FCA reports on Financial Services Compensation Scheme

The FCA today published PS16/10: Financial Services Compensation Scheme – Management Expenses Levy Limit 2016/17. This Policy Statement is a report on the main issues arising from CP16/3: Financial Services Compensation Scheme Management Expenses Levy Limit 2016/17, and contains the final rules.

The Management Expenses Levy Limit (MELL) is set annually and jointly by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). The role of the Financial Services Compensation Scheme (FSCS) is, in general, to provide compensation to consumers of financial services when authorised firms are unable, or likely to be unable, to meet their obligations to do so. So the new rules will primarily support and advance the FCA’s operational objective of consumer protection.

A compensation scheme provides a safety net, offering protection to consumers. This in turn leads to greater consumer confidence in their dealings with financial services firms, benefiting all firms and leading to a stronger financial system.

In CP16/3: Financial Services Compensation Scheme Management Expenses Levy Limit 2016/17, the FCA proposed setting the MELL at £72.7m for 2016/17, and gave an indicative breakdown of this figure by activity. The management expenses of the FSCS are the non-compensation costs that the FSCS incurs, or expects to incur, when delivering its functions.

The MELL of £72.7m includes FSCS management expenses (or budget) of £67.4m and a contingency of £5.3m. This contingency will allow the FSCS to levy additional funds for management expenses up to this limit to meet costs that were not expected when the annual levy was raised.

This paper is relevant to all authorised firms, but it does not include anything directly relevant to retail financial services consumers or consumer groups that they need to act on. As costs may be passed on to consumers in the form of higher prices, consumers may indirectly meet a part of the FSCS levies.

However, an efficient and adequately funded compensation scheme is beneficial to consumers.

For the FCA statement and the Policy Statement, please click here.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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