The total levy to be paid by the financial services industry to fund the Financial Services Compensation Scheme (FSCS) will rise by 13.8%, from £319 million to £363 million, in the 2016/17 financial year.
The share of the levy to be paid by investment intermediaries is down by £8 million to £108 million.
Life and pensions intermediaries are set to contribute £80 million to the levy, which is substantially greater than their initial 2015/16 levy of £57 million, but also significantly lower than the eventual bill of £100 million these firms were hit with in the last financial year. Life and pensions firms are being forced to make significant contributions as the FSCS is having to settle a large number of claims relating to Self Invested Personal Pensions (SIPPs). Some commentators have forecast that the bill for these firms will rise from the quoted figure of £80 million during the course of the year.
The levy for deposit takers will be £28 million, more than double the 2015/16 figure of £13 million. General insurers will pay £94 million, up from £62 million; and general insurance intermediaries will pay £19 million, having not been subject to a levy in 2015/16. The bill for home finance intermediaries has doubled to £10 million, and investment providers will contribute the remaining £2 million.
These figures are subject to consultation, and will be confirmed in April 2016.
Mark Neale, the FSCS chief executive, chose to concentrate on the fact that his organisation’s operating costs are forecast to fall by £1.7 million from £69.1 million to £67.4 million. Mr Neale said:
“I am happy to report that our operating costs are lower than last year again. It’s an indication of our commitment to value for money.”
The FSCS levy is a significant cost faced by authorised firms, as they try and cope with the rising cost of regulation. One of the perceived injustices of the current system is that life and pensions intermediaries are grouped together in one category. This means that the burden for SIPP claims falls on firms who only provide insurance broking services, mortgage brokers who offer insurance but not pensions, and firms who do give pension advice but who have never sold a SIPP.
One alternative mooted by the industry is a risk-based levy, where firms with a lower excess on their professional indemnity insurance would be allowed to make a smaller contribution to the levy. Other suggestions have included a specific levy on each individual plan, reflecting the risk it poses; and re-directing revenue from Financial Conduct Authority fines to reduce the levy.
The system operates on the basis that solvent, law abiding firms are forced to foot the bill for insolvent firms who are subject to compensation claims, and even if the system was revised, some individuals have a real problem accepting this principle.
Many firms are hoping that the ongoing Financial Advice Market Review provides some sort of solution to the FSCS issue.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.