Financial Services Compensation Scheme  

Volume and complexity of claims forces FSCS levy up

Volume and complexity of claims forces FSCS levy up

The Financial Services Compensation Scheme’s management levy will increase by nearly 5 per cent for 2020-21 due to an expected rise in the volume and complexity of claims.

According to proposals published by the Financial Conduct Authority and the Prudential Regulation Authority today (January 15), the lifeboat scheme will be able to levy up to £78.2m for its management expenses from April 2020.

This is up 4.8 per cent from the £74.6m allowed for last year. The FSCS will also receive an unlevied contingency reserve of £5m.

About 75 per cent of the increase can be attributed to a forecast rise in the volume and complexity of claims expected by the FSCS, the consultation from the City watchdog and the BoE said.

The document shows the FSCS’s budget for outsourced claims handling has jumped 29 per cent to £3.9m from 2019-20 to 2020-21.

The FSCS’s compensation costs levy, which covers compensation paid to consumers, is determined separately by the FSCS and does not form part of the consultation.

Advisers will see their levy increase by 8 per cent to £18.8m while mortgage broker levy costs will go down 15 per cent to £1.3m.

Claims handling infrastructure and support constitutes the largest part of the management expenses budget, amounting to £57.9m, while core support costs such as IT, facilities and central services will reach £30 million.

Depositor readiness — the FSCS’s borrowing facility which pays out following significant firm failures — will cost around £7.2m while staff costs will be nearly £23m.

The scheme is planning to hire 18 new staff members during 2020-21, with a focus on IT and legal teams. According to the document the increased headcount is also predominantly to handle the expected increase in complex claims.

The consultation stated: “Setting the management expenses levy limit at £83.2m [including £5m contingency] ensures the FSCS can continue to operate and to meet its objective of providing a compensation scheme that is efficient, fair, approachable and responsive.

“If a Mell was not set then the FSCS would not be able to operate and provide direct benefits to consumers through the payment of compensation to eligible claimants in the event of firm failure. 

“While the wider benefits of the FSCS are hard to quantify, the direct benefit to consumers from FSCS compensation is forecast to be £548m in 2019-20.”

imogen.tew@ft.com

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