How we are funded
We're able to pay our customers compensation because we are fully funded by the financial services industry. Firms authorised by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) pay us a levy. This annual levy funds the cost of running our service.
Learn more about the levy, including the different funding classes and their limits.
See how FSCS pursues recoveries that are reasonably possible and cost-effective.
Read the latest industry updates about the levy and our funding.
Reducing the levy
Wherever possible, we aim to make recoveries to help offset the annual levy for firms. See our webpage on recoveries for more information.
We're also always exploring ways of working more efficiently to reduce our management costs, and working with our regulatory partners to address consumer harm that underpins the levy.
A key factor in determining how much a firm pays is based on the amount of FSCS protected business it conducts within a funding class. Each funding class includes firms that carry out a similar business. For example, a deposit-taker like a bank pays an amount according to the value of its protected deposits (such as current and savings accounts), compared to the total value of protected deposits within the industry.
The total levy a firm pays includes compensation costs and management expenses. Read more detail on each below.
1) Compensation costs
Compensation costs are how much we pay out in compensation to our customers for valid claims.
To fund compensation costs, the FSCS levy is split into nine funding classes plus Deposit Acceptors which is only called upon if the retail pool is triggered:
- Debt Management
- Funeral plans
- General Insurance Provision
- General Insurance Distribution
- Home Finance Intermediation
- Investment Provision
- Life and Pensions Provision
- Life Distribution and Investment Intermediation*
* From 1 April 2019, the 'Life & Pension' and 'Investment Intermediation' classes were merged to become the Life Distribution & Investment Intermediation class.
Separate limits apply to the amount each class pays, with pooling arrangements in place, through the retail pool if any class limits are breached.
2) Management expenses
The management expenses levy is based on our budget requirements for each financial year, which we publish in our FSCS Budget Update. Our management expenses are also a matter of public consultation and the FCA and PRA publish a joint consultation paper each year.
Management expenses include our overheads, and are split between 'base costs' and 'specific costs'. ‘Base costs’ are costs that don't directly relate to the amount of compensation we pay to our customers. Firms generally contribute to ‘base costs’ in proportion to the regulatory costs they pay to the FCA and/or the PRA. Our ‘specific costs’ include costs which relate to a particular funding class. For example, costs associated with assessing claims within that class, and making any compensation payments.
Newly authorised firms don't have to pay specific costs in their first year.