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FEES 6.3 The FSCS's power to impose levies

General limits on levies

FEES 6.3.1RRP

The FSCS may at any time impose a management expenses levy or a compensation costs 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:

  1. (1)

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

  2. (2)

    in the case of a compensation costs levy, the level of the FSCS's anticipatedexpenditure in respect of compensation costs in the 12 months following the levy.

FEES 6.3.2GRP

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 6.3.3GRP

The FSCS may impose one or more levies in a financial year to meet either its management expenses or its compensation costs. The FSCS may also impose interim levies, as part of its overall levy commitment. This flexibility allows the FSCS to phase its financing over the course of a financial year and thus avoid collecting levies from firms before the money is actually needed. The FSCS has committed itself in the Memorandum of Understanding with the FSA (the text of which can be found on the FSA website www.fsa.gov.uk) to publish regularly an indicative timetable for its levy procedures.

FEES 6.3.4GRP

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

Limits on compensation costs levies on sub-classes and classes23

FEES 6.3.5RRP

The maximum amount of compensation costs for which the FSCS can levy each sub-class and 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 6.3.10RRP

The FSCS may include in a compensation costs levy the costs of compensation paid by the FSCS in error, provided that the payment was made in good faith.

Management of funds

FEES 6.3.11RRP

The FSCS must hold any amount collected from a specific costs levy or compensation costs levy to the credit of the classes2 and relevant sub-classes,2 in accordance with the allocation established under FEES 6.4.6 R and FEES 6.5.2 R.

22
FEES 6.3.12RRP

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 6.3.13RRP

Interest earned by the FSCS in the management of funds held to the credit of a sub-class2 must be credited to that sub-class2, and must be set off against the management expenses or compensation costs 2allocated to that sub-class.2

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FEES 6.3.14RRP

The FSCS must keep accounts which show:

  1. (1)

    the funds held to the credit of each class and relevant sub-class;2 and

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  2. (2)

    the liabilities of that class and relevant sub-class.2

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FEES 6.3.15R

The FSCS may use the money collected from firms within one class2 to pay compensation costs in respect of any sub-class2 within that class,2 so long as it ensures that this is done without prejudice to the participant firms from whom the money has been collected.

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FEES 6.3.15AG

2FEES 6.3.15R deals with how FSCS may use money available to it and does not affect the rules on allocation in FEES 6.5.2R. Therefore the requirement that the procedure in FEES 6.3.15 R should not prejudice the participant firms does not apply to an allocation under FEES 6.5.2R.

FEES 6.3.16G

FEES 6.3.15 R means that, for example:

  1. (1)

    when crediting interest under FEES 6.3.13 R, the FSCS should regard any money collected from one sub-class2 which has been used to pay the compensation costs of another sub-class 2within the same

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    class 2as standing to the credit of the first sub-class;2

    2
  2. (2)

    the FSCS should not raise a levy under FEES 6.3.1 R on a sub-class2 solely because, as a result of the FSCS's action under FEES 6.3.15 R, there appear to be insufficient funds available to the credit of the sub-class2 to meet its expenses; and2

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  3. (3)

    (2) would not be applicable to the extent that the funds used are in respect of costs allocated to the sub-class in accordance with the rules on allocation in FEES 6.5.2 R(1) and (2).2

FEES 6.3.17RRP
  1. (1)

    The FSCS may use any money held to the credit of one class2(the creditor class)2 to pay compensation costsin respect of or allocated 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.

    2222
  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 levyon the creditor class2 under FEES 6.3.1 R.

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FEES 6.3.18GRP

2FEES 6.3.17 R deals with how FSCS may use money available to it and does not affect the rules on allocation in FEES 6.5.2 R. Therefore FEES 6.3.17R(2) (a), (b) and (c) do not apply where the costs otherwise attributable to one debtor class are allocated to the creditor class in accordance with the rules on allocation in FEES 6.5.2 R.

FEES 6.3.19RRP

Unless FEES 6.3.20 R applies, any recoveries made by the FSCS in relation to protected claims must be credited to the sub-classes2 to which the related compensation costs were allocated.

2
FEES 6.3.20RRP
  1. (1)

    This rule applies where the FSCS makes recoveries in relation to protected claims where related compensation costs would have been met by a sub-class (sub-class A) had the levy limit for sub-class A not been reached and have therefore been met by another sub-class or sub-classes.2

  2. (2)

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

  3. (3)

    Recoveries referred to in (1) must be applied in the following order of priority:

    1. (a)

      (if the compensation costs were allocated to the general retail pool (see FEES 6.5.2 R(2)) to the classes and sub-classes to which the costs were allocated in accordance FEES 6.5.2 R(2) in the same proportion as those classes and respective sub-classes contributed, up to the total amount of that allocation plus interest at a rate equivalent to the Bank of England's repo rate from time to time in force;2

    2. (b)

      (if the compensation costs were allocated to the other sub-class in the same class as sub-class A) to that other sub-class up to the total amount of that allocation plus interest at a rate equivalent to the Bank of England's repo rate from time to time in force; and2

    3. (c)

      sub-class A.2

2
FEES 6.3.20AGRP

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

FEES 6.3.21RRP

If the FSCS has more funds to the credit of a sub-class2 than the FSCS believes will be required to meet levies on that sub-class2 for the next 12 months, it may refund the surplus to members or former members of the sub-class2 on any reasonable basis.

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Adjustments to calculation of levy shares

FEES 6.3.22RRP

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 6.3.22ARRP

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 6.3.22BGRP

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 6.3.22CRRP
  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 sub-classes covered by B's business.

  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 sub-classes 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 sub-classes applicable to the relevant business.

  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 6.3.23RRP

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.

Levies on the Society of Lloyd's

FEES 6.3.24R

The FSCS may impose a levy on the Society to be calculated as the aggregate of the levies that would be imposed on each member if this chapter applied to members, as follows:

  1. (1)

    2a proportionate share of a base costs levy in respect of the compensation scheme's costs for the period from 1 January 2004 to the end of the compensation scheme's financial year and a share of such levies for all subsequent financial years; and

    2
  2. (2)

    a specific costs levy and a compensation costs levy in respect of costs arising out of a relevant person being in default, arrangements made under COMP 3.3.1 R or measures taken under COMP 3.3.3 R where:2

    2
    1. (a)

      the default occurs or the circumstances giving rise to the arrangements being made or the measures being taken, as the case may be, occur; and2

    2. (b)

      the protected contracts of insurance in connection with which the costs arise were entered into;2

on or after 1 January 2004.