually by the Board as a whole and                Chairman's appointment (and removal) also
recommendations are made to the FSA, which          being approved by HM Treasury.
sets the fees.
                                                    Accordingly, there is no need for FSCS to have
                                                    a nominations committee, and the remuneration
                                                    of the non-executive directors is determined by
                                                    the FSA.



                                                                                                              FSCS Annual Report 2001/02      23
       Directors’ Report
       Reports and Accounts of Financial Services Compensation Scheme Limited for the year ended 31 March 2002

       The directors of Financial Services Compensation Scheme Limited (FSCS) present their second report, together with the audited
       financial statements of the company for the year ended 31 March 2002. The comparatives cover a 13 month period from incorporation
       on 3 March 2000 to 31 March 2001.


       Principal activities
       FSCS was formed as the Scheme Manager designate under s212 of the Financial Services and Markets Act 2000 (FSMA) to
       administer a single compensation scheme for consumers in respect of deposits, contracts of insurance and investment business,
       should a financial services firm be unable to meet its liabilities, and it assumed its responsibilities at midnight on 30 November 2001
       when FSMA was fully enacted.



       Review of activities
       Since its incorporation and the appointment of directors, the company has made preparations in anticipation of receiving its powers
       under FSMA at a date referred to as N2, and integrating the former compensation schemes. As a part of this process, on 1 February
       2001 FSCS became the sole member of Investors Compensation Scheme Limited (ICS), the Scheme Manager responsible for the
       Investors Compensation Scheme (the ICS Scheme). At that date, the FSCS directors also became directors of ICS.

       As a further part of the "early start" process, staff of both ICS and the Deposit Protection Board (DPB), were offered contracts of
       employment with FSCS as from 1 February 2001, and FSCS assumed, under a Service Level Agreement, the provision of operational
       resources to DPB, and under an agreement, as from 20 August 2001, certain activities of the Policyholders Protection Board (PPB).



       Financial position
       The company's results show neither a surplus nor deficit as its net costs to 30 November 2001 are treated as recoverable from future
       participating firms from that date as costs of establishing the scheme, under s213 of FSMA. After that date management expenses and
       corporate costs are recoverable from and allocated fully to the three Sub-Schemes of Accepting Deposits, Insurance and Designated
       Investments, as shown on pages 40 to 50.

       The financial statements of ICS as at 31 March 2002, show net assets of £Nil and the company did not trade during the year to that
       date although it continued to act in its capacity as Scheme Manager of the ICS Scheme until 30 November 2001. In accordance with
       s229(2) of the Companies Act, consolidated financial statements have not been prepared in view of the immateriality of the amounts
       involved. Financial statements of the ICS Scheme for the year to 31 March 2002 are included with FSCS’ Annual Report and
       Accounts, or available from the Company Secretary at 7th Floor, Lloyds Chambers, 1 Portsoken Street, London E1 8BN.



       Fixed assets
       The movements in fixed assets during the year are set out in note 8 to the financial statements.



        The directors
        Details of the directors for the year to 31 March 2002 are shown on page 2 of the FSCS Annual Report.


        Directors' emoluments
        Total emoluments paid to directors are as follows:                           The highest paid director, the Chief Executive, received
                                                                                     aggregate emoluments in the year of £136,043
                                       Year ended         Period ended
                                                                                     (comprising basic salary of £128,000 and other emolu-
                                    31 March 2002        31 March 2001
                                                                                     ments of £8,043 (2001: period from October 2000 to 31
                                              £'000                £'000             March 2001, £62,317)) and contributions to a defined

        Aggregate emoluments                    246                  166             benefit arrangement under the company's pension
                                                                                     scheme have been made of £23,091 (2001: £7,563).
        Pension contributions                    23                    8
                                                                                     The Chief Executive received no additional remuneration
                                                269                  174
                                                                                     in respect of her role as director.




24   FSCS Annual Report 2001/02
At the end of the year retirement benefits were accruing for the Chief Executive as a result of participation in the defined benefit
scheme as follows:




                                                                                                                                                      DEPARTMENTS
                                                                                                                                                      DEPARTMENTS
                                                                                                                                                      ACCOUNTS
                                    Accrued Pension               Accrued Pension                           Increase in           Transfer
                                       at 1 April 2001            at 31 March 2002                     Accrued Pension             value of
                                                                                               (in excess of inflation)           increase

                                                 (£ pa)                        (£ pa)                             (£ pa)                    £

S McCarthy                                         638                         2,253                              1,604             19,888

The pension entitlement is that which would have been paid annually on retirement based on service to the end of the year on the
assumption that the director left service on that date and this excludes any increase for inflation.

The fees paid to the Chairman were set at £40,000 from October 2001 (2001: to September previously £25,000 per annum) and the
fees paid to the non-executive directors were set at £10,000 per annum with effect from 17 February 2000. The Chairman and
directors, other than the Chief Executive, are not entitled to a pension funded by the company.



Liability insurance
FSCS maintains insurance to indemnify itself, its directors and its officers against claims arising from the operations of itself and its
subsidiary, ICS.



Statement of the directors' responsibilities in respect of the financial statements
Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state
of affairs of the company and of the income and expenditure for that period. In preparing these financial statements, the directors are
required to:

w   select suitable accounting policies and then apply them consistently;

w   make judgements and estimates that are reasonable and prudent;

w   state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in
    the financial statements; and

w   prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in
    business.

The directors confirm that the financial statements comply with these requirements.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial
position of the company and to enable it to ensure that the financial statements comply with the Companies Act 1985. They are also
responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.

The maintenance and integrity of the FSCS website is the responsibility of the directors. The directors recognise that uncertainty
regarding legal requirements may be compounded as information published on the internet is accessible in many countries with
different legal requirements relating to the preparation and dissemination of financial statements.



Corporate Governance
A statement of corporate governance is contained in FSCS' Annual Report.



Auditors
A resolution proposing the re-appointment of PricewaterhouseCoopers as auditors will be put to members at the Annual General
Meeting.




By order of the Board
M Thomas, Secretary
30 May 2002

                                                                                                                    FSCS Annual Report 2001/02   25
       Report of the Auditors
       Independent auditors’ report to the members of Financial Services Compensation Scheme Limited for the year
       ended 31 March 2002




       We have audited the financial statements which comprise the income and expenditure account, the balance sheet, the statement of
       cash flow and the related notes.



       Respective responsibilities of directors and auditors
       The directors' responsibilities for preparing the annual report and the financial statements in accordance with applicable United
       Kingdom law and accounting standards are set out in the statement of directors' responsibilities.

       Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and United
       Kingdom Auditing Standards issued by the Auditing Practices Board.

       We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in
       accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors' report is not consistent with the
       financial statements, if the company has not kept proper accounting records, if we have not received all the information and
       explanations we require for our audit, or if information specified by law regarding directors' remuneration and transactions is not
       disclosed.

       We read the other information contained in the annual report and consider the implications for our report if we become aware of
       any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the
       directors' report.



       Basis of audit opinion
       We conducted our audit in accordance with auditing standards issued by the Auditing Practices Board. An audit includes
       examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an
       assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of
       whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed.

       We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order
       to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstate-
       ment, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the
       presentation of information in the financial statements.



       Opinion
       In our opinion the financial statements give a true and fair view of the state of the affairs of the company at 31 March 2002 and of
       its result and cash flows for the year then ended and have been properly prepared in accordance with the Companies Act 1985.


       PricewaterhouseCoopers
       Chartered Accountants and Registered Auditors
       London
       30 May 2002




26   FSCS Annual Report 2001/02
                                                                                                                                          ACCOUNTS
Financial statements
for the year ended 31 March 2002




INCOME AND EXPENDITURE ACCOUNT

                                              Note          Year ended 31 March 2002             Period from incorporation to
                                                                                                               31 March 2001


                                                                                  £'000                                 £'000

Administrative expenses                        3                                (8,229)                                (1,644)

Other operating income, comprising:                                              8,229                                  1,644

Service charges receivable                     6                                 4,808                                    601

Management expenses recoverable from
Sub-Schemes                                    7                                 2,850                                         -

Recoverable establishment costs                9                                   571                                  1,043



Excess of income over expenditure
on ordinary activities before and after tax                                           -                                        -



All the company's operations were continuing. There is no difference between the gains and losses shown above and those pre-
pared under an historical cost basis. There are no recognised gains or losses other than those shown above.



The Notes on pages 30 to 39 form part of these financial statements.




                                                                                                        FSCS Annual Report 2001/02   27
       Financial Statements
       for the year ended 31 March 2002




        BALANCE SHEET AS AT 31 MARCH 2002

                                                                      Note                     2002                   2001

                                                                                               £'000                 £'000



        Fixed assets                                                      8                    2,407                   193

        Current assets

        Debtors - recoverable establishment costs:
        amounts falling due after one year                                9                     897                  1,043

        Debtors: amounts falling due within one year                     10                  10,132                    162

        Cash at bank and short term deposit                              11                     317                       -


        Total current assets                                                                  11,346                 1,205



        Creditors: amounts falling due within one year

        Bank loan                                                        11                    (600)                 (766)

        Creditors and accruals                                           12                 (11,053)                 (632)

        Provisions for liabilities and charges                           13                        -                      -



        Total current liabilities                                                           (11,653)                (1,398)



        Total assets less current liabilities                                                  2,100                      -

        Creditors: amounts falling due after one year

        Bank loan                                                        11                  (2,100)                      -



        Total net assets                                                                           -                      -

        Accumulated excess of income over
        expenditure                                                                                -                      -



        Approved for and on behalf of the Board of Financial Services Compensation Scheme Limited on 30 May 2002.

        NIGEL HAMILTON, CHAIRMAN



        The Notes on pages 30 to 39 form part of these financial statements.

28   FSCS Annual Report 2001/02
                                                                                                          ACCOUNTS
Financial Statements
for the year ended 31 March 2002




STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
31 MARCH 2002



                                                      Note      2002                        2001

                                                               £'000                        £'000



Net cash inflow / (outflow)
from operating activities                              15      1,202                        (573)



Returns on investment and servicing of finance         16      (129)                            -

                                                               1,073                        (573)



Capital expenditure and financial investments

Payments to acquire tangible fixed assets                     (2,690)                       (193)

Net cash outflow from investing activities                    (2,690)                       (193)



Acquisitions and allocations

Transfer of cash and term deposits at N2               17    108,605                            -

Allocation of fund to Accepting Deposits                      (9,529)                           -

Allocation of fund to Insurance                              (66,217)                           -

Allocation of fund to Designated Investments                 (32,859)                           -

Net cash movement from acquisitions and allocations                 -                           -



Financing activities

Loan received                                                  3,000                            -

Loan repaid                                                    (300)                            -

Net cash inflow from financing activities                      2,700                            -



Increase/(decrease) in cash                            18      1,083                        (766)




                                                                        FSCS Annual Report 2001/02   29
       Notes to the Financial Statements
        for the year ended 31 March 2002


       1   Constitution, accounting period and subsidiary

       Financial Services Compensation Scheme Limited (FSCS) was incorporated on 3 March 2000 and is a company limited by guarantee.
       The members of the company are the directors of the company, and liability is limited to an amount not exceeding £1 for each
       member.



       FSCS was formed as the designated Scheme Manager under s212 of the Financial Services and Markets Act 2000 (FSMA). Its full
       powers were assumed following the coming into force of powers of the Financial Services Authority (FSA), under FSMA, at midnight
       on 30 November 2001. In anticipation of its powers, FSCS acquired Investors Compensation Scheme Limited (ICS) on 1 February
       2001 for £Nil consideration. ICS was the current Scheme Manager under the Financial Services Act 1986 with responsibility for
       compensation for private clients of UK authorised investment firms that have gone out of business, and is a company registered in
       England.



       Financial statements to 31 March 2001 were prepared for the period from incorporation on 3 March 2000 to that date. FSCS assumed
       its full powers as at midnight on 30 November 2001, before which date its expenses were either recovered as service charges or
       deferred as recoverable establishment costs. As from 1 December 2001, management expenses are recoverable from Sub-Schemes.



       The company has one subsidiary, ICS, the financial statements of which show net assets of £Nil. ICS did not trade during the period to
       31 March 2002 although it continued to act in its capacity as Scheme Manager and agent to the ICS Scheme until 30 November 2001.
       In accordance with s229(2) of the Companies Act, consolidated financial statements have not been prepared in view of the
       immateriality of the amounts involved. Financial statements of the ICS Scheme for the year to 31 March 2002 are available from the
       company secretary.



       2   Accounting policies

       The financial statements have been prepared under the historical cost convention and in accordance with applicable FSMA provisions,
       COMP Rules and United Kingdom accounting standards.



       a) Administrative expenses

        These costs are included in the income and expenditure account on an accruals basis.



       b) Pension scheme payments

       FSCS operates both a defined benefit pension scheme and a money purchase scheme. The costs of the money purchase scheme are
       charged to the income and expenditure account as incurred. The costs of the defined benefit scheme are recognised so as to spread
       the cost of pensions over the expected remaining service lives of current employees in the Scheme.



       FSCS continues to account for pensions in accordance with the Statement of Standard Accounting Practice No 24 Accounting for
       Pension Costs. A new standard (Financial Reporting Standard No 17 Retirement Benefits ('FRS 17')) which changes the basis of
       accounting for pensions and other post-retirement benefits will be mandatory for the year ended 31 March 2004. This new standard
       requires certain additional disclosures in accounting periods prior to its implementation. The additional disclosures for the year ended
       31 March 2002 are set out in Note 4.




30   FSCS Annual Report 2001/02
                                                                                                                                                    NOTES
c) Fixed assets

Fixed assets are capitalised and depreciated over their estimated useful lives at the following rate:

w   Computers:                   60% per annum (reducing balance basis)

w   Furniture & equipment:       33 1/3% per annum (reducing balance basis)

w   Building improvements:       straight-line basis over the period of the lease, commencing on occupancy.

Computer software is expensed when incurred.



d) Levies, compensation costs and other items handled on behalf of Sub-Schemes

The Scheme Manager raises levies which are reflected as amounts due to the relevant Sub-Schemes, and receivable from their
Contribution Groups. Compensation offers made, accepted, and, for re-instatement cases, fully valued, but not paid at the year-end
and any recoveries notified before the year-end, but not received by that date, are accrued by the Scheme Manager and reflected as
amounts payable to or receivable from the relevant Sub-Scheme and their Contribution Group(s) in accordance with FSMA and the
COMP Rules.



Management expenses comprise base costs, being the costs of running the Scheme, specific costs, which are the remaining costs
which cover the handling and payment of compensation and establishment costs, which relate to the set-up costs of FSCS prior to 1
December 2001. These expenses are allocated by the Scheme Manager to each Sub-Scheme and Contribution Group in accordance
with the levy principles contained within COMP rules 13.5.5, 13.5.6 and 13.5.11.



e) Foreign currencies

Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are re-translated at the rate of exchange ruling at the balance sheet date. All differences are taken
to the income and expenditure account.



3   Administrative expenses

The following amounts are included within administrative expenses:

                                                             Year ended 31 March 2002                   Period ended 31 March 2001

                                                                                     £'000                                       £'000

Auditor's fees:

    Audit work                                                                          40                                           18

    Non-audit work: Due diligence reviews                                                7                                           76

Operating lease rentals (see note 14)                                                  672                                            -




                                                                                                                  FSCS Annual Report 2001/02   31
      Notes to the Financial Statements
       for the year ended 31 March 2002


        4   Staff costs and FRS 17 disclosure

        As from 1 February 2001, 91 former staff of ICS accepted FSCS' contracts of employment. The average number of employees during
        the year was 106 (2001: 16). At the year end the company had 112 staff comprising 84 permanent and 28 contract and temporary
        staff.

        Employment costs comprise:



                                                                     Year ended 31 March 2002                 Period ended 31 March 2001

                                                                                             £'000                                      £'000

        Aggregate gross salaries together with costs of
        seconded, contract and long term temporary staff                                     3,126                                      1,116

        Employer's national insurance contributions                                            281                                         36

        Employer's pension contributions                                                       278                                         37

                                                                                             3,685                                      1,189



        On 1 February 2001 the pension scheme in the name of the ICS was renamed the Financial Services Compensation Scheme
        Pension Scheme.



        The permanent staff that transferred from ICS to FSCS continued to be members of the FSCS Pension Scheme. The employer's
        pension contributions shown above include the liability to contributions in respect of the service during the year.



        The pension scheme offers employees the better of a defined benefits pension or a pension secured by an individual pension
        account, built up from contributions (with effect from 1 April 2002 contributions to these individual pension accounts ceased). It is
        non-contributory and contracted out of the state scheme. The assets of the scheme are held separately from those of the company.



        The defined benefit pension scheme was valued at 1 April 2001 by a professionally qualified independent actuary on a going concern
        and a discontinuance basis, the required rates of contribution payable being determined by the actuary. It was assumed that the
        investment return would be 7.25% per annum (pre-retirement) and 4.75% per annum (post retirement) and that the average rate of
        increase in pensionable salaries would be 5.5% per annum. The valuation showed that the market value of the pension scheme's
        assets was £2,692,000 and that in the opinion of the actuary, the actuarial valuation of these assets exceeded the liabilities of the
        pension scheme by £172,000 at that date. The current contribution rate is 25.2% of pensionable salaries and the rate commenced
        from 1 January 2002. These contributions include the expenses of running the FSCS Pension Scheme.



        A non-contributory money purchase pension scheme, for permanent staff, has been set up, effective from 1 February 2001. The
        company makes contributions of 5% with potential annual increments of 2% after 2 years' service, and a further 2% after 5 years.
        The staff member may make voluntary contributions, which, to a further 3%, will be matched by the company.




32   FSCS Annual Report 2001/02
                                                                                                                                              NOTES
FRS 17 Retirement Benefits

The valuation used for FRS 17 disclosures has been based on the most recent actuarial valuation at 1 April 2001, as described
above, which has been updated by Buck Consultants, the Scheme actuaries, to take account of the requirements of FRS 17 in order
to assess the liabilities for the scheme at 31 March 2002. Scheme assets are stated at their market value at 31 March 2002.

The financial assumptions used to calculate scheme liabilities under FRS 17 are:



Valuation method                                                        Projected unit

Discount rate                                                                      6.0%

Inflation rate                                                                     2.5%

Increases to pensions in payment (LPI)                                             2.5%

Salary increases                                                                   4.0%



The assets in the scheme and the expected rate of return were:
                                                             Long-term rate of return                  Value at 31 March 2002
                                                          expected at 31 March 2002                                       £'000

Equities                                                                           8.5%                                   2,976

Bonds/Gilts                                                                        5.5%                                          -

Property                                                                           7.5%                                          -

Cash                                                                               4.5%                                          -

Total market value of assets                                                                                              2,976

Present value of scheme liabilities                                                                                     (2,886)

Surplus in the scheme                                                                                                           90

Related deferred tax liability                                                                                                   -

Net pension asset                                                                                                               90



Net assets                                                                                                      31 March 2002
                                                                                                                          £'000

Net assets excluding pension asset                                                                                               -

Pension asset                                                                                                                   90

Amount apportionable to Sub-Schemes                                                                                           (90)

Net assets including pension asset                                                                                               -



Reserves

Accumulated excess of income over expenditure excluding pension asset                                                            -

Pension asset                                                                                                                   90

Amount apportionable to Sub-Schemes                                                                                           (90)

Accumulated excess of income over expenditure                                                                                    -




                                                                                                            FSCS Annual Report 2001/02   33
       Notes to the Financial Statements
       for the year ended 31 March 2002


       5     Directors' emoluments

       Details of directors' emoluments are shown in the directors' report (page 24).



       6     Service charges receivable

       As at 1 February 2001 all staff of ICS were offered contracts of employment by FSCS and as from that date FSCS has provided staff
       and resources to carry out the functions of ICS and the ICS Scheme under a letter of agreement. Similarly, as from that date, FSCS
       has provided operational resources to the functions of the Deposit Protection Board (DPB) under a service level agreement dated 1
       February 2001. Staff and related costs incurred by FSCS on behalf of ICS and DPB were recharged as service charges, which ceased
       as at midnight on 30 November 2001 when FSCS received its full powers, as follows:



                                                                   Year ended 31 March 2002              Period ended 31 March 2001

                                                                                        £'000                                    £'000

       ICS                                                                              4,763                                      596

       DPB                                                                                 45                                        5

                                                                                        4,808                                      601



       The service charge to ICS includes £52,601 (2001: £34,500) for a proportion of FSCS' Board costs since 1 April 2001, allocated on a
       basis of the estimated time spent on ICS matters.



       7     Management expenses recoverable from Sub-Schemes



                                                                   Year ended 31 March 2002              Period ended 31 March 2001

                                                                                        £'000                                    £'000

       Management expenses allocated to Sub-Schemes were:

             Accepting Deposits                                                          278                                          -

             Insurance                                                                   702                                          -

             Designated Investments                                                     1,870                                         -

                                                                                        2,850                                         -




34   FSCS Annual Report 2001/02
                                                                                                                                             NOTES
8   Fixed Assets



                                      Computers        Furniture & Equipment              Building improvements           Total

                                          £'000                          £'000                             £'000          £'000

Cost

Opening balance                                -                              -                             193            193

Additions in the year                       716                            459                            1,374          2,549

Transfer from ICS                           141                               -                                -           141



At 31 March 2002                            857                            459                            1,567          2,883



Accumulated depreciation

Opening balance                                -                              -                                -              -

Charge for the year                        (288)                           (82)                            (106)          (476)



At 31 March 2002                           (288)                           (82)                            (106)          (476)



Net book value at
31 March 2002                               569                            377                            1,461          2,407



Net book value at
31 March 2001                                  -                              -                             193            193




9   Debtors: recoverable establishment costs

The costs incurred in establishing the single compensation scheme, FSCS, are to be recovered from participating firms within FSCS'
Sub-Schemes and Contribution Groups over a period of 3 years commencing 1 December 2001, as provided within the COMP Rules.



                                                                       31 March 2002                            31 March 2001

                                                                                  £'000                                   £'000



Opening balance                                                                   1,043                                       -

Amounts incurred to 30 November 2001
(2001: period to 31 March 2001)                                                    571                                   1,043

Recovered from Sub-Schemes                                                        (179)                                       -

Amounts falling due within one year                                               (538)                                       -

Amounts falling due after one year                                                 897                                   1,043



                                                                                                           FSCS Annual Report 2001/02   35
       Notes to the Financial Statements
       for the year ended 31 March 2002



       10 Debtors: amounts falling due within one year



                                                                                 31 March 2002                               31 March 2001

                                                                                              £'000                                    £'000



       Insurance levy receivable, net of provision                                             276                                          -

       Recoverable establishment costs                                                         538                                          -

       Amounts due from Sub-Schemes:

           Accepting Deposits                                                                  479                                          -

       Amounts due in respect of recoveries                                                8,316                                            -

       Other debtors                                                                           211                                          -

       Prepayments                                                                             312                                       162

                                                                                          10,132                                         162




       11 Bank loan and facilities

       As at 31 March 2002 the company had negotiated facilities for business purposes of £58m, comprising loan facilities of £6m, a
       revolving credit facility of £38m, and £12m multi-currency stand-by loan, all repayable over 5 years, at a floating rate of interest based
       on LIBOR; and an overdraft facility of £2m at a fixed interest rate above base rate.



                                                                                 31 March 2002                               31 March 2001

                                                                                              £'000                                    £'000



       Cash at bank                                                                             63                                          -

       Cash on short term deposit                                                              254                                          -

                                                                                               317                                          -

       Overdraft                                                                                  -                                    (766)

       Bank Loan

           Amounts falling due within one year                                                (600)                                         -

           Amounts falling due after one year                                             (2,100)                                           -

                                                                                          (2,383)                                      (766)




36   FSCS Annual Report 2001/02
                                                                                                                                            NOTES
12 Creditors and accruals

                                              Note                      31 March 2002                          31 March 2001

                                                                                £'000                                    £'000



Amount due to the FSA                             16                                -                                     243

Amount due to ICS Scheme                                                            -                                       24

Compensation payable                                                             468                                         -

Amounts due to Sub-Schemes

  Insurance                                                                     5,699                                        -

  Designated Investments                                                        2,080                                        -

Corporation taxation                                                                1                                        -

Other taxation & social security costs                                           265                                        62

Accruals                                                                        1,123                                     303

Other creditors                                                                 1,417                                        -

                                                                               11,053                                     632



13 Provision for liabilities and charges

                                                                        31 March 2002                          31 March 2001

                                                                                £'000                                    £'000



Provisions for dilapidations of former premises

    Transferred from ICS                                                         234                                         -

    Settled during the year                                                     (234)                                        -

                                                                                    -                                        -



14 Payments under lease agreements

The company has lease commitments as follows:

                                                                                         Leases expiring in:

                                                   Less than one year            Two to five years             Over five years

                                                                £'000                        £'000                       £'000

Amounts payable in year to 31 March 2003

Office rental                                                       -                             -                       724

Equipment rental                                                   4                            33                           -



FSCS relocated in June 2001. The lease for the premises at 1 Portsoken Street, London, is for 18 years from 13 February 2001 to 21
June 2018, but FSCS has the right to break the lease on 24 June 2012.

There are no assets held under finance leases.

                                                                                                          FSCS Annual Report 2001/02   37
       Notes to the Financial Statements
        for the year ended 31 March 2002




       15 Reconciliation of the excess income over expenditure on ordinary activities before interest and tax to net cash
           inflow/(outflow) from operating activities

       The statement set out below relates cash flows to items shown in the income and expenditure account, and balance sheet
       movements:

                                                                        2002                      2002                            2001

                                                                        £'000                     £'000                          £'000

       Excess of income over expenditure on ordinary activities
       before interest and tax                                              -                         -

       Recoverable establishment costs                                                            (571)                         (1,043)

       Establishment costs charged to Sub-Schemes                                                  179                                -

       Depreciation                                                                                476                                -

       Interest transfer from Sub-Schemes                                                          129                                -

       Compensation paid                                             (41,638)                                                         -

       Recoveries received                                               907                                                          -

       Levies received                                               145,703                                                          -

       Funds transferred to Sub-Schemes                             (104,972)                         -                               -

       Increase in debtors                                                                      (9,432)                          (162)

       Increase in creditors                                                                    10,421                             632

       Net cash inflow/(outflow) from operating activities                                        1,202                          (573)



       16 Returns on investments and servicing of finance

                                                                                                  2002                            2001

                                                                                                  £'000                          £'000

       Interest received                                                                              4                               -

       Interest paid                                                                              (133)                               -

                                                                                                  (129)                               -



       17 Transfer of cash and term deposits at N2

                                                                                                  2002                            2001

                                                                                                  £'000                          £'000

       Deposit Protection Board                                                                   9,529                               -

       Policyholders Protection Board                                                           66,217                                -

       Investors Compensation Scheme                                                            31,780                                -

       PIA Indemnity Scheme                                                                       1,079                               -

                                                                                               108,605                                -




38   FSCS Annual Report 2001/02
                                                                                                                                               NOTES
18 Reconciliation of net cash flow to movement in net debt

                                                                                                 2002                      2001

                                                                                                 £'000                    £'000

(Increase)/ decrease in cash and short term deposits in the year                               (1,083)                      766

Cash inflow from loan                                                                            3,000                          -

Cash used to repay loan                                                                          (300)                          -

Increase in net debt                                                                             1,617                      766

Net debt at 31 March 2001                                                                         766                           -

Net debt at 31 March 2002                                                                        2,383                      766



19 Analysis of change in net debt

                                        Opening balance                                  Cash flows          At 31 March 2002

                                              £'000                                             £'000                     £'000

Loan                                             -                                             (2,700)                   (2,700)

Cash and short term deposits,
net of bank overdraft                         (766)                                             1,083                       317

                                              (766)                                            (1,617)                   (2,383)



20 Transactions with related parties

During the period, the company entered into transactions with the following related parties:

   w            The Financial Services Authority (FSA)

   w            Deposit Protection Board (DPB)

   w            Investors Compensation Scheme (ICS)

The FSA appoints, and has the right to remove, directors to the Board of FSCS and it establishes the rules under which the scheme
became operative as from midnight on 30 November 2001. During the year, the FSA provided short term funding to meet certain
establishment costs, before its powers were effected under FSMA. These costs amounted to £74,000 and funds of £317,000 were
paid by FSCS, leaving no amount due at the end of the year.

The FSA is a party to the lease agreement for the company's premises at 1 Portsoken Street, London (see note 14) as guarantor of
performance of the lease.

Amounts were charged to the DPB and ICS for the 8 months ended 30 November 2001 as a service charge as detailed in note 6. As
at 31 March 2002 £Nil was due from ICS.



21 Capital commitments

Capital commitments authorised and contracted for but not provided in the financial statements amount to £Nil in the company.



22 Contingent asset

Under an agreement between ICS and Advizas Limited, dated 26 July 2001, ICS obtained rights over funds of some £13.4m which
are available to cover compensation payments which arise from claims relating to Advizas Limited, which was declared in default on 2
August 2001. Those rights have been assigned to FSCS.


                                                                                                             FSCS Annual Report 2001/02   39
       Sub-Schemes and Contribution Groups
       Financial Statements to 31 March 2002



       As explained in Chapter 13 of the COMP rules of the FSA's Handbook, for funding purposes FSCS is split into three Sub-Schemes:
       the Accepting Deposits Sub-Scheme; the Insurance Business Sub-Scheme; and the Designated Investments Sub-Scheme (COMP
       13.2.4G). Within each Sub-Scheme, there is one or more Contribution Group (COMP 13.2.5G). The FSCS must keep accounts which
       show: (1) the funds held to the credit of each Sub-Scheme and relevant Contribution Group; and (2) the liabilities of that
       Sub-Scheme and relevant Contribution Group (COMP 13.4.12R).

       The powers of the FSA under FSMA became effective as at midnight on 30 November 2001, and financial statements for FSCS'
       Sub-Schemes and Contribution Groups for the period from that date to 31 March 2002 are set out as follows:


                                                                                                                                      Page

       w   Statement of directors' responsibilities in respect of the financial statements                                                40

       w   Summary of Sub-Schemes                                                                                                         41

       w   Accepting Deposits                                                                                                             42

           (Including its Contribution Group A1 - Deposit takers)

       w   Insurance Business                                                                                                             43

           (Including its Contribution Group A3 - Insurance activities - General Insurance;
           and A4 - Insurance activities - Life insurance)

       w   Designated Investments                                                                                                         44

           (Including Contribution Group A16 - Pensions review, and the non-pensions Contribution Groups)

       w   Non-pension Contribution Groups                                                                                          45 to 47

       w   Notes to the Sub-Scheme financial statements                                                                         48 and 49

       w   Report of the auditors                                                                                                         50



       Statement of the directors' responsibilities in respect of the financial statements

       The directors are required to prepare financial statements for each financial year, in accordance with the Requirements, set out
       below:-

       w   select suitable accounting policies and then apply them consistently;

       w   make judgements and estimates that are reasonable and prudent;

       w   prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Scheme will continue in
           business.

       The directors confirm that the financial statements comply with these Requirements.

       The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial
       position of the Scheme and to enable it to ensure that the financial statements comply with the Requirements. They are also
       responsible for safeguarding the assets of the Scheme and hence for taking reasonable steps for the prevention and detection of
       fraud and other irregularities.

       The maintenance and integrity of the FSCS website is the responsibility of the directors. The directors recognise that uncertainty
       regarding legal requirements may be compounded as information published on the internet is accessible in many countries with
       different legal requirements relating to the preparation and dissemination of financial statements.

       By order of the Board

       M Thomas, Secretary

       30 May 2002




40   FSCS Annual Report 2001/02
   Sub-Scheme accounts




                                                                                                                                                  SUB SCHEME
                                                                                                                                                  ACCOUNTS
   Financial Statements to 31 March 2002 - Summary



 Fund movement for the period
 from 1 December 2001
 to 31 March 2002 (see note 1)         Note                 Total           Accepting               Insurance          Designated
                                                                            Deposits                                   Investments
                                                   £'000            £'000   £'000       £'000   £'000      £'000       £'000       £'000


 Compensation costs                      4                     (40,923)                  (19)           (26,453)                (14,451)
                                                               (40,923)                  (19)           (26,453)                (14,451)


 Recoveries receivable                                              9,223                176               7,965                  1,082
                                                               (31,700)                  157            (18,488)                (13,369)


 Management expenses:                    5
   Base costs                                      (750)                    (220)               (176)                  (354)
   Specific costs                                 (2,100)       (2,850)      (58)       (278)   (526)      (702)     (1,516)     (1,870)
   Establishment costs                                              (179)                (54)               (39)                     (86)
                                                               (34,729)                 (175)           (19,229)                (15,325)


 Interest receivable                               2,086                     107                1,502                   477
 Taxation                                          (625)            1,461    (32)         75    (450)      1,052       (143)         334
 Levy receivable                                               145,703                      -           145,703                          -
 Net in / (out) flow in the fund                               112,435                  (100)           127,526                 (14,991)


 Fund balances transferred
 as at 1 December 2001                   3                     106,883              9,359                 64,939                 32,585
 Fund balance at 31 March 2002                                 219,318              9,259               192,465                  17,594


 Statement of assets and liabilities                                £'000               £'000              £'000                   £'000
 at 31 March 2002


 Current assets
   Interest receivable                                               647                  53                568                       26
   Amount receivable from FSCS                                      7,779                   -              5,699                  2,080

   Term deposits and cash at banks                             216,270              9,723               188,031                  18,516

                                                               224,696              9,776               194,298                  20,622


 Current liabilities
   Taxation payable                                                 (672)                (33)              (450)                   (189)
   Amount payable to the Scheme Manager                             (479)               (479)                   -                        -
   Bank overdrafts                       6                      (4,227)                   (5)            (1,383)                 (2,839)
                                                                (5,378)                 (517)            (1,833)                 (3,028)


 Total net assets                                              219,318              9,259               192,465                  17,594

The notes on pages 48 and 49 form part of these financial statements.


Approved for and behalf of the Board of Financial Services Compensation Scheme Ltd on 30 May 2002
NIGEL HAMILTON, CHAIRMAN                                                                                    FSCS Annual Report 2001/02       41
       Sub-Scheme accounts
       Financial Statements to 31 March 2002 - Accepting Deposits


       Fund movement for the period
       from 1 December 2001
       to 31 March 2002 (see note 1)                                 Note          Total
                                                                            Accepting Deposits
                                                                                    A1
                                                                            £'000         £'000


       Compensation costs                                             4                    (19)
                                                                                           (19)


       Recoveries receivable                                                               176
                                                                                           157
       Management expenses:                                          5
          Base costs                                                        (220)
          Specific costs                                                     (58)         (278)
          Establishment costs                                                              (54)
                                                                                          (175)




       Interest receivable                                                   107
       Taxation                                                              (32)           75
       Net in / (out) flow in the fund                                                    (100)


       Fund balances transferred as at 1 December 2001              3(a)                  9,359
       Fund balance at 31 March 2002                                                      9,259


       Statement of assets and liabilities                                                £'000
       at 31 March 2002


       Current assets
          Interest receivable                                                                53
          Term deposits and cash at banks                                                 9,723

                                                                                          9,776


       Current liabilities
          Taxation payable                                                                 (33)
          Amount payable to the Scheme Manager                                            (479)
          Bank overdrafts                                            6                      (5)
                                                                                          (517)




       Total net assets                                                                   9,259




42   FSCS Annual Report 2001/02
Sub-Scheme accounts




                                                                                                                                     SUB-SCHEME
                                                                                                                                     ACCOUNTS
Financial Statements to 31 March 2002 - Insurance




Fund movement for the period
from 1 December 2001
to 31 March 2002 (see note 1)          Note               Total                    Total                 Total
                                                       Insurance                  General                Life
                                                                                   A3                        A4
                                                     £'000    £'000        £'000        £'000       £'000         £'000


Compensation costs                       4                   (26,453)                   (26,426)                    (27)
                                                             (26,453)                   (26,426)                    (27)


Recoveries receivable                                          7,965                      7,965                           -
                                                             (18,488)                   (18,461)                    (27)

Management expenses                      5


Base costs                                          (176)                  (63)                      (113)
Specific costs                                      (526)      (702)      (518)           (581)        (8)         (121)
Establishment costs                                                (39)                     (11)                    (28)
                                                             (19,229)                   (19,053)                   (176)


Interest receivable                                 1,502                 1,461                         41
Taxation                                            (450)      1,502      (438)           1,023       (12)           29
Levy receivable                                              145,703                    145,703                           -
Net in / (out) flow in the fund                              127,526                    127,673                    (147)


Fund balances transferred as
at 1 December 2001                      3(b)                  64,939                     61,300                    3,639
Fund balance at 31 March 2002                                192,465                    188,973                    3,492




Statement of assets and liabilities                            £'000                      £'000                    £'000
at 31 March 2002



Current assets
  Interest receivable                                              568                      557                      11
  Amount receivable from FSCS                                  5,699                      5,723                     (24)
  Term deposits and cash at banks        6                   188,031                    184,491                    3,540
                                                             194,298                    190,771                    3,527


Current liabilities
  Taxation payable                                             (450)                      (442)                      (8)
  Bank overdrafts                        6                    (1,383)                    (1,356)                    (27)
                                                              (1,833)                    (1,798)                    (35)


Total net assets                                             192,465                    188,973                    3,492




                                                                                                   FSCS Annual Report 2001/02   43
       Sub-Scheme accounts
       Financial Statements to 31 March 2002 - Designated Investments



        Fund movement for the period
        from 1 December 2001
        to 31 March 2002 (see note 1)          Note             Total                   Total                  Total
                                                              Designated              Pensions             Non-pensions
                                                             Investments                 A16                  A7 - A15
                                                            £'000       £'000       £'000      £'000       £'000   £'000


        Compensation costs                     4                        (14,451)             (13,163)              (1,288)
                                                                        (14,451)             (13,163)              (1,288)


        Recoveries receivable                                             1,082                  1,065                   17
                                                                        (13,369)             (12,098)              (1,271)

        Management expenses:                   5


        Base costs                                          (354)                        -                 (354)
        Specific costs                                    (1,516)        (1,870)   (1,219)     (1,219)     (297)    (651)
        Establishment costs                                                 (86)                       -              (86)
                                                                        (15,325)             (13,317)              (2,008)




        Interest receivable                                  477                      444                    33
        Taxation                                            (143)           334     (132)         312       (11)         22

        Net in / (out) flow in the fund                                 (14,991)             (13,005)              (1,986)


        Fund balances transferred
        as at 1 December 2001                 3(c)                       31,506                 29,144              2,362
        Fund balances transferred
        as at 1 December 2001 from PIA                                    1,079                  1,079                     -
        Fund balance at 31 March 2002                                    17,594                 17,218                   376


        Statement of assets and liabilities                               £'000                  £'000              £'000
        as at 31 March 2002


        Current assets
          Interest receivable                                                26                    26                      -
          Amount receivable from FSCS                                     2,080                  2,047                    33
          Term deposits and cash at banks      6                         18,516                 18,101                   415
                                                                         20,622                 20,174                   448


        Current liabilities
          Taxation payable                                                (189)                  (185)                   (4)
          Bank overdrafts                      6                         (2,839)               (2,771)                (68)
                                                                         (3,028)               (2,956)                (72)


        Total net assets                                                 17,594                 17,218                   376




44   FSCS Annual Report 2001/02
Sub-Scheme accounts




                                                                                                                                     SUB-SCHEME
                                                                                                                                     ACCOUNTS
Financial Statements to 31 March 2002 - Designated Investments



Fund movement for the period
from 1 December 2001
to 31 March 2002 (see note 1)         Note       Total                  Total                      Total
                                              Non-pensions         Fund managers             Fund managers
                                                                    holding client          not holding client
                                                                    money/assets              money/assets


                                                                           A7                      A8


                                              £'000       £'000    £'000        £'000      £'000        £'000


Compensation costs                     4                 (1,288)                       -                    (4)
                                                         (1,288)                       -                    (4)


Recoveries receivable                                        17                        -                      -
                                                         (1,271)                       -                    (4)


Management expenses:                   5
  Base costs                                  (354)                 (54)                    (26)
  Specific costs                              (297)       (651)        -         (54)          -           (26)
  Establishment costs                                       (86)                 (14)                       (6)
                                                         (2,008)                 (68)                      (36)


Interest receivable                             33                     2                       -
Taxation                                       (11)          22      (1)              1        -              -
Net in / (out) flow in the fund                          (1,986)                 (67)                      (36)


Fund balances transferred
as at 1 December 2001                 3 (c)               2,362                      82                     43
Fund balance at 31 March 2002                               376                      15                      7


Statement of assets and liabilities                       £'000                 £'000                   £'000
at 31 March 2002

Current assets
  Amount receivable from FSCS                                33                       1                       -

  Term deposits and cash at banks                           415                      17                      8

                                                            448                      18                      8



Current liabilities
  Taxation payable                                           (4)                       -                      -
  Bank overdrafts                                           (68)                     (3)                    (1)
                                                            (72)                     (3)                    (1)


 Total net assets                                           376                      15                      7


                                                                                                   FSCS Annual Report 2001/02   45
       Sub-Scheme accounts
       Financial Statements to 31 March 2002 - Designated Investments (continued)




          Fund movement for the period
          from 1 December 2001
          to 31 March 2002 (see note 1)         Note             Total                       Total                       Total
                                                        Managers of AUT’s            Dealing as               Execution only
                                                           ACD’s and                     principal                   brokers
                                                          depositories

                                                                  A9                         A10                         A11


                                                         £'000           £'000   £'000               £'000   £'000               £'000


          Compensation costs                    4                            -                           -                           -
                                                                             -                           -                           -


          Recoveries receivable                                              -                           -                           -
                                                                             -                           -                           -


          Management expenses:                  5
            Base costs                                    (21)                     (55)                        (10)
            Specific costs                                   -            (21)           -            (55)           -            (10)
            Establishment costs                                            (5)                        (13)                         (2)
                                                                          (26)                        (68)                        (12)


          Interest receivable                                -                           2                           -
          Taxation                                           -               -      (1)                 1            -               -
          Net in / (out) flow in the fund                                 (26)                        (67)                        (12)


          Fund balances transferred
          as at 1 December 2001                 3 (c)                      31                          82                          14
          Fund balance at 31 March 2002                                     5                          15                           2


          Statement of assets and liabilities                            £'000                       £'000                       £'000
          at 31 March 2002

          Current assets
            Amount receivable from FSCS                                      -                          1                            -

            Term deposits and cash at banks                                 6                          17                           2

                                                                            6                          18                           2


          Current liabilities
            Taxation payable                                                 -                           -                           -
            Bank overdrafts                                                (1)                         (3)                           -
                                                                           (1)                         (3)                           -


          Total net assets                                                  5                          15                           2


46   FSCS Annual Report 2001/02
Sub-Scheme accounts




                                                                                                                                                  SUB-SCHEME
                                                                                                                                                  ACCOUNTS
Financial Statements to 31 March 2002 - Designated Investments (continued)




 Fund movement for the period
 from 1 December 2001
                                       Note            Total                   Total                     Total                  Total
 to 31 March 2002 (see note 1)
                                               Brokers holding         Brokers not holding      Corporate Advisers          Advisory only
                                                 client money/           client money/
                                                     assets                  assets

                                                       A12                     A13                       A14                    A15


                                               £'000           £'000   £'000           £'000     £'000         £'000        £'000       £'000


 Compensation costs                     4                      (202)               (1,076)                          -                       (6)
                                                               (202)               (1,076)                          -                       (6)


 Recoveries receivable                                             -                     17                         -                         -
                                                               (202)               (1,059)                          -                       (6)


 Management expenses:                   5
   Base costs                                   (67)                   (105)                      (15)                        (1)
   Specific costs                               (42)           (109)   (255)           (360)         -           (15)           -           (1)
   Establishment costs                                          (16)                    (26)                      (4)                         -
                                                               (327)               (1,445)                       (19)                       (7)


 Interest receivable                              6                      23                          -                          -
 Taxation                                        (2)              4      (7)             16          -              -           -             -
 Net in / (out) flow in the fund                               (323)               (1,429)                       (19)                       (7)


 Fund balances transferred
 as at 1 December 2001                 3 (c)                    385                    1,694                      23                         8
 Fund balance at 31 March 2002                                   62                     265                        4                         1


 Statement of assets and liabilities                           £'000                   £'000                   £'000                    £'000
 at 31 March 2002

 Current assets
   Amount receivable from FSCS                                    6                      24                        1                          -

   Term deposits and cash at banks                               68                     292                        4                         1

                                                                 74                     316                        5                         1


 Current liabilities
   Taxation payable                                              (1)                     (3)                        -                         -
   Bank overdrafts                                              (11)                    (48)                      (1)                         -
                                                                (12)                    (51)                      (1)                         -


 Total net assets                                                 62                      265                           4                     1


                                                                                                          FSCS Annual Report 2001/02        47
       Notes to the Sub-Scheme Financial
       Statements                         for the period to 31 March 2002


       1    Accounting period

       As explained on pages 24 and 30, FSCS' Sub-Schemes and Contribution Groups became operational as from midnight on
       30 November 2001, and the financial statements show transactions for the four-month period from that date to 31 March 2002, and
       the fund statements of assets and liabilities at that date.



       2    Accounting policies

       The financial statements have been prepared in accordance with the following accounting policies:

       a) Basis of accounting

       The financial statements have been prepared under the historical cost convention and on the basis that FSCS Limited, as Scheme
       Manager, will exercise its responsibilities under FSMA and the COMP rules to recover management expenses and compensation
       costs.

       b)   Compensation costs

       These costs, which include interest paid to claimants, comprise payments made to claimants and amounts for offers which have been
       made and accepted, and for reinstatement cases fully valued, but which have not been paid at the balance sheet date. No account
       has been taken of compensation costs in respect of offers accepted after the balance sheet date.

       c)   Recoveries

       Recoveries are credited to funds when received, and when notified, in respect of Scheme dividends from liquidators/provisional
       liquidators, or notified and agreed in respect of other recoveries, which have not been received by the balance sheet date.

       d) Management expenses

       Management expenses comprise base costs, being the costs of running the Scheme, specific costs, which are the remaining costs
       which cover the handling and payment of compensation and establishment costs, which relate to the set-up costs of FSCS prior to 1
       December 2001. These expenses are allocated by the Scheme Manager to each Sub-scheme and Contribution Group in accordance
       with the levy principles contained within COMP rules 13.5.5, 13.5.6 and 13.5.11.

       e) Levies

       Levies raised are credited on receipt.

       f)   Foreign currencies

       Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities
       denominated in foreign currencies are re-translated at the rate of exchange ruling at the balance sheet date. All differences are taken
       to the income and expenditure account.

       g) Cash flow

       No statement of cash flow is prepared because, in the opinion of the directors, this would not provide any useful information in
       addition to that already provided in the statements of Fund movement, and assets and liabilities.



       3    Fund balances transferred as at 1 December 2001

       Under the terms of HM Transitional rules, made to cover the cessation of the two active former statutory schemes DPB and PPB, and
       Agreements with ICS and the PIA Indemnity Scheme, fund balances as at 1 December 2001 were transferred to FSCS, for the credit,
       as appropriate, of the Sub-Schemes and Contribution Groups.

       a) Accepting Deposits

       The balance of the DPB fund of £9,078,494 and Distribution Account of £280,248, as recorded in DPB's audited accounts as at 30
       November 2001, were transferred and attributed to Contribution Group A1 - Deposit takers.




48   FSCS Annual Report 2001/02
                                                                                                                                                SUB SCHEME NOTES
b) Insurance

The balance of PPB's accumulated funds, as recorded in their audited accounts as at 30 November 2001 were transferred to the
Sub-Scheme with the General business fund of £60,513,000 attributed to Contribution Group A3:- General Insurance, and the
Long-term business fund of £3,639,000 attributed to Contribution Group A4:- Life Insurance.

c) Designated Investments

Under an Agreement of 26 November 2001, ICS agreed that its funds, as at 1 December 2001, subject to audit, will be transferred to
FSCS' Pension Review (A16) and other Contribution Groups within the Designated Investment Sub-Scheme. As shown in the audited
financial statements of ICS as at 31 March 2002, the fund balance is £31,506,000, which has been allocated to individual Contribution
Groups within the Sub-Scheme by reference to the amounts levied to firms for their 2000/01 ICS Scheme-Year levy, and the related
compensation payments made.

Under a further agreement between FSCS Limited and PIA of 31 January 2002, an amount of £1,079,000 was transferred from PIA to
FSCS, which covered the balance of a levy made by the PIA in respect of their Indemnity Scheme, less related claims paid. This
amount has been attributed to the Contribution Group A16: Pensions Review.



4   Compensation costs

Payments to valid claimants are made in accordance with the COMP rules and are summarised within Sub-Scheme records by type of
claim and defaulting firm. Extracts from these summaries are shown within FSCS' Annual Report and further details may be obtained
from FSCS' Company Secretary and its Website. Many claims relate to firms which were handled previously by the former schemes.
Details of claims paid in the period to 30 November 2001 are available for Sub-Schemes as follows:

w   Accepting Deposits: DPB's audited accounts to 30 November 2001;

w   Insurance: PPB's audited accounts to 30 November 2001 (copies of these documents can be obtained from the Company
    Secretary at FSCS);

w   Designated Investments: the ICS financial statements to 31 March 2002, which are enclosed with FSCS' Annual Report.



5   Management expenses

As stated above, (note 2d), management expenses are allocated to Contribution Groups under the rules within COMP, chapter 13.
The shares of establishment costs are based on the allocation set out in COMP 13.5.11R, and cover 4/36ths of the balance as at 30
November 2001, which is being recovered over a three-year period. As sufficient funds were available within each Sub-Scheme
during the period from 1 December 2001 and 31 March 2002, no levy notices have been raised to participant firms for management
expenses for this period, and no related levy amounts are due to be paid by levy payers.



6   Term-deposits and cash at banks

Cleared money at banks is placed on term-deposits for periods ranging from overnight to 3 months for each Sub-Scheme, to
maximise available interest returns, but within strict limits and procedures, laid down and reviewed regularly by FSCS' Board.

Due to this management of available cash, cheques or other effects which are drawn but not presented are recorded within the
Sub-Scheme's cash book balances, which appear to be in debit, and are shown as bank overdrafts on the statement of Sub-Scheme
assets and liabilities. Cash balances are monitored daily, so, in effect, no unauthorised overdraft is maintained with Sub-Scheme
bankers.

As at 31 March 2002, FSCS is a party to various joint accounts with claims administration companies involved with the Insurance
business schemes and payments to policyholders. The balances of these accounts at 31 March 2002 of £1,971,000 are included
within term-deposits and cash at banks in the Insurance Sub-Scheme statement of assets and liabilities.




                                                                                                              FSCS Annual Report 2001/02   49
           Report of the Auditors
           Report of the Independent Auditors of the Financial Services Compensation Scheme to the Financial Services
           Authority



            We have audited the financial statements for the period ended 31 March 2002 which comprise the movement in the Sub-Scheme
            funds, the statements of assets and liabilities, and related notes.

            Respective Responsibilities of the Scheme and Auditors

            The scheme manager's responsibilities, on behalf of the Scheme, for preparing the financial statements are set out in the Statement of
            directors' responsibilities in respect of the financial statements. Our responsibilities, as independent auditors, are established by the
            Auditing Practices Board and our profession's ethical guidance.

            We report to you our opinion as to whether the financial statements have been properly prepared in accordance with:

            w   Section 218 of the Financial Services and Markets Act 2000;

            w   the FSA Handbook (in particular rule COMP 2.2.5);

            w   the FSA-FSCS Memorandum of Understanding (sections 24 to 26); and

            w   the accounting policies set out on pages 48 and 49.

            We also report to you if, in our opinion, the scheme manager has not kept proper accounting records for the Scheme, or if we have
            not received all the information and explanations we require for our audit.



            Basis of Opinion

            We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination,
            on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the
            significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the
            accounting policies are appropriate to the Scheme's circumstances, consistently applied and adequately disclosed.

            We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to
            provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement,
            whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the
            presentation of information in the financial statements.



            Opinion

            In our opinion the financial statements for the period ended 31 March 2002 have been properly prepared in accordance with:

            w   Section 218 of the Financial Services and Markets Act 2000;

            w   the FSA Handbook (in particular rule COMP 2.2.5);

            w   the FSA-FSCS Memorandum of Understanding (sections 24 to 26); and

            w   the accounting policies set out on pages 48 and 49.




            PricewaterhouseCoopers
            Chartered Accountants and Registered Auditors
            London
            30 May 2002




50   FSCS Annual Report 2001/02
Default declarations




                                                                                                                                                 DEFAULTS
1 December 2001 to 31 March 2002

The following firms were declared in default by FSCS during 2001/02. Firms declared in default during previous years are listed in previ-
ous Annual Reports of the Investors Compensation Scheme (ICS), including those declared in the period 1 April 2001 - 30 November
2001, copies of which can be obtained by contacting FSCS.



FSCS Default Declarations 1 December 2001 to 31 March 2002
Firm                                                                                                                  Declaration Date
Sterling Financial Consultants Limited                                                                                        21-Dec-01
Marshall Wooldridge (TCB) Limited                                                                                             21-Dec-01
Meryl Court Technical Services plc (formerly Redcliffe Associates plc)                                                        21-Dec-01
Stephen Crawley (formerly trading as Sterling Management)                                                                     21-Dec-01
Kedleston Investment Limited                                                                                                  21-Dec-01
Arthur Sims Financial Services                                                                                                21-Dec-01
Arrowings Limited                                                                                                             21-Dec-01
Gerald Standley (formerly trading as Cathedral Life & Pensions)                                                               21-Dec-01
Mr W J Quick trading as W J Quick, Griffiths & Co                                                                             21-Dec-01
Lawrance Financial Services Limited                                                                                           21-Dec-01
Paul McIntyre and Carol McIntyre (formerly trading as The Insurance Centre)                                                   21-Dec-01
Waterford Investments Limited                                                                                                 21-Dec-01
Sandbourne Pension Planning Limited                                                                                           21-Dec-01
Lansdowne Financial Services                                                                                                  21-Dec-01
H. G. Assurance Consultants                                                                                                   21-Dec-01
David Goldsborough (Insurance Brokers) Limited                                                                                21-Dec-01
Elkan & Barry Simons Limited                                                                                                  21-Dec-01
D. G. Stocker (Consultants) Limited                                                                                           21-Dec-01
Tony Brown Financial Advisers                                                                                                 21-Dec-01
H Connew (Financial Planning) Limited                                                                                         21-Dec-01
Aiken & Higham Limited                                                                                                        21-Dec-01
Black Portch and Swain (Financial Services) Limited                                                                           21-Dec-01
Mr Simon Thorpe (formerly trading as Simon H N Thorpe & Company)                                                              21-Dec-01
Planned Futures (Scotland) Limited                                                                                            21-Dec-01
Inishowen Finance Investment & Tax Counsellors                                                                                21-Dec-01
Shandon Mortgage Centre                                                                                                       21-Dec-01
Bateson & Payne (Life & Pensions Consultants) Limited (formerly Bateson & Payne (Life & Pensions Brokers) Ltd)                21-Dec-01
Tax & Financial Services (Sussex) Limited                                                                                     21-Dec-01
Vince Walker Independent Financial Adviser                                                                                    21-Dec-01
Peter Harries (formerly trading as Robert Halsey Insurance Brokers)                                                           03-Jan-02
Maureen Randell F.C.I.I. Insurance Consultant                                                                                 04-Jan-02
Bristol Flyover Company Limited (formerly ABC Financial Advice Centre Limited)                                                04-Jan-02
Cardwell & Drew (Financial Services) Limited                                                                                  07-Jan-02
Cable Insurance Consultants                                                                                                   08-Jan-02
William G Church (formerly trading as Unsworth Insurance Services)                                                            08-Jan-02
Tink Insurances                                                                                                               14-Jan-02
Clevedon Mortgages (Life & Pensions)                                                                                          15-Jan-02
Gerald Bolton (formerly trading as G W Bolton Insurance Brokers)                                                              15-Jan-02


                                                                                                              FSCS Annual Report 2001/02    51
       Frank Swan (formerly trading as Frank Swan Brokers)                                                             17-Jan-02
       Rodney G F Annable Esq.                                                                                         21-Jan-02
       Stockbridge Associates Limited                                                                                  31-Jan-02
       J D H Blackburn (Life & Pensions) Limited                                                                       31-Jan-02
       Calder Kidsons Impey (Financial Services) Limited
       (formerly Calder Kidsons Jess (Financial Services) Ltd & Kidsons Jess Financial Services Ltd)                   31-Jan-02
       Kevin Rees and Ivor & Anita Rees trading as Rees Insurance                                                      31-Jan-02
       John A Halladay Limited                                                                                         31-Jan-02
       Sedgemoor Financial Services Limited                                                                            31-Jan-02
       Omniway Limited                                                                                                 31-Jan-02
       Michael Stork and John Delmar-Morgan (formerly trading as Morgan Stork)                                         31-Jan-02
       Wyndham Insurance Services Limited                                                                              31-Jan-02
       Sheffield Insurance Services Limited                                                                            31-Jan-02
       Citidesk Services Limited                                                                                       31-Jan-02
       Arthur Plunkett trading as South Riding Insurance Services                                                      31-Jan-02
       David Cheeper Mortgage & Associated Services Limited                                                            31-Jan-02
       Lynx Financial Services Limited                                                                                 05-Feb-02
       Cleeves & Co Limited                                                                                            05-Feb-02
       Currie & Baker Limited                                                                                          07-Feb-02
       Cox Hepburn (Financial Services) Limited                                                                        07-Feb-02
       Ivor and Frances Simon (formerly trading as Simon Corr & Company)                                               07-Feb-02
       James Lytle (Worthing) Limited                                                                                  11-Feb-02
       David Matthews (formerly trading as D C Matthews Insurance Consultants)                                         11-Feb-02
       Paul Henderson (formerly trading as Henderson & Company)                                                        13-Feb-02
       The Lines Partnership Limited (formerly Linda Lines Associates Limited and currently L.L.Partnership Limited)   13-Feb-02
       Julie Mingaye trading as Esseveld Enterprises                                                                   13-Feb-02
       Richard Bloomfield (Assurance Services) Limited (formerly Rateunique Limited)                                   13-Feb-02
       M.R.I. Insurance Consultancy                                                                                    13-Feb-02
       Clarendon Holdings Limited (formerly Jennings Neale & Jay Financial Services Limited)                           13-Feb-02
       Bradstock Insurance Brokers Limited (formerly Bradstock Blunt (Northern) Limited)                               22-Feb-02
       Bradstock Blunt (Scotland) Limited                                                                              22-Feb-02
       Solicitors Estate Agency (Glasgow) Limited                                                                      26-Feb-02
       Patterson Paton Limited                                                                                         26-Feb-02
       Independent Insurance & Financial Services Limited                                                              26-Feb-02
       Bradstock Financial Planning Limited (formerly crossways Financial Planning Limited                             27-Feb-02
       Bobetro Finance Company Limited                                                                                 13-Mar-02
       Brittain & Booth Limited                                                                                        18-Mar-02
       H Moss Insurance & Mortgage Services                                                                            19-Mar-02
       K Brown & Co (Newcastle) Limited (In Liquidation)                                                               25-Mar-02
       T.T. Independent Financial Advisers Limited (formerly T.T. International Brokers Limited)                       27-Mar-02




52   FSCS Annual Report 2001/02
Financial Services Compensation Scheme

7th Floor, Lloyds Chambers, 1 Portsoken Street, London E1 8BN
Telephone +44 (0)20 7892 7300 Facsimile +44 (0)20 7892 7301
www.fscs.org.uk


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