Sector overviews

Complete updates for each industry sector, including the variance from the figures publishedin our recent Plan and Budget, can be found in the Tables. This section provides explanations for the sectors experiencing most movement in their annual levy levels.

Deposits

Two credit unions failed prior to the 2018/19 year-end and this left a deficit in the class which is being recouped. As such the levy is now set at £19m including provider contributions – an increase of £3m.

 

General Insurance Provision

The final levy has increased by £1m as a result of a £25m increase in the compensation forecast to March 2020. This mainly reflects revisions to the expected continuing claims costs in some of the historic estates. The main increases are in relation to BAI (£7m), Chester Street (£4m) and Gable (£3m) offset by a reduction in Enterprise (£6m). This is offset by a £24m surplus brought forward from the previous year.

 

Life, Pensions and Investment Advice

The levy required for Life, Pensions and Investment advice is reduced by £29m to £211m because of a reduction in the expected costs of compensation. Of this £58m is funded by provider contributions, leaving £153m to be paid by advisors themselves. 

 

Our latest experience is that the pension claim volumes are flattening out. We have therefore reduced the pensions advice claims forecast from 10,600 to 8,200.

 

In addition, we have re-assessed the allocation of claims against Beaufort Securities based on negligent advice to invest in unsuitable stocks, following the review of some cases. We now think that around two thirds of these claims will most likely arise from discretionary fund management activity and so be Investment Provision claims. This reduces the cost on life, pension and investment advisors by £8m, with a commensurate transfer to Investment Providers. 

 

Regarding the failure of London Capital & Finance (LCF), FSCS is working closely with Smith & Williamson, the Administrators, to understand more about how the firm carried out its regulated activities. Our current understanding is that the firm issued its own mini-bonds to investors on a non-advised basis and that these mini-bonds were not transferable securities. This activity is not a regulated activity under the Regulated Activities Order and, therefore, is not FSCS protected. For this reason, although the firm is insolvent, we are not accepting claims against the firm. Should we determine, however, that there are circumstances that give rise to potentially valid claims, we will begin to accept claims against LCF. At this stage it is too early to say which funding class is most likely to be levied if FSCS were to uphold claims against LCF.

 

Investment Provision

The levy for this sector has increased by £38m since the indicative levy driven by an increase in our estimate of the number of SIPP operator claims we expect to receive in the year.

 

As explained above we have also reassessed the funding sector for a number of the Beaufort Securities claims and now expect them to fall on this sector.

 

Insurance and Home Finance advisors

Although the final levies on these sectors are not materially different from the indicative levies there is one key assumption that is worth explaining. Mortgage Matters Partnership was declared to have failed (in default) in January and could generate up to 5,000 claims. From the information we have received so far, we expect approximately two-thirds of the claims to be PPI (General Insurance Distribution) and one-third mortgage advice (Home Finance Intermediation).