FSCS has set its levy for firms at £649m this year, £14m more than what was forecast 

The Financial Services Compensation Scheme (FSCS)  has confirmed that brokers will pay an £18m levy for 2020/21, which is £5m lower than predicted. This is a reduction from the £23m indicated, but higher than the £12m collected last year. 

Earlier in the year, the body indicated that the broker levy for 2020/21 could be up to £23m but now has settled at £18m. 

Speaking about the broker levy, David Sparkes, head of compliance and training at Biba, said: ”There is good news in the levy information for brokers in that they are not being asked to make an extra contribution to the retail pool, so with the contribution from product providers, the figure effectively ends up being the same as last year.”

It comes as FSCS confirmed its levy for 2020/21, following the publication of FSCS’s Outlook for May 2020. 

FSCS will levy firms £649m this year, £14m more than what was forecast in its ‘Plan and Budget 2020/21’ published in mid-January. This figure includes an amount of £74.7m for management expenses – the costs of running the scheme.

Caroline Rainbird, FSCS chief executive, said: “We publish this outlook during what is an extremely challenging time for everyone, and we appreciate that the impact of Covid-19 is likely to be felt for a considerable period of time.

“Although the pandemic has altered FSCS’s working practices, it has not impacted on the day to day delivery of our service, and we have continued our business as usual.

”However, we recognise that business as usual will not be possible for everyone and that some may face challenges due to the current economic situation.

”The overall increase in the FSCS levy since the January forecast partly reflects the ongoing progress, we are making in relation to the LCF (London Capital Finance) failure.“


But the main change in the compensation forecast since the indicative levy was announced in its ‘Plan and Budget’ is the inclusion of £44m to cover estimated compensation costs for London Capital and Finance (LCF).

 General Insurance Distribution    
 2020/21 Forecast  Final Levy Forecast (£m) Indicative Levy Forecast   Variance (£m)
Opening balance  (8.0) (3.0)   (5.7)
 Compensation   (8.97) (7.76)   (1.21)
 Recoveries  0.00  0.00  0.00
 Management Expenses   (5.71)  (5.71)  0.00
 Annual levy receipts   24.00  17.00  7.00
Closing Surplus (Deficit) 0.52 0.43 0.09

Source: FSCS

This will be attributed to the ’Life Distribution and Investment Intermediation Class’. Savings in other classes mainly ‘deposits and general insurance distribution’ mean that the overall increase from the January indicative levy is £14m.

While FSCS is continuing to see an increase in pension-related claims, FSCS has reduced its forecast outlined in the January Plan and Budget for SIPP operator claims by £7m. This is due to a revision in the anticipated timing and cost of some recent and expected future SIPP operator failures.

Recent failures

The FSCS said that for insurers the final levy has increased by £7m, to £126m.

This is to take account of the forecasted costs of recent failures which include Elite Insurance Company, Quick-Sure Insurance and CBL Insurance.

Included in the £126m levy payable by firms in this class is a £6m provider contribution to the General Insurance Distribution class, with £120m payable for the costs of the General Insurance Provision class.


Rainbird, added: “As we announced earlier this month, we have now started the process of reviewing individual LCF claims relating to misleading advice. Whilst it is too early to say how many LCF customers will be eligible for compensation, for the purpose of the levy we have estimated an amount of £44m.

“We know that the industry has expressed concerns about the rising trends in compensation costs and increased levy amounts.”

And Rainbird concluded that she would like to reassure its levy payers that FSCS is working with the industry and regulators to do as much as it can to address these concerns and will keep levy payers updated on its progress.

Read more…Poor data hampering FSCS from tracing customers of collapsed unrated insurers 

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