The Financial Services Compensation Scheme (FSCS) has expects its management expenses budget to increase 5% to hit £99.8m for 2023-24, despite expecting to handle fewer claims next year.
The increase is coming through a £3.9m investment in strategic operations and FSCS services, and £3.2m in rising costs for critical business support functions such as IT and HR.
It expects a £2.8m reduction in volume-related costs for investigating and assessing fewer claims.
The regulator also revealed its latest forecasted management expenses for 2022-23 of £89.2m – £6.3m lower than expected.
The sums include day-to-day running costs, as well as costs associated with processing claims.
The total levy for 2023-24, which includes both the management expenses and estimated compensation payments, remains forecast at £478m as announced in November.
As outlined in November, the FSCS expects to pay out compensation on fewer claims, most of which relate to the life distribution and investment intermediation and investment provision classes and will not be using the unlevied reserve (£15m).
The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) will be consulting on an overall 2023/24 Management Expenses Levy Limit (MELL) of £109.8m.
This includes the proposed FSCS’s management expenses budget of £99.8m and an unlevied reserve of £10m which is £5m less than the one for the current year.
This contingency fund is only invoiced to firms if necessary, for example in the case of a large number of unexpected claims.
Details of the FSCS’s latest 2022-23 management expenses were also published today. The forecast for the current year now stands at £89.2m – a £6.3m reduction against the budget announced this time last year.
The FSCS will not be using the £15m unlevied reserve it proposed in January 2022.
Any eventual budget surplus, which is currently £6.3m, will be used to offset the 2023/24 levy and factored into FSCS’s spring update which will include the latest levy forecast.
Investing for more complex cases
Caroline Rainbird, chief executive of the FSCS, (pictured) noted that claims-handling infrastructure and support made-up the largest part of the proposed management expenses amounting to £75.9mn or 76% of the total budget.
“This allows FSCS to carry out its core function, ensuring we are helping customers get back on track as quickly as possible,” she said.
“The budget for 2023/24 represents a 5% increase against our budget announced this time last year. This increase relates to a rise in our controllable costs, inflation and resulting price rises.”
Rainbird argued that the regulator had worked hard to keep costs below inflation through careful control of its spending.
“The proposed 2023/24 budget also includes a £3.9m increase in our investment costs which covers essential enhancements to our technology and processes,” she said.
“Although today we have the right teams and systems in place to process claims and make recoveries, the sheer complexity of claims now coming to FSCS means that we are likely to see costs increase over the coming years.
“This means it is critical that we start investing more in our claims handling capabilities now to ensure we can continue providing an efficient service for years to come – one that is both accessible and swift for consumers who are left out of pocket when a firm fails, and cost-effective for the industry that funds us.”
