The FSCS will calculate levies on a three-year forward looking basis and levy one third of that amount each year from 2014/15.
The industry response to the proposal was postive, it said, with firms welcoming the aim of increased certainty and less volatility that the new system tries to achieve.
The scheme also confirmed that management costs are not included in the calculation of compensation costs, instead they will continue to be “collected to meet costs incurred or expected to be incurred on an annual basis”.
However, the FSCS did not bow to calls for a fixed definition of what constitutes ‘exceptional factors’ as demanded by some industry players such as the Association of Professional Financial Advisers (APFA).
It also stopped short of regarding the failure of Keydata as ‘exceptional’ and therefore excluding it from the calculation.
It said: “Although a high cost default, the nature of the failure and level of [Keydata] claims made were not wholly out of FSCS’s experience. As such, to exclude these costs would artificially reduce the overall costs figure.”
In fact, the FSCS said that “due to the timing of the costs, they will not form an explicit item in the calculation of the 36 month expected costs, in 2014”.
However, the FSCS said it would use parameters such as the “size of the failure and duration of claims, the frequency of failures and claims in the relevant class, and whether the residual level of potential claims in the sector has been significantly reduced following a default of exceptional size” to determine whether an event is ‘exceptional’.
Any end of year surplus will be set against the total figure for expected costs for the following 36 months, and not just the costs for the following 12 months, the FSCS added.
It added that it will continue to calculate the levy under the current 12 month basis if it works out a higher amount than under the 36 month view.
