GI intermediaries to see FSCS levy decline drastically for 2022/23
The Financial Services Compensation Scheme (FSCS) has forecast that it will raise an overall levy of £625 million for the 2022/23 financial year, which although a decrease from the final 2021/22 levy of £717 million, it expects compensation costs for the year to be greater. Caroline Rainbird, FSCS CEO, explained the reduction in the May 2022 edition of the compensation scheme’s Outlook saying that surpluses from 2021/22 have allowed it to reduce the amount billed to firms, but that past instances of consumer harm continue to drive high levels of compensation.
Welcome news for BIBA members is the dramatic decrease in the levy for the General Insurance Distribution class (GID) from the £68 million forecast in November 2021 to £5 million. The main reason for this massive reduction is that the class will no longer be required to make a £59 million retail pool contribution to the Life Distribution and Investment Intermediation (LDII) class. This was because the FSCS no longer expected the LDII class to breach its annual levy limit and require additional funding from other classes. The FSCS has also said that it is not ‘expecting any new failures in 2022/23’. However, there are close to £2 million in compensation pay-outs expected which relate to firm failures in previous financial years.
Regarding the debate around the compensation framework review for the FSCS, Caroline Rainbird noted: ‘We have faced criticism from some levy payers over the size of their FSCS bill in recent years, but these costs are only a symptom – driven by poor consumer outcomes and the compensation we need to pay out as a result. FSCS is keen to play a positive and proactive role in shaping the long-term future of the UK’s compensation regime, and we believe our submission demonstrates our commitment to being a leading and thoughtful voice in this important debate.’
BIBA’s lobbying efforts on behalf of members to bring some sanity back to the level of compensation being paid out by the GID class came in for particular notice in the publication The Balancing Act of Compensation, which the FSCS published alongside Outlook. This publication sets out insights and data from the FSCS to inform the debate around how to reduce the cost of compensation and the consumer harm which affects it.
BIBA’s 2022 Manifesto made this point clear when it stated in its concerns about calls on firms from the retail pool: ‘The regulatory framework should never allow for a demand of many hundreds of percent of their actual levy requirement to be made on firms that are well managed, low risk and are not connected to the ‘polluting’ sector.’
The FSCS said in the publication that it was keen that the debate around the levy does not become overly dominated by a short-term focus. Ensuring the UK’s compensation framework can continue to fulfil its role within the financial services ecosystem on an effective and sustainable basis, whilst also taking action to reduce the underlying consumer harm that is driving the increasing cost of compensation, should always be the ultimate goals, the FSCS noted. Ultimate goals that BIBA would support wholeheartedly.
BIBA members’ compliance and regulation queries should be directed to: compliance@biba.org.uk quoting their membership number.
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