Compensation scheme to levy financial services firms £378m in 2017/18
FSCS publishes initial levy indications in Plan and Budget out today
The Financial Services Compensation Scheme (FSCS) today publishes its Plan and Budget for 2017/18. It provides the Scheme’s expected management costs and initial forecasts of the levies financial services firms will pay next year.
The FSCS expects to levy the industry £378m, down from £401m in 2016/17. After taking account of the 2016/17 supplementary levies announced today, the total forecast levies are lower than this year. The levy for general insurers is expected to be significantly lower, but for the life and pension intermediation sector we forecast materially higher costs and a second call on all firms to contribute to these claims. There is an increased levy on the investment intermediation class, but only after allowing for the £50m refund this year.
In addition the Scheme forecasts the interest costs for the outstanding bank legacy loan will be £302m (although the levy will be £100m less due to recoveries against these costs). This is the loan for the cost of resolving Bradford & Bingley in 2008.
Following a spike in claims this year, for next year, the total number of new claims is forecast to fall, but FSCS expects the rising trend in complex claims in the life and pension intermediation sector to continue and expects to levy £171m, exceeding the annual limit for that class and triggering the contribution from all levypayers.
The overall level of FSCS management expenses, the cost of running the Scheme and of paying claims, will be £69m.That’s up £1.8m from this year and reflects the growth in claims since the 2016/17 budget was set. If the costs of out-sourced claims handling are excluded, the budget is falling by £2.7m compared to this year.
FSCS Chief Executive, Mark Neale, says the Scheme stands ready to protect consumers. “Our Plan and Budget spells out our estimates for the coming financial year. It provides our first indication of the costs and claims we expect. It highlights how FSCS will protect consumers in 2017/18 and the costs of doing so.
“The Financial Services Compensation Scheme is there for people with nowhere else to turn when firms fail. So the £378m indicative levy represents the costs of protecting people. That protection generates consumer confidence and contributes to financial stability.
“The financial services industry funds the protection we provide. We recognise the costs impact on firms, particularly in the light of the supplementary levies announced today, of which we seek to give as much advance warning as possible. That’s why we’re concentrating on reducing our overheads and constantly seeking value for money in our work. We’ll continue that drive in the coming year and will also realise benefits from our online claims system.”
The Plan and Budget also provides an update on the progress the Scheme is making in delivering its five year Vision targets. FSCS priorities for next year are continuing to improve customer service and achieving value for money. Preparing for potential failures, achieving recoveries to offset the costs of compensation paid, and maintaining consumer awareness at 70% remain key objectives for the Scheme.
FSCS protects consumers when authorised financial services firms fail. It has come to the aid of more than 4.5m people, paying out £26bn since 2001.
The Plan and Budget 2017/18 is available on the FSCS website. The Scheme will confirm the final levy in April.
Notes to editors
- Information on FSCS funding is available here.
- The Financial Services Compensation Scheme (FSCS) is the UK’s statutory compensation scheme for customers of authorised financial services firms. This means that FSCS can pay compensation if a firm is unable, or likely to be unable, to pay claims against it. FSCS is an independent body, set up under the Financial Services and Markets Act 2000 (FSMA), and funded by a levy on authorised financial services firms. FSCS does not charge individual consumers for using its service.