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.”