The decision to raise an interim levy has to be made taking into account the particular circumstances that are relevant at the time, according to the Financial Services Compensation Scheme.
A spokesman for the FSCS said the scheme will only raise an interim levy where staff have reasonable grounds for believing that the funds available to meet relevant compensation costs or management expenses for the period until the next levy is due are, or will be, insufficient.
The spokesperson states it is likely any levy raised among any sub-class would be in excess of £10m, and would not go above £20m without being given “careful thought”.
Supplementary levies have been required in each of the last five years, though a £30m levy to hit investment intermediaries before the end of the 2013 to 2014 financial year did not ultimately go ahead.
The FSCS states that its new three-year funding model will reduce the need for interim levies.
The spokesman said: “We cannot levy in advance where there is not a reasonable expectation that we would have to deal with claims in a particular sector.
“Borrowing between classes or using our commercial facilities is generally only utilised as a way of managing short term cash flow, or where the amount of the funding shortfall is considered to be too small to warrant an interim levy.
“We would not normally expect to raise an interim levy on any class for an amount of less than £10m, and would give careful thought to amounts upwards to say £20m, especially if the compensation became due close to the end of the financial year.”
The FSCS stated it does not take levy decisions, either to trigger or otherwise affect contributions between classes.
The key purpose of the levy, according to the FSCS, is to safeguard sufficient funding for known or reasonably expected costs, applied as within the rules.
An FSCS spokesman said: “We have had to raise supplementary levies in each of the last five years because our traditional approach of levying only for the costs of which we can be reasonably confident over the next 12 months inevitably takes no account of failures which haven’t occurred or crystallised at the time we set the levy.
“Using a three year rolling average, adjusted for any established trends, should reduce the volatility of our levies.”
