Financial Services Compensation Scheme (FSCS) Announces Multi-Million Budget Increase

In January 2020 it published its Plan and Budget for 2020/21.

This outlined initial forecasts for the levy financial services firms/Advisors will pay next year, as well as a supplementary levy due to be raised on firms before the end of 2019/20.

Advisers face an increase in their Financial Services Compensation Scheme (FSCS) bills as the body is set to raise its overall levy to £635m for 2020/21 – an increase of over £87,000,000 from the previous year!

The FSCS management budget has also seen an increase of £3.6m equating to a rise of 4.8% from the previous year. The fees cover the FSCS’s ongoing operating costs such as IT, staff, outsourcing, legal and claims handling costs.

Who are the FSCS?

FSCS exists to protect customers of financial services firms that have failed. If the company you’ve been dealing with has failed and can’t pay claims against it, it will step in to pay compensation.

Key facts about the FSCS:

• Last year (2018-2019) it paid out £473m to 425,760 customers of failed firms.
• It recovered £20 billion from the 2008 bank failures and repaid all £20.5 billion borrowed from HM Treasury that year.
• It returned £375 million from other recoveries to the industry in the last five years.
• It was set up in 2001 under the Financial Services and Markets Act 2000.
• FSCS are independent of the government and financial services industry.
• It can pay compensation thanks to levies that authorised financial services firms pay.

Why has the levy increased?

75% of the increase can be attributed to a forecast rise in the volume and complexity of claims expected by the FSCS.

The FSCS has blamed increased self-invested personal pension (SIPP) operator failures for the rise. These claims have, in recent years, overtaken all other types of claims in terms of volume with over 40% currently relating to pensions.

SIPP operators Claims in relation to SIPP operators are the biggest growth area and the reason for the increase in overall levy. These are claims where the conduct of the SIPP operators FSCS has declared in default gives rise to a civil liability to the investors because the SIPP operators failed to exercise reasonable care and skill, breached regulatory requirements and/or breached trustee duties.

There are three main reasons for the increase in the budget:

1. the total compensation cost has increased by £46m – mainly due to increasing SIPP operator claims falling on the Investment Provision class;
2. the 2019/20 levy benefited from an opening surplus of £32m, which is not available for 2020/21; and
3. the recoveries expected to be received in 2019/20 are £39m greater than forecasted for 2020/21.

85% (£540m) of the 2020/21 budget is earmarked for Life Distribution, Pensions and Investment Intermediation and Investment Provisions.

The FSCS has seen a significant increase in the number of claims it is receiving. However, it is still unable to determine the full impact, of many years of negligent advice being provided millions of people.

The FSCS advise in the budget plan, the numbers will be revised before the final levy is set in April 2020.

WHAT TO DO NEXT

For information about escalating a potential claim, contact us for a free initial consultation regarding your options by email on finance@oakwoodsolicitors.co.uk, or alternatively, call us on 0113 218 5700.