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FEES 6.3 The FSCS's power to impose levies

Imposing management expenses and compensation costs levies8

FEES 6.3.1R

The FSCS may at any time impose a management expenses levy or a compensation costs levy,6 provided that the FSCS has reasonable grounds for believing that the funds available to it to meet relevant expenses are, or will be, insufficient, taking into account expenditure already incurred, actual and expected recoveries and8:

668
  1. (1)

    in the case of a management expenses levy, the level of the FSCS's expected8 expenditure in respect of those expenses in the financial year of the compensation scheme in relation to which the levy is imposed;

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  2. (2)

    in the case of a compensation costs levy relating to claims for protected deposits8, the level of the FSCS's expected8expenditure in respect of compensation costs in the 12 months immediately8 following the levy; and8

    8
  3. (3)

    8in the case of a compensation costs levy relating to other protected claims,

    1. (a)

      the FSCS's expenditure in respect of compensation costs expected in the 12 months following the levy; or, if greater

    2. (b)

      one third of the FSCS's expenditure in respect of compensation costs expected in the 36 months following the levy.

FEES 6.3.2G

The calculation of levies will also take into account previous levies, where funds raised in anticipation of meeting liabilities prove either more or less than the amount actually required.

FEES 6.3.2AG

8The FSCS will usually levy once in each financial year (and in respect of compensation costs, for expenditure expected in the period of 12 months or, if greater, one third of the expenditure expected in the period of 36 months 8following 1 July in that year). However, if the compensation costs or specific costs incurred, or expected to be incurred, exceed the amounts held, or reasonably expected to be held, to meet those costs, the FSCS may, at any time during the financial year, do one or more of the following:

  1. (1)

    impose an interim compensation costs levy or management expenses levy; or

  2. (2)

    utilise other sources of funding such as commercial borrowing or other borrowing including from the National Loans Fund; or

  3. (3)

    utilise money collected from firms as set out in, and subject to, FEES 6.3.17 R (Management of funds).

The FSCS will generally impose a levy rather than borrow or utilise funds as described in (3), unless the latter options appear to it to be preferable in the specific circumstances prevailing at the relevant time; for example, to address short-term liquidity issues, or in order to deal with a significant failure without having to wait for a levy to be imposed or collected.

FEES 6.3.3G

The FSCS has committed itself in Memorandum of Understanding with each of the FCA and the PRA10 to publish its policy in respect of levying.810

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FEES 6.3.4G

The discretion over levying in FEES 610 also gives the FSCS, if it thinks this appropriate, the ability to use third parties as its agents in raising and collecting the levies.

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Imposing a MERS levy

FEES 6.3.4AR

8The FSCS may at any time impose a MERS levy provided that the FSCS has reasonable grounds for believing that the funds available to it to meet relevant expenses are or will be insufficient, taking into account relevant expenses incurred or expected to be incurred in the 12 months following the date of the levy.

Limits on compensation costs and specific costs levies on classes823

FEES 6.3.5R

The maximum aggregate amount of compensation costs and specific costs for which the FSCS can levy each8 class in any one financial year of the compensation scheme is limited to the amounts set out in the table in FEES 6 Annex 2 R.2

2
FEES 6.3.6R

[deleted]2

2
FEES 6.3.7R

[deleted]2

2
FEES 6.3.8R

[deleted]2

2
FEES 6.3.9R

[deleted]2

2

Levy for compensation costs paid in error

FEES 6.3.10R

The FSCS may include in a compensation costs levy the costs of compensation paid by the FSCS in error, provided that the payment was not made in bad faith.5

5

Management of funds

FEES 6.3.11R

The FSCS must hold any amount collected from a specific costs levy or compensation costs levy to the credit of the classes2 in accordance with the allocation established under FEES 6.4.6 R and FEES 6.5.2 R.

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FEES 6.3.12R

Any funds received by the FSCS by way of levy or otherwise for the purposes of the compensation scheme are to be managed as the FSCS considers appropriate, and in doing this the FSCS must act prudently.

FEES 6.3.13R

Interest earned by the FSCS in the management of funds held to the credit of a class must be credited to that class8, and must be set off against the management expenses or compensation costs 2allocated to that class.82

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FEES 6.3.14R

The FSCS must keep accounts which include:8

8
  1. (1)

    the funds held to the credit of each class; and

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  2. (2)

    the liabilities of that class.8

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FEES 6.3.15R

[deleted]8

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FEES 6.3.15AG

[deleted]8

8
FEES 6.3.16G

[deleted]8

FEES 6.3.17R
  1. (1)

    The FSCS may use any money held to the credit of one class2(the creditor class)2 to pay compensation costs or specific costs attributable 8or allocated by way of levy8 to 2another class 2(the debtor class)2 if the FSCS has reasonable grounds to believe that this would be more economical than borrowing funds from a third party or raising a levy.

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  2. (2)

    Where the FSCS acts in accordance with (1), it must ensure that:

    1. (a)

      the creditor class2 is reimbursed by the debtor class2 as soon as possible;

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    2. (b)

      the debtor class2 pays interest at a rate equivalent to the Bank of England's repo rate from time to time in force; and

      2
    3. (c)

      the amount lent by the creditor class2 to the debtor class2 is taken into account by the FSCS when considering whether to impose a compensation costs levy8 on the creditor class2 under FEES 6.3.1 R.

      2282
FEES 6.3.18G

2FEES 6.3.17 R deals with how FSCS may use money available to it and does not affect the rules on levy allocation in FEES 6.4, 6.5 and 6.5A8.

8
FEES 6.3.19R

Unless FEES 6.3.20 R applies, any recoveries made by the FSCS in relation to protected claims must be credited to the classes8 to which the related compensation costs was attributable.8

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FEES 6.3.20R
  1. (1)

    Where8 the FSCS makes recoveries in relation to protected claims where a8 related compensation costs levy8 would have been allocated to a class (class A) had the levy limit for class A not been reached and has been allocated to another class or classes in the retail pool, the recoveries must be applied:8

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    1. (a)

      8first, to the classes to which the costs levied were allocated in accordance with FEES 6.5A in the same proportion as those classes contributed, up to the total amount of that allocation plus interest at a rate equivalent to the Bank of England's Official Bank Rate from time to time in force; and

    2. (b)

      thereafter, to class A.

  2. (2)

    This rule applies even though the recovery is made in a subsequent financial year.2

  3. (3)

    [deleted]8

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2
FEES 6.3.20AG

2Recoveries under FEES 6.3.20 R are net of the costs of recovery.

FEES 6.3.21R

If the FSCS has more funds (whether from levies, recoveries or otherwise)8 to the credit of a class82 than the FSCS believes will be required to meet levies on that class82 for the next 12 months, it may refund the surplus to members or former members of the class82 on any reasonable basis.

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Adjustments to calculation of levy shares

FEES 6.3.22R

The FSCS may adjust the calculation of a participant firm's share of any levy to take proper account of:

  1. (1)

    any excess, not already taken into account, between previous levies of that type imposed in relation to previous periods and the relevant costs actually incurred in that period; or

  2. (2)

    participant firms that are exempt from the levy under FEES 6.2; or

  3. (3)

    amounts that the FSCS has not been able to recover from participant firms as a result of FEES 6.3.5 R ; or

    2
  4. (4)

    amounts that the FSCS has not been able to recover from participant firms after having taken reasonable steps; or

  5. (5)

    FEES 2.3 (Relieving Provisions),4 FEES 6.4.8 R (New participant firms), FEES 6.5.9 R (New participant firms),2 FEES 6.3.23 R (Remission of levy or additional administrative fee) or FEES 6.6 (Incoming EEA firms); or

  6. (6)

    anything else that the FSCS believes on reasonable grounds should be taken into account.

FEES 6.3.22AR

4The FSCS may not adjust the calculation of a participant firm's share of any levy under FEES 6.3.22 R on the grounds that it would be inequitable for that firm to pay that share or part of it or on the grounds that it would be inequitable for the FSCS to retain that share or part of it.

FEES 6.3.22BG

4The reason for FEES 6.3.22A R is that any such claim should be dealt with under FEES 2.3 (Relieving Provisions).

Firms acquiring businesses from other firms

FEES 6.3.22CR
  1. (1)

    4This rule applies to the calculation of the levies of a firm (A) if:

    1. (a)

      either:

      1. (i)

        A acquires all or a part of the business of another firm (B), whether by merger, acquisition of goodwill or otherwise; or

      2. (ii)

        A became authorised as a result of B's simple change of legal status (as defined in FEES 3 Annex 1 Part 6);

    2. (b)

      B is no longer liable to pay a levy; and

    3. (c)

      that acquisition or change takes place after the date to which, or as of which, A's most recent statement of business under FEES 6.5.13 R is drawn up so far as concerns the classes8 covered by B's business.

      8
  2. (2)

    A must pay an additional amount equal to the levy that would have been payable by B in relation to the relevant business and relevant classes8 if the acquisition or change in status had not taken place and B had remained liable to pay levies. The amount is based on the most recent information supplied by B under FEES 6.5.13 R. A is included in the classes8 applicable to the relevant business.

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  3. (3)

    This rule only applies with respect to those financial years of the FSCS for which A's levies are calculated on the basis of a statement of business under FEES 6.5.13 R drawn up to a date, or as of a date, before the acquisition or change in legal status took place.

Remission of levy or additional administrative fee

FEES 6.3.23R

If a participant firm's share of a levy or an additional administrative fee under FEES 6.7.4 R would be so small that, in the opinion of the FSCS, the costs of collection would be disproportionate to the amount payable, the FSCS may treat the participant firm as if its share of the levy or additional administrative fee amounted to zero.