18 January 2018

Bank of England: Financial Services Compensation Scheme – management expenses levy limit 2018/19

This Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) consultation paper sets out proposals for the management expenses levy limit (MELL) for the Financial Services Compensation Scheme (FSCS).

Under the Financial Services and Markets Act 2000 (FSMA), the PRA and the FCA must set a limit for the total management expenses which the FSCS can levy on financial services firms, the MELL. 

The MELL ensures that the FSCS has adequate funding to exercise the functions conferred on it by Part XV of FSMA. The FSCS performs a number of functions, these include: processing compensation claims resulting from the failure of financial services firms, making recoveries from failed financial institutions, helping maintain consumer awareness of deposit protection, and the verification of account information provided by firms that enables faster pay-out to depositors.

The MELL is the maximum amount which the FSCS may levy in a year without further consultation, and is proposed to be £77.7 million for 2018/19. This includes a management expenses budget of £72.7 million and an unlevied contingency reserve of £5 million. The proposed MELL limit of £77.7 million would apply from 1 April 2018, the start of the FSCS’ financial year, to 31 March 2019.

This consultation is relevant to all PRA and FCA authorised firms, but contains no material of direct relevance to retail financial services consumers or consumer groups upon which they might need to act. 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 all consumers.

Chapter 3 of this CP contains an analysis of the costs and benefits of the proposed rules (including the impact on mutual societies) as required under FSMA, and a statement regarding the PRA’s and the FCA’s respective competition objectives. Chapter 3 also contains the PRA’s and the FCA’s assessment of the compatibility of the proposed rules with their respective statutory objectives and regulatory principles as set out in FSMA, and their duty to have due regard to the need to eliminate discrimination and to promote equality of opportunity in carrying out their policies, services and functions.

This consultation closes on Friday 16 February 2018.

Consultation paper

© Bank of England