"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."
In its Plan and Budget for 2021/22, mortgage brokers in the 'Home Finance Intermediation' category will be charged £22.9m towards the levy, up from £3m last year.
The FSCS 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 Scheme says its current forecast ensures it can pay out an expected higher volume in claims (a 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.
In the Plan and Budget, FSCS has revised the 2020/21 supplementary levy from £92m to £78m, due to fewer LCF claims being upheld than forecast in November 2020.
Taking account of class surpluses that will be used to offset the levy, £44.5m will be invoiced for the supplementary levy by the FCA in early February.
FSCS will invoice the largest 1,000 regulatory fee payers a 50% advance payment towards the levy in March 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 its 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.
The 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.
Given the current high levels of economic uncertainty, the FSCS says its indicative levy for 2021/22 of £1.04bn is subject to change. FSCS will confirm the final levy figure in April/May 2021.
Caroline Rainbird, chief executive 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.
“We need to tackle the root causes, not just the symptoms, of the costs and distress caused by failures. We are doing everything in our power to try to reduce the levy. Alongside our recommendations, we are continuing to raise awareness of FSCS protection and we are working with the regulators to tackle scams.
“By taking integrated and coordinated action with the regulators and industry, we can help improve outcomes for consumers and, in turn, reduce the burden of the levy.”
Robert Sinclair, chief executive of AMI, commented: “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”.
Tim Fassam, director of government realtions and policy at PIMFA, added: "In any other sector, a forecast for compensation of over £1bn would be the focus of national scandal - £1bn of compensation represents £1bn worth of financial loss, emotional stress and economic hardship for thousands of UK consumers.
"We cannot continue to normalize this level of loss, accepting that the compensation scheme will hopefully pick things up on the other side, every single person who has had to claim on the FSCS has received a poor outcome that it would be better to avoid. This is a further sign that the cost of compensation is truly out of control.
"This cost is a symptom of a system that fails both customers and the industry. Reform is now urgent but will take time. HM Treasury must find other sources of revenue to cover these extreme costs. The fairest source are FCA levies, which ensures polluters pay and it remains an industry funded regime.
"We have put forward a number of recommendations to the government and the regulator, which we think will reduce the bill over time but crucially ensure that firms do not fail in the first place. We want to work collaboratively to ensure that these continued rises in compensation claims are brought to an end."
