The FSCS reduces its levy forecast | Mortgage strategy


The Financial Services Compensation Scheme has reduced its projected levy from £833m to £717m for 2022

This is a reduction of 13%, the result of lower-than-expected investment payments and corporate bankruptcies. The FSCS says this means it will not invoke the ‘retail pool’ in the 2021/2022 levy, which means there will be no interim levy on mortgage and protection companies at the during the new year.

However, even at this reduced rate, this levy will still be a year-over-year increase for advisors.

The FCSC also says it expects these failures to play out in 2022/23, which could lead to a bigger increase in coming years, with the tax then expected to reach £900million, with contributions expected increases from the retail pool.

FCSC Chief Executive Caroline Rainbird said: “While the forecast of lower harvests for this year (2021/22) can be seen as good news, it is important to note that the reduction is mainly due to failures that were expected this year and now look likely to happen next year or beyond.

“We hope the industry will find our early 2022/23 harvest forecast useful in planning for the year ahead.”

Association of Mortgage Intermediaries chief executive Robert Sinclair said: “AMI is pleased to see that the FSCS does not need to invoke the Retail Pool for FY21/22, thus avoiding an interim levy. on mortgage and protection companies.

“For 22/23, we remain concerned about the costs transferred by misbehavior in the repo and investment markets onto our innocent member firms. The added retail pool ongoing liabilities won’t be charged until later in 2022, but this guillotine hanging over the heads of mortgage companies is stressful and unwelcome.

He adds: “We fear that 73% of FSCS costs come from advice given more than 5 years ago. This means that any action taken by the FCA today will have limited impact in the short term. The industry needs a better solution to this compensation mess.

“AMI is ready to work with the FCA and the FSCS to establish a better and fairer funding mechanism for the FSCS. Past work on the program has seen FCA at its best in promoting constructive debate. We hope that the doors of a new debate will open soon.

The reduction was welcomed by PIMFA, the trade association for the wealth management, investment services and investment and financial advisory industry – which also called for more radical change.

Liz Field, Managing Director of PIMFA, said: “We are encouraged that the FSCS levy forecast is lower for the coming year.”

However, Field added: “PIMFA remains absolutely clear that current levels of FSCS funding are unsustainable for the industry and can only be resolved once the drivers of FSCS claims are properly addressed.

“This means improving the level of oversight of the sector, examining the market distortion at play as a result of the FSCS and improving the provision of intelligence sharing and ensuring that it is implemented.”

Field adds that the FCS has acted on a number of its recommendations over the past year. She called on the FCA and the government to do more, calling for short-term easements alongside long-term reform.

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