You are here: Home - News -

FSCS reverses stance and lowers final levy to £337m

by:
  • 26/04/2016
  • 0
FSCS reverses stance and lowers final levy to £337m
The Financial Services Compensation Scheme (FSCS) has set its final levy for the current financial year at £337m, down from the £363m forecast earlier this year.

The levy is a £26m reduction from the indicative figures set in January, but still up from a year earlier when the levy was set at £319m.

Home finance intermediaries, which includes mortgage brokers, will be subject to a levy of £6m, also down from the predicted £10m for the year and up from £5m in 2015/16.

While most industry sectors will be required to pay out less than the FSCS’s forecast fees, life and pensions intermediaries will pay £10m more than the predicted amount at £90m. The FSCS said this figure reflects a higher average cost of claims arising from advice about investments in self-invested personal pensions (SIPPs), but will see a number of mortgage brokers that advise on protection deals subject to the costs.

Despite the reduction in the FSCS’s forecast to the final levy, it has not ruled out implementing supplementary fees for any unexpected costs this year.

Mark Neale, chief executive of FSCS, said: “Not only is the overall levy little changed year-on-year, but there is also continuity in the levies of advisers. So the volatility, which is so difficult for small business to manage, is at least less pronounced.

“There are, of course, no guarantees beyond 2016/17 (or that there will not be a supplementary levy this year). Volatility is always likely to be a feature of a pay-as-you-go funding system as experience shows.”

The overall levy also includes interest payments on the outstanding Bradford and Bingley loan taken out by HM Treasury to fund the lender during the financial crisis. With a final sale of B&B mortgages by the government anticipated this year, the FSCS may be able to repay remaining interest on the loan by the end of 2017/18.

The FSCS levy is primarily driven by compensation costs to consumers but is also adjusted to reflect both unspent balances or deficits and recoveries, while also including FSCS management expenses.

Management expenses assigned to home finance intermediation are currently among the lowest in financial services, with only the life and pensions provision and investment provision costing less.

Earlier this year, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) submitted a joint consultation paper recommending that the FSCS’s total management expenses levy should fall by 2.5% to total £72.7m. The proposed management expenses budget will be made up of £23.4m in base costs and £44m in specific costs, according to the consultation.

Forecast compensation costs for this year have been set at £325m, £2m lower than the previous forecast, while proposed management expenses remain unchanged from January at £67.4m, lower than the £69.1m recorded a year earlier.

Neale added: “The annual levy allows us to compensate customers. That generates consumer confidence and trust in the industry.

“We look forward to the forthcoming review by the Financial Conduct Authority into how FSCS is funded, and will play our part in discussions. I encourage the industry to play a full role in the debate.”

There are 0 Comment(s)

You may also be interested in

Read previous post:
Hundreds of thousands of homeowners trapped in negative equity

Hundreds of thousands of UK homeowners who bought property in 2007 are likely to be stuck in negative equity, research...

Close