Regulators consult on limiting FSCS management costs

The Financial Conduct Authority and Prudential Regulation Authority have launched a consultation on the management expenses levy limit for the Financial Services Compensation Scheme (FSCS). The proposed limit for 2022/23 would be set at £110.5m. The regulators set the limit for the total management expenses that the FSCS can levy on financial services firms. The limit is the maximum amount the FSCS can levy in a year without further consultation. It does not include compensation costs, which are levied separately and decided by the FSCS. The proposed £110.5m limit consists of a management expenses budget of £95.5m and an unlevied contingency reserve of £15m. The limit would apply from 1 April 2022 (the start of the FSCS’s financial year) to 31 March 2023. The FCA has asked financial advisers, and other financial firms, to submit their responses to the proposed limit by 14 February. Yesterday the FSCS said it had increased its running costs budget forecast for 2022/23 to £95.5m. This is a 5% increase against its budget announced this time last year. The compensation body said that one of the key drivers behind the increase was increasingly complex claims with higher processing costs. It said that for 2022/23 it expects complex claims to account for approximately 43% of claims decisions, an increase of 26% from 2021/22. The FSCS said it was seeing a rising number of claims coming from customers who were given advice to move their pensions into unsuitable investments. It said these claims cost it more to process as they have longer handling times and require specialist staff to assess them and calculate any necessary compensation. In 2021/22 so far, the FSCS has made over 9,000 requests to firms as part of gathering the supporting evidence needed for these complex claims. This is an 80% increase on the same time last year and a four-fold increase on 2018/19. In its budget update, the FSCS said it has reduced its forecasted running costs for 2021/22 by £5.2m to £85.3m. The expected surplus will be used to reduce the 2022/23 levy. The compensation body said the reduction was mainly due to fewer firms failing and, therefore, not as many claims coming through as anticipated. However, the FSCS said it expects that many of these firm failures may occur in 2022/23 instead.

Regulators consult on limiting FSCS management costs

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