PS3/23 – Financial Services Compensation Scheme – Management Expenses Levy Limit 2023/24

Following a corresponding joint consultation earlier this year, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have now published their final policy (PS3/23) on the Management Expenses Levy Limit (MELL) for the Financial Services Compensation Scheme (FSCS) for 2023/24.
To recall, the FSCS is responsible for the processing of compensation claims in case of failures of financial services firms, the recovery of funds from failed institutions, the verification of account information provided by firms that enables faster pay-out to depositors, and other activities related to financial compensations. On an annual basis, the FSCS assesses its expected costs. Subsequently, the PRA and FCA „set a limit – the so-called Management Expenses Levy Limit (MELL) – for the total management expenses that the FSCS can levy on financial services firms“. The imposition of such limit is stipulated in Section 223(1) of the Financial Services and Markets Act 2000 (FSMA 2000).
For the upcoming supervisory period 2023-2024, the two regulators proposed this limit to be £109.8 million, composed of projected management expenses of £99.8 million and an „unlevied contingency reserve of £10 million“. This total amount may be levied upon firms without having to further consult with market participants on additional fees. As the regulators received no comments on their consultation, they will proceed as proposed and set the MELL to £109.8 million.
It must be noted at this point that unlike forecasted, the funds not spent by the FSCS in the previous financial year obviously amounted to £8.3 million. If this figure is confirmed and if the forecast materializes, then the £8.3 million will be deducted from the total projected management expenses and thus reduces the liabilities of all firms across all classes accordingly.