LevyMay 25 2023

FSCS levy cut only ‘short-term respite’ for firms

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FSCS levy cut only ‘short-term respite’ for firms

The Financial Services Compensation Scheme has slashed its overall levy by nearly half but this will only offer a short-term respite for firms, according to Pimfa.

Simon Harrington, head of public affairs at Pimfa, said it was good news for firms that the levy forecast has reduced but he said the trade body still had concerns about the future compensation framework.

This morning (May 25), the FSCS cut the amount of levy it expects the industry to pay by almost half - but has said advisers are driving the majority of claims coming into the lifeboat scheme. 

The total bill expected for 2023-24 is £270mn, down from the £478mn estimated in November.

The amount advice firms are being asked to pay has only fallen by £4mn - to a collective £101mn.

Harrington said: “Every consumer who finds themselves having to use the FSCS to receive redress is a consumer who has received a bad outcome that it would have been better to avoid in the first place.

“It is therefore extremely pleasing to see that fewer consumers have found themselves in need of help from the FSCS in the past year, leaving the FSCS with a forecasted surplus from 2022-23.

“Moreover, given the FSCS levy represents one of the few uncontrolled costs faced by well-run firms each year - and therefore it has a significant financial impact on them - any reduction in the levy, and let us be clear the forecast for next year represents a significant reduction, is clearly welcome news.”

But this is only a short relief as there are concerns that costs will inevitably arise from pension freedoms and the Covid pandemic. 

“It is therefore likely that today's forecast represents short-term respite for firms,” Harrington said.

“As costs rise, it is vital that the Treasury recognises the burden placed on well-run firms. We would still urge the regulator and more importantly the Treasury to consider a longer-term solution that uses alternative sources of funding. 

“Financial Conduct Authority fines, which are currently diverted to the Exchequer remain a sizeable source of income which would be consistent with our, the FCA's and wider industry's view that the polluter should pay.”