FSCS management expenses up 5% to £95.5m

FSCS management expenses up 5% to £95.5m

The Financial Services Compensation Scheme's management expenses budget will increase by £5m next year to £95.5m.

The FSCS said its costs were rising due to a greater number of more complex claims - specifically in the area of pension transfer advice.

The increase includes £3.4m more towards investigating and assessing claims and £1.5m more to cover “critical” business support functions such as human resources and IT.

On top of this, the FSCS has also included a £15m unlevied reserve like last year which will only be invoiced to firms and used if necessary.

FSCS chief executive Caroline Rainbird said: "A key driver behind the expenses we are anticipating for 2022-23 is an ongoing trend in more complex claims with higher processing costs.

“Of particular note is an increasing number of claims coming through from customers who were given poor advice to move their pensions into unsuitable investments. 

“These claims cost us more to process as they have longer handling times and require specialist staff to assess them and calculate the necessary compensation.”

She added: "As well as more pension-related claims, we are seeing more individual firm failures that are associated with multiple financial products which are also complex to process."

In the past financial year, the FSCS said it has made more than 9,000 requests to firms for claims evidence gathering - an 80 per cent increase on the same time last year and a four-fold increase on 2018-19.

But despite the surge in pension transfer advice claims, the FSCS also acknowledged around 70 per cent of its pay-outs still related to advice which occurred five years or more before a customer made their claim.

“This lag in the system, as well as the growing complexity of claims, highlights the challenges ahead of us all and demonstrates the need for change,” it said.

Despite raising its management expenses budget by £5m, the regulator did managed to underspend by £5m last year.

The FSCS saved £5.2m of its 2021-22 management expenses budget, spending £85.3m against the expected £90.5m.

"We are doing everything within our power to keep our costs down, including making strategic choices to reduce spend across the business and keeping the rise in our controllable costs below 3 per cent,” said Rainbird.

“That said, it is important for the industry to be aware that despite our efforts, the sheer complexity of claims means we will likely see a rise in our management expenses over the coming years."

The regulator cited its use of artificial intelligence as key to cutting costs, including its new data lake and search tool.

During 2021, the FSCS said AI enabled it to handle “more than two years’ worth of claims in six months”, as well as avoid additional claims handling costs of around £9m.