The FCA and PRA are jointly consulting on the management expenses levy limit for the Financial Services Compensation Scheme (FSCS). This limit represents the total management expenses that the FSCS can levy on financial services firms in a year to cover the cost of operating the scheme without the need for further consultation. Compensation costs are levied separately.
The proposed levy is £110.5 million for 2022/23, consisting of the £95.5 million management expenses budget announced by the FSCS and an unlevied contingency reserve of £15 million. The management expenses budget covers the FSCS’s ongoing operating costs and the contingency reserve allows it to raise additional funds at short notice to meet unforeseen costs. The FSCS notes in its budget update that this represents a £5 million increase on the expenses budget that was announced in January 2021, and identifies the following justifications:
- an ongoing trend in increasing numbers of complex claims requiring additional time, resource and expertise;
- an expectation for complex claims to account for approximately 43% of all its decisions in 2022/23 (an increase of 26% compared to 2021/22).
Additionally, the FSCS expects to end the 2021/22 financial year £5.2 million below budget; any surplus will be used to help offset the 2022/23 levy.
The consultation is open for responses until 14 February 2022. Responses will be considered by both the FCA and the PRA, after which the FCA will issue a Handbook Notice and the PRA will issue a Policy Statement. The rules will be in place from 1 April 2022 (the start of the FSCS’s financial year).