FCA consultation questions FSCS costs

A question was subsequently raised in the consultation on the increase in costs of FSCS’s continuing operations despite the downward trend in the expected claims. The FSCS has confirmed that the 3.7% increase is a "reflection of the nature of the claims that are expected in 2015/16".

The FSCS said that it has seen an increase in more complex claims which, unlike the majority of the previous year’s claims, require "considerable assessment and manual processing". It is expected that claims processing costs will reduce on a like for like basis in the future.

A question was also raised on the increase in costs for general insurance provision, which the FSCS said relate to the handling of the claims against the estate of Independent Insurance for which the FSCS is assuming responsibility from the run-off agent.

The costs of FSCS’s internal change programme were also questioned. The FSCS has, since 2010, invested in enhanced capability and scalability initially starting with the infrastructure to support faster payout for deposits and more recently in their Connect programme which is streamlining processes across other product classes. The FSCS has confirmed that these costs will wind down after 2015/16 and the FSCS expects to see a reduction in claims processing costs in the future.

One respondent requested that the National Audit Office conduct a value for money audit on the FSCS, its strategic projects and the Keydata recovery action. The consultation paper highlighted that neither the PRA nor the FCA can require an NAO audit of the FSCS, its projects or initiatives. The FSCS and its change programme are, however, subject to scrutiny by their external auditors (the NAO).

This £74.4 million that will be levied for 2015/16 covers such items as staff and building costs, operating expenses, IT, outsourcing and claims handling.

It also includes a contingency reserve of £5.3 million for management expenses that allows the FSCS to levy additional funds, most likely at relatively short notice, without formal consultation by the PRA and FCA to meet contingencies that were not foreseen when the annual levy was raised.

The PRA said that the levy has been set appropriately to "allow the FSCS to provide a responsive and well-understood compensation service for customers of authorised financial services firms", and stressed that it would not help facilitate nor hinder competition in the relevant markets as it leads to a minimal cost per firm.