Find out more about the Financial Services Compensation Scheme's (FSCS) supplementary levy.
On 22 January 2021, the FSCS announced[1] it would be raising a supplementary levy this year.
FSCS explained in its November 2020 edition of Outlook[2] that it intended to raise a supplementary levy of £92m for the life distribution and investment intermediation class. This figure has subsequently been reduced to £78m.
However, this class can only be allocated £7.7m of the required funds before it reaches its annual limit of £240m for the 20/21 period.
Where surpluses exist from the original levy, these have been used to reduce the shortfall. This leaves £36.8m needed to meet the total compensation costs for the life distribution and investment intermediation class, which as explained below will be funded by the retail pool.
FSCS has also decided to rebate £940,000 to the Structured Deposit class (CLII-4), and £5m to the Deposit Acceptors class (SA01).
The FSCS letter to levy payers also explains the reason for the supplementary levy.[3]
Read about class funding limits in our Handbook (FEES 6 annex 2[4]).
The FCA retail pool
The FSCS uses a cross-subsidy approach to fund the claims for a class that has exceeded its annual funding limit. The cross-subsidy is funded by the classes belonging to the FCA retail pool.
The amount of funding provided by the retail pool is allocated to each class in proportion to the size of their retail pool levy limit. This is set out in FEES 6.5.A.1[5]. See table 1 for the amounts allocated to classes.
The FCA Consultation Paper CP18-11[6] confirmed the final rules in relation to the retail pool, including the contribution from providers.
Calculation of the FCA retail pool
The retail pool levy for the FCA funding classes is based on a firm’s annual eligible income reported for the 2020/21 levy year. This is the same data that was used to calculate the FSCS compensation cost levy as shown on a firm’s annual fee and levies invoice.
Firms in the Investment Provision class (CLII-3) will not be levied for their share of the retail pool levy. The FSCS will use surplus funds held for this class to offset against their contribution.
The levy for firms in the FCA provider classes (1.2,2.2,4.2,5.1,6) is calculated on the basis as set out in FEES 6 Annex 3A.[7]
Table 1: Distribution of the £44.5m supplementary levy to the retail pool
| FSCS class | FSCS category description | Tariff base | Class share of the Retail Pool | Estimated levy |
|---|---|---|---|---|
| 1.1 (CLGID-1) | General insurance distribution | annual eligible income (AEI) | £22.86m | £2.09 per £1,000 of AEI |
| 2.1 (CLII-1) | Life distribution and investment intermediation | annual eligible income (AEI) | £7.6m | £0.89 per £1,000 of AEI |
| 5.1/5.2 (CLDM) | Debt Management | Total value of relevant debts under management / annual total amount provided under all regulated credit agreements in respect of which the participant firm is the lender or exercises, or has the right to exercise, the lender’s rights and duties under such agreements. | £1.48m | £5.86 per £1m of DUM/VOL |
| Class 6 | Deposit acceptor's contribution | Protected Deposits | £7.74m | £0.006 per £1,000 of Protected Deposits |
| 2.2 (CLII-2) | Life insurance provision | Tariff base for Insurance Class C1 | £1.82m | £0.01 per £1,000 of RNPI; £0.0004 per £1,000 of EL |
| 1.2 (CLGID-2) | General Insurance Provision | Tariff base for Insurance Class B1 | £7.38m | £0.13 per £1,000 of RNPI; £0.03 per £1,000 of EL |
| 4.2 (CLHFI-2) | Home Finance Provision | Number of Home Finance Transactions | £.56m | £0.08 per Home Finance Transaction |
| 4.1 (CLHFI-1) | Home Finance Intermediation | annual eligible income (AEI) | £1.5m | £0.83 per £1,000 of AEI |
Table 2: Calculation of the Depositor Acceptors Structured Deposits provision Class 2.4, and Deposit Acceptors Class SA01 Rebate
| Tariff base | Levy repayment | Estimated levy rebate |
|---|---|---|
| Class 2.4 In respect of direct sales of structured deposits[8]: the tariff base for Class A (DGS members) set out in the Depositor Protection part of the PRA Rulebook[9] | (0.94m) | (£0.585 per £1,000 of Structured Deposits) |
| Deposit Acceptors SA01 | (5m) | (£0.00485 per £1,000 of PD) X Average Risk Weight |
Online fees calculator
The supplementary levies are not included in the online fees calculator[10].
Cancelling firms: Firms that were authorised as at 1 April 2020 and applied to cancel their part IV permission part way through the current fee year, but are still authorised are liable for their share of the levy.