The Association of Mortgage Intermediaries (AMI) has slammed the decision by the Financial Services Compensation Scheme (FSCS) to significantly raise its levy for 2021/22.
The FSCS’s current forecast is that the 2021/22 levy will be £1.04bn, a 48% increase on last year. It will allow the FSCS to pay out an expected higher volume in claims (72% rise compared to the 2020/21 original forecast, and a 6% increase on the latest forecast for 2020/21) over the next financial year.
FSCS is anticipating an increase in firm failures due to the ongoing economic impacts related to Covid-19. It is also forecasting an ongoing rise in complex pension advice claims and further failures of self-invested personal pension (SIPP) operators. Additionally, it expects pay-outs related to recent failures in the General Insurance Provision class.
The body said that with the current high levels of economic uncertainty, the indicative levy for 2021/22 of £1.04bn is a best estimate based on the data currently available and is subject to change. FSCS will confirm the final levy figure in the next Outlook publication, which is due to be published in April/May 2021.
As well as a rise in compensation costs, FSCS’s management expenses budget being consulted on is £90.5m. This is a £7.3m (9%) increase on the forecast outlined in the November 2020 Outlook, and a £12.4m (16%) increase on our 2020/21 budget. The increase is due to a rise in the anticipated number of claims as well as the growing complexity, and therefore processing costs, of claims.
Due to the uncertainty of the year ahead, and because it is not always clear when claims may arise, FSCS is looking to increase the unlevied contingency reserve from £5m to £15m. This is a separate reserve which allows FSCS to invoice for additional funds from the industry to support the processing costs of any unforeseen failures, or to handle the expected rise in claims should they materialise.
FSCS will invoice the largest 1,000 regulatory fee payers a 50% advance payment towards the levy in March 2021. This will ensure FSCS has sufficient funds to operate and pay compensation until the annual levy is invoiced in the summer.
Robert Sinclair, chief executive of AMI, said: “In announcing that the Financial Services Compensation Scheme needs to raise in excess of £1bn to make compensation claims we have reached a new low in the story of financial regulation in the UK. The dire discovery that the investment and pensions sector has been blind to widespread fraud and poor advice needs direct action by the industry.
“Asking mortgage brokers to pay more for bad pensions and investment advice than they are levied by the FCA for their own regulation is nothing short of a disgrace. The announcement of a Treasury Taskforce is too little and too late.
“On behalf of ordinary advisers who will have to find this money at a time when doing their job could not be harder, AMI requests that the review of future regulatory framework is expanded to look at how we develop a new approach that gives proper scrutiny of how firms are able to operate within the UK regulatory framework.”
Caroline Rainbird, chief rxecutive of FSCS, said: “Ongoing trends in a number of classes, and the widespread economic impacts of Covid-19, mean we are anticipating an increase in firm failures over the next financial year. This will likely lead to a rise in the volume of claims, many of which are complex, and therefore an increase in the levy.
“This annual levy ensures we can protect consumers, which helps to improve market stability and increases confidence in the finance sector. But we appreciate that the levy is far too high and that increasing costs could put pressure on firms’ finances.”