October 22, 2020

Volume X, Number 296

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FSCS Levy to Rise

The Financial Services Compensation Scheme’s (“FSCS“) levy for management expenses will increase by nearly 5% to £78.2 million, for the period 2020/21. The FSCS will also receive an unlevied contingency reserve of £5 million.

A recent consultation conducted by the FCA and the Bank of England found that 75% of the increase is due to an expected rise in the volume and complexity of claims that the FSCS will process (many related to SIPP operators). The consultation stated that, “Setting the management expenses levy limit at £83.2m [including the £5 million contingency] ensures the FSCS can continue to operate and to meet its objective of providing a compensation scheme that is efficient, fair, approachable and responsive.

Claims handling infrastructure and support costs alone account for £57.9m of the management expenses budget. In particular, the consultation illustrated that the FSCS’s budget for outsourced claims handling has grown 29% to £3.9 million from 2019/20 to 2020/21.

The FSCS’s integral support costs such as IT, facilities and central services will total £30 million. Staff costs will amount to nearly £23 million, and the FSCS’s borrowing facility, used for compensation payments in the event of firm failure, will cost around £7.2 million to maintain.

With regard to staffing, the FSCS is planning on hiring 18 new staff members, primarily in its IT and legal teams during 2020/21. The increased headcount will also assist the FSCS in managing its increased and more complex caseload.

Although these are significant operating costs, the FSCS says they are justified and necessary to ensure eligible consumers are compensated appropriately in the event of firm failure. Indeed, the consultation observed that, “While the wider benefits of the FSCS are hard to quantify, the direct benefit to consumers from FSCS compensation is forecast to be £548 million in 2019/20.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 22
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About this Author

Garon Anthony Litigation Attorney Squire Patton Boggs Birmingham, UK
Partner

Garon is a partner in the Litigation Practice Group. He advises clients across the full range of commercial dispute issues, including cyber liability/data breach, professional negligence, banking, pensions and insurance.

Garon regularly acts for clients who are subject to investigations or disciplinary proceedings by national and international regulators, including most recently the Financial Conduct Authority, the Financial Reporting Council and the Dubai Financial Services Authority.

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44 121 222 3507
Mariyam Harunah Financial Services Litigation Attorney Squire Patton Boggs Birmingham, UK
Associate

Mariyam regularly acts for a diverse client base, including, SMEs, FTSE 100 and 250 corporations, public bodies, developers, insurers and individuals.

Mariyam has experience advising on a wide range of matters of both a contractual and tortious nature, including breach of contract, breach of warranty, misrepresentation, defamation, professional negligence, debt recovery and insurance.

44 121-222-3175
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