The Financial Services Compensation Scheme (FSCS) expects its levy for advisers in the general insurance distribution class, which includes those in the health and protection sectors, to remain at £5.3m in the 2023/24 financial year, unchanged from 2022/23.
The FSCS added it was not currently expecting any new firm failures within this class in 2023/24, noting the £5.3m levy included costs for firm failures in previous financial years and the associated compensation that will be paid to customers in 2023/24.
However, there was better news for mortgage intermediaries who are not expected to face any levy next year – down from the £7m this year.
Around £700,000 of legacy claims is expected next year but the FSCS said: “Given the anticipated surplus from 2022/23, the Home Finance Intermediation class is not expected to pay an annual levy in 2023/24.”
Overall levy down 24%
The initial industry-wide forecast for the overall FSCS 2023/24 levy was also down almost 24% to £478m – although the regulator added this was an early indication and could change.
The overall 2022/23 levy forecast remains at £625m and no additional levy is currently expected. It includes more than £6m that the FSCS expected to recoup from failed firms, as part of its recoveries work.
FSCS chief executive Caroline Rainbird (pictured) said while she was sure the lower overall levy for 2023/24 would come as welcome news, the reduction is due to surplus balances being carried over from 2022/23, and the FSCS expected compensation costs in 2023/24 to remain relatively high at £592m.
Expanding on the reasons for the level of the levy, Rainbird pointed to an inherent lag in the system where around 80% of people who need to bring claims did not realise they had been given unsuitable advice until at least five years after the event.
She noted some variables which the FSCS had not yet been able to include in forecasts due to uncertainties around timings and that as the FSCS operates on a pay as you go basis, it would only include costs where it has a high degree of certainty.
Rainbird added that for 2023/24, the FSCS had not included compensation estimates for firms that may fail if the FCA implemented the proposed consumer redress scheme for members who transferred out of the British Steel Pension Scheme (BSPS).
“Firms involved in BSPS transfers which have already failed are included in our forecasts, as these are more certain,” she said.
“Once the FCA confirms whether the consumer redress scheme will proceed, the FSCS will consider what that means for its assumptions.”
Rainbird concluded by committing to keeping the industry informed of any changes adding a full forecast update for 2023/24 will be provided next spring.