Changes to the funding of the Financial Services Compensation Scheme
Tariff data for the levy year 1 April 2008 to 31 March 2009
We have now published our policy statement (PS07/19) confirming the changes to the way the Financial Services Compensation Scheme (FSCS) will be funded. These changes mean some firms will have to give us extra information.
What has changed?
In the new model, most firms will not see a change to the underlying tariff data they need to report for calculating the FSCS specific and compensation costs levy.
For the levy year 1 April 2008 to 31 March 2009, in most cases, we will use the information firms have already submitted to calculate each firm's levy.
For some firms we will need to collect some additional information so we can calculate their levy in proportion to the amount of business they do in each relevant sub-class. This will be in cases where we do not already hold this information and will apply to firms who do not currently have a valid exemption from paying the specific and compensation costs levy.
Is my firm affected?
The table below sets out the additional information we need and when we will ask firms to provide this.
| Due date | Relevant sub-class | Type of firm | Tariff measure | Additional Information |
|---|---|---|---|---|
| November 2007. Firms to respond by 30 November 2007 |
Investment intermediation (D2) | Firms that are permitted to carry out mediation for both life & pensions and investment business | Relevant approved persons, in addition for principal dealers the number of traders | Split of business between life & pensions and investment mediation to nearest 10% |
| November 2007. Firms to respond by 30 November 2007 |
Life and pensions intermediation (C2) | Firms that are able to carry out mediation for both life & pensions and investment business | Relevant approved persons | Split of business between life & pensions and investment mediation to nearest 10% |
| January 2008. Firms to respond by 29 February 2008 |
Fund management (D1) | Firms who have managing investments in their permission | Gross income | Gross income attributable to their managing investment activities |
| January 2008. Firms to respond by 29 February 2008 |
Investment intermediation (D2) | Principal dealers who are currently in contribution group A10 | Relevant approved persons, in addition for principal dealers the number of traders | For principal dealers only – number of traders that are not also registered as an approved person (CF30) |
We will collect all the remaining tariff data we use to calculate the specific and compensation costs levies in the same way as we do now. (e.g. from the annual fee tariff data requests, retail mediation activity return (RMAR) or the FSA register)
Split of business between life & pensions and investment mediation
Annex 3R of the amended FSCS funding rules sets out the legal basis for each sub-class. We have used firms' permission to identify those who are able to carry out both life & pensions and investment mediation and will therefore be allocated to both of these sub-classes (C2 and D2).
We have contacted these firms by email, asking them to complete a form indicating their split (expressed as a percentage) of these two business types. This will be in reference to the amount of income earned for their financial year ending in 2007. We will use this information to apportion the number of approved persons to each of these two mediation sub-classes.
If we have written to you, you will need to identify the overall income for both your life & pensions and investment business. You will then need to work out how much income is attributable (in percentage terms) to each of these two types of business.
For example, a firm has an overall income for life & pensions and investment business of £50,000. Life & pensions makes up £10,000 with investment business making up the remaining £40,000. This will translate into a percentage split of 20% life & pensions and 80% investment business. The firm indicates this split of business on our email form by putting a cross against the appropriate percentage split. It then completes the form by adding contact details and ensuring it has had the appropriate sign-off before emailing it back to us.
How should we send the information requested to the FSA?
We require this information to be returned via email, we have made this as easy as we can for firms: open the original email you received, click 'reply', enter a 'X' against the split that is appropriate to your firm within the body of the reply email, complete the sign off section at the end of the form, click 'send'. Your email reply will then be sent directly to our dedicated email address.
What happens if I don't receive a request for information?
We only need information from the firms that are permitted to carry out mediation for both life & pensions and investment business and are also not exempt from paying FSCS compensation levies. If your permission allows you to carry out both these types of business and you have not received a request from us, please contact the Revenue team on 020 7066 3034/9920 alternatively send an email to feetariffreturns@fsa.gov.uk.
We may have sent an email request to you but it is possible your email settings have prevented receipt of this. You may wish to check your SPAM inbox; if our email has been logged as SPAM you may wish to add our email address to your address book in order to receive emails from this address in future.
What happens if I don’t respond?
It is vital that firms respond to us with this information. If we do not receive a response, under rule (FEES TP 2.2.5R), we will use the total approved persons (CF30s) as the tariff amount for each of the sub-classes.
What happens to the information I provide?
Firstly we will review the approved person data we hold. This is because there are some consequential changes to the approved persons regime (merging customer functions to CF30) since the Markets in Financial Instruments Directive (MiFID) was implemented on 1 November 2007.
In January 2008 we will review the firms who have approved persons with customer function 30 (CF30) on the FSA register as at 31 December 2007 . We may need to contact some firms to verify their number of approved persons.
Chapter 6 of our consultation paper on Regulatory fees and levies: Policy proposals for 2008/09 (CP07/19), which we published on 8 November 2007, explains in more detail why we need to do this.
We will apportion the total of confirmed relevant CF30s to each relevant sub-class by using the percentage split of business your firm provided. The apportioned number of approved persons will be the tariff amount we will use to work out the 2008/09 levy your firm will be charged for each of the life & pensions and investment mediation sub-classes.
For firms that also undertake principal dealing (and are currently in contribution group A10) we will add the number of traders they report in January 2008 for FSCS purposes to the apportioned CF30s used as the tariff amount for the investment mediation sub-class.
The examples below show how we will use the information a firm gives us about their split of business.
Firm A – Typical Small Financial Adviser Firm
Firm A works out its ratio of business (in terms of income earned) is 20% life & pensions mediation and 80% investment business.
We apply this percentage to the total number of approved persons with customer function CF30 (excluding those that are solely carrying out investment management function) as a ratio of 1:4.
On 31 December 2007, Firm A has two approved persons with customer function 30 (CF30) none of which are solely carrying out investment management function. This means we will apportion two approved persons using the ratio of 1:4 to the sub-classes life & pension and investment business respectively.
The tariff data used to calculate the levy for the relevant sub-classes will be 0.4 and 1.6.
Firm B – Typical Investment Manager Firm
Firm B works out its ratio of business (in terms of income earned) is 60% life & pension intermediation and 40% investment intermediation business.
We apply this percentage to the total number of approved persons with customer function 30 (CF30) (excluding those that are solely carrying out the investment management function) as a ratio of 3:2.
On 31 December 2007 firm B has 20 approved persons with customer function CF30, of which five are solely carrying out the investment management function. This means that we will apportion 15 approved persons using the ratio of 3:2 to the sub-classes in question.
The tariff data used to calculate the levy for the life & pension intermediation sub- class will be nine approved persons. The tariff data for the investment intermediation sub-class will be six.
Firm C – Large firm undertaking a number of activities
Firm C works out its ratio of business (in terms of income earned) is 10% life & pension's intermediation and 90% investment intermediation business.
We apply this percentage to the total number of approved persons with customer function CF30 (excluding those that are solely investment management function) as a ratio of 1:9.
On 31 December 2007, firm C has 125 approved persons with customer function CF30, of which seven are solely carrying out the investment management function, this will leave 118.
The tariff data used for the split in business for the life & pension intermediation sub-class will be 11.8 approved persons and 106.2 for the investment intermediation sub-class.
The firm also reported 25 traders as at 31 December 2007 , of which six are approved persons with customer function CF30, leaving 19 traders to be added in full to the investment business sub-class to bring the total of this sub-class to 125.2.