FSCS confirms reduction to levy forecast for 2021/22

The Financial Services Compensation Scheme (FSCS) has revised its levy forecast for 2021/22 to £833m, a reduction from the initially forecast levy for the year of £1.04bn.

This re-forecast is £206m lower than the initial levy announced in January, but still represents an increase of £133m compared to the 2020/21 levy of £700m.

The FSCS stated that the lower forecast is due to the extension of government support schemes since January, as well as the compensation scheme seeing lower claims volumes relating to recent insurance failures than it had been expecting.

As part of the change, and as a number of classes are likely to see more claims than they can be invoiced for in a year, the FSCS confirmed that the £833m levy is expected to include £116m for the retail pool. This is a separate pot that other FCA classes are required to contribute to if they have not reached their maximum levy limit, and another class has exceeded its own limit.

FSCS chief executive, Caroline Rainbird, said: “While it may be welcome news to see a lower forecast than announced in January, we do not call this a successful outcome or ‘good news’. There is still a chance that these re-forecasted failures could occur in the years ahead. We also appreciate the levy, even at this updated forecast of £833m, is too high and the cost could put pressure on firms’ finances.

“We are doing all that we can to help reduce the levy and are delaying calling for the retail pool to avoid invoicing for more than we need and to help spread the costs.”

However, chief executive of the Association for Mortgage Intermediaries (AMI), Robert Sinclair, warned that neither the FCA or firms can take comfort in the levy’s reduction.

“The amount of compensation for the failure of the FCA to adequately control markets is still eye-watering,” Sinclair commented.

“Whilst the amount mortgage and protection advice firms will have to pay will now only be slightly higher than last year, the guillotine remains over their necks for a further levy later in the year. This is due to the widespread fraud and poor advice in the investment and pensions sector, for which they have no direct responsibility.

“AMI remains of the view that the funding of the compensation scheme still needs the development of a new approach. As a minimum, the Treasury must allow the FCA to retain financial penalties to reduce the amount good firms are being asked to pay.”

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