The Financial Services Compensation Scheme (FSCS) revealed it will levy financial services firms £649m ($795m, €725m) for the 2020/21 financial year.
The sum is £14m higher than the lifeboat scheme forecast in its January 2020 budget.
Companies will need to fork out a total of £100m more than what they paid in 2019/20 – when the levy was £549m.
The FSCS said the increase is due to the estimated £44m it will need to pay out in compensation to those who have been mis-sold mini-bonds by London Capital & Finance (LCF).
The overall figure for the current financial year includes £74.7m needed for management costs and running the scheme.
But there is one area where the FSCS expects to pay less.
Rising Sipp complaints had been one of the reasons the lifeboat scheme increased its expected 2020/21 budget, but due to “a revision in the anticipated timing and cost of some recent and expected future Sipp operator failures”, it now expects to pay £7m less in compensation this year.
Impact of pandemic
Those firms working within the life and pension provision sector that are regulated by the Prudential Regulation Authority (PRA) will need to contribute an overall £33m, increased from the £28m paid in 2019.
Similarly, businesses operating within the life distribution and investment intermediation segment that are regulated by the Financial Conduct Authority (FCA) will be required to hand over £229m, compared to the £189m levied last year.
Caroline Rainbird, chief executive at the FSCS, said: “We publish this outlook during what is an extremely challenging time for everyone, and we appreciate that the impact of covid-19 is likely to be felt for a considerable period of time.
“Although the pandemic has altered FSCS’s working practices, it has not impacted on the day-to-day delivery of our service, and we have continued our business as usual. However, we recognise that business as usual will not be possible for everyone, and that some may face challenges due to the current economic situation.”
LCF saga continues
Rainbird continued: “The overall increase in the FSCS levy since the January forecast partly reflects the ongoing progress we are making in relation to the LCF failure. As we announced earlier this month, we have now started the process of reviewing individual LCF claims relating to misleading advice.
“Whilst it is too early to say how many LCF customers will be eligible for compensation, for the purpose of the levy we have estimated an amount of £44m.”
LCF bondholders, however, are taking legal action against the lifeboat scheme after it said in February 2020 that it was going to compensate 159 investors out of the over 11,600 victims, for the time being.
“We know that the industry has expressed concerns about the rising trends in compensation costs and increased levy amounts. I would like to reassure our levy payers that we are working with the industry and regulators to do as much as we can to address these concerns and will keep our levy payers updated on our progress,” she added.
