The Financial Services Compensation Scheme (FSCS) has been forced to raise a £92m supplementary levy following an increase in pension advice claims and other high profile firm failures.
In an announcement this morning (November 25), the lifeboat scheme said £8m would be raised from the life distribution and investment intermediation class, as it had reached the maximum level it can charge this class in a year.
Surpluses across other classes will contribute £33m and the scheme will also raise an additional £51m from the other classes, including those in the retail pool.
The supplementary levy is a separate pot that all classes are required to contribute to, where they have not reached their annual maximum, and it is only used when one class exceeds its annual levy limit.
But the FSCS warned today’s figures were still “subject to change” due to the current high levels of uncertainty in the market.
The lifeboat scheme will confirm any additional levies along with its forecast 2021/22 annual levy figures in its plan and budget, which will be published in January 2021.
Invoices to firms will be issued shortly after.
Breakdown of £92m total supplementary levy
Contribution from the Investment Provision class surplus
Contribution from LDII class
Contribution from the Deposit class's £7m surplus
Amount called from other classes (non-LDII), including those in the retail pool
Caroline Rainbird, chief executive of the FSCS, acknowledged the extra levy was “unwelcome news” for firms given the current climate.
Ms Rainbird said: “We only raise a supplementary levy when we absolutely have to, when we estimate that we will not have sufficient funds to meet rising compensation costs or management expenses for the period until the next levy is due.
"Whilst we share the industry's concerns about rising compensation costs and increasing levies, we firmly believe there is no silver bullet and regulation alone will not solve this complex problem.”
Over a number of years, the FSCS has seen more firms failing, which has contributed towards the rising levy.
This year, alongside failures such as Greyfriars Asset Management LLP and Pointon York Ltd, the lifeboat scheme has seen more compensation pay-outs to customers resulting from the failure of London Capital & Finance (LCF).
There has also been an increase in pension advice claims and additional costs in relation to the transfer of cash and assets from investment firms, including Reyker Securities.
Ms Rainbird warned the industry must work together to bring levy costs down.
She said: “Only by the regulators, industry and FSCS all working together effectively will we be able to address these problems, deliver better outcomes for consumers and reduce future levy bills. That is why we also call for the industry to help support us by calling out bad actors and scams.
"It is still too soon to know the full effects of Covid-19 on the industry, but we must all be prepared for a challenging period in 2021.
“I want to reassure everyone that FSCS is ready to handle whatever difficulties next year will bring."
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