The Financial Services Compensation Scheme (FSCS) has announced that it will require £92m of additional funding in the form of a supplementary levy.

The compensation scheme said there has been “a number of factors” that have driven up the levy this year.

The FSCS revealed the funding will be required from the Life Distribution and Investment Intermediation (LDII) class. This amount is more than the annual maximum that FSCS can raise from this class, and therefore the FSCS said it will source £8m from the LDII class and £33m from surpluses across other classes.

It will also call for an additional £51m from the other classes, including those in the retail pool. This is a separate pot that all classes are required to contribute to, where they have not reached their annual maximum, and the FSCS indicated it is only used when one class exceeds its annual levy limit.

The FSCS said it acknowledges that 2020 has been a “challenging year” for the financial services sector, and added that it has adapted well to challenges – with no resulting impact on compensation pay-out timeframes.

Given the current high levels of uncertainty, the FSCS added that its figures are its “best estimates” and are subject to change.

FSCS chief executive, Caroline Rainbird, commented: “I appreciate that the supplementary levy will be unwelcome news for firms against a challenging economic backdrop, and I genuinely understand the difficulty this will cause. We only raise a supplementary levy when we absolutely have to, when we estimate that we will not have sufficient funds to meet rising compensation costs or management expenses for the period until the next levy is due.

“Whilst we share the industry's concerns about rising compensation costs and increasing levies, we firmly believe there is no silver bullet and regulation alone will not solve this complex problem.

“It is still too soon to know the full effects of COVID-19 on the industry, but we must all be prepared for a challenging period in 2021. I want to reassure everyone that FSCS is ready to handle whatever difficulties next year will bring.”

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