The FCA Smaller Business Practitioner Panel has published its response to the FOS consultation on the calculation of interest firms must pay on compensation awards.
The Panel supports the proposal to adopt a tracker rate tied to the BoE’s average base rate plus 1%, noting clear rationale for this approach:
- Alignment with market conditions, ensuring compensation interest awards remain fair and proportionate, avoiding potential over – or under – compensation that can arise from the current fixed 8% rate;
- Enhanced fairness for all parties – the Panel feels that this option strikes a balance between ensuring that complainants are adequately compensated for the loss of funds and avoiding placing an undue burden on firms;
- Consistency and predictability – a tracker rate would be simple and transparent for both consumers and firms to understand and apply. Tying it to an average base rate ensures that short-term market fluctuations do not create uncertainty or administrative complexity;
- Future-proof and dynamic – unlike a static rate, the tracker rate would naturally adjust over time as market rates change, ensuring ongoing fairness without the need for frequent reviews or further consultations.