FSCS plans to raise supplementary levies on UK financial services firms in 2018/19
These supplementary levies will affect firms in the life and pensions intermediary, deposits, investment intermediary, general insurance provision, general insurance intermediary and debt management sectors.
The Financial Services Compensation Scheme (FSCS) has earlier today published its Plan and Budget for 2019/20. Among other things, the document outlines FSCS’s initial forecasts for the levy financial services firms will pay next year, as well as supplementary levies it will raise on firms before the end of 2018/19.
FSCS has decided to raise supplementary levies in 2018/19 primarily because of the rising cost of claims against pension advisers. These supplementary levies will affect firms in the life and pensions intermediary, deposits, investment intermediary, general insurance provision, general insurance intermediary and debt management sectors. The Dial-a-Cab credit union failure and Alpha Insurance failure also contributed to additional supplementary levies on firms in their respective sectors.
FSCS expects to levy the industry £516 million for 2019/20 – a 12-month period compared with £468 million FSCS levied firms for the nine-month levy year in 2018/19 (from July 2018 to March 2019). The change from a nine to a 12-month period is the main reason for the increase in the levy from the previous year. A levy for 12 months in 2018/19 would have been £574 million – £58 million higher than the proposed 2019/20 levy.
FSCS’s management budget (i.e. the cost of running the Scheme and of paying claims) will be flat in real terms at £79.6 million.
FSCS Chief Executive Mark Neale commented:
“One of the priorities in the year ahead will be to work with the regulators and with the industry to bring about improvements in the quality of customer information. This will help us to increase the speed in which we make payments to our customers.
“We recognise, however, that empathy and responsiveness are just as important as speed as we are seeing a continuing rise in complex pensions claims against advisers and against SIPP providers.”
FSCS notes that 2019/20 is the first year in which the recent Funding Review changes will take effect. Not only will this mean changes to FSCS funding classes but, more importantly for consumers, these compensation limits for several products will increase. These new limits will only apply to claims relating to failures declared in default after 1 April 2019, rather than claims relating to failures declared in default prior to that date.
FSCS will be launching a communications campaign to explain these changes to consumers in the coming months.
FSCS protects consumers when authorised financial services firms fail. It has come to the aid of more than 4.5 million people, paying out £26bn since 2001.