FSCS levy for 2023/24 remains stable for GI intermediaries, but time will tell…
The Financial Services Compensation Scheme (FSCS) has confirmed that its levy of £625 million from firms for the 2022/23 financial year remains unchanged and is not expecting to seek an additional levy from them this financial year.
Caroline Rainbird, FSCS CEO, said in the November 2022 edition of Outlook: ‘At this stage in the 2022/23 financial year, no additional levy is expected and we anticipate a reduction of around 20% in the levy required for next year.
‘Whilst I am sure a lower levy for 2023/24 is welcome news, I must emphasise that this reduction is due to surplus balances being carried over from 2022/23, and we expect compensation costs in 2023/24 to remain relatively high’.
Those compensation costs were expected to be £592 million in 2023/24. However, due to those expected surplus balances carried forward from the 2022/23 financial year – particularly within the Investment Provision and Life Distribution & Investment Intermediation classes – the FSCS was able to give an initial levy forecast of £478 million in 2023/24, which is lower than in 2022/23.
The FSCS provided a breakdown of its levy projections class by class. The General Insurance Distribution class can expect its share of the levy to be £5.3 million for 2022/23. BIBA members can access this information here.
The FSCS also gave an indication of what the GI Distribution class might pay in 2023/24 which it is forecasting as remaining at £5.3 million, as it was not currently expecting any new firm failures within this period, which should be read as any new, significant failures which would affect the levy proposal. The £5.3 million levy includes costs for firm failures in previous financial years and the associated compensation that will be paid to customers in 2023/24.
It is welcome news for members that the FSCS is not forecasting any increase in the levy for GI intermediaries for 2023/24 – for the moment. Time will tell if this is accurate, as the industry has seen forecasts altered dramatically over time as circumstances change, so there is no guarantee that this will be the final position. Insolvencies that the FSCS predict will happen ‘later on’ may happen sooner for example, which may affect how much they need when it comes to collecting the levy.
The indicative levy forecast for 2023/24 does not include compensation estimates for firms that may fail if the Financial Conduct Authority (FCA) implements the proposed consumer redress scheme for people who transferred out of the British Steel Pension Scheme (BSPS). Once the FCA confirms whether the BSPS redress scheme will go ahead, the FSCS will look again at what that decision means for its compensation assumptions.
Members may access full details of the levy from the FSCS dedicated webpage.
Ms Rainbird mulled over what compensation might look like in the longer term. She said that while it was difficult to predict the future ‘we do know that it is the actions of firms, that are taking place right now, that will result in the claims we receive in years to come.’
The FSCS would continue to play an active role in working with its regulatory colleagues to help reduce consumer harm. ‘Addressing the root causes of harm remains the goal we should pursue collectively. This includes using FSCS data to support the identification of problems within the [financial] sector, empowering consumers with better financial education, and driving improved standards and conduct in particular pockets of the industry,’ she added.
The FSCS will provide a full forecast update for 2023/24 in the Spring 2023 edition of Outlook.
BIBA members’ compliance and regulation queries should be directed to: compliance@biba.org.uk quoting their membership number.
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