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  • Preparing for T+1 Settlement: Key Steps for Firms

    Preparing for T+1 Settlement: Key Steps for Firms

    Our T+1 Journey Starts Now

    During a recent speech at the UK Accelerated Settlement Taskforce industry event, Mark Francis, interim director of wholesale markets sell-side, outlined the significance of adopting a T+1 settlement cycle for securities trades in the UK. The transition aims to improve market efficiency, enhance liquidity, and support the overall growth and competitiveness of the UK financial sector. This article summarises key insights from the address, the forthcoming steps for firms, and the necessary measures to prepare for the transition.

    T+1 Settlement: Improving Market Efficiency

    The FCA’s support for a shift to a T+1 settlement cycle stems from its objective to enhance market functionality. As highlighted in a recent letter to the Prime Minister, transitioning to a one-day settlement cycle will not only foster efficiency but also bolster liquidity and capital utilisation while simultaneously reducing risks for market participants.

    Beyond market efficiency, the adaptation to T+1 forms a part of a broader strategy aimed at reinforcing the UK’s position within the global wholesale market landscape. This initiative is expected to facilitate growth and innovation, positioning the UK as a competitive player on the world stage.

    Welcoming the Accelerated Settlements Taskforce’s Final Report

    The Accelerated Settlements Taskforce (AST) has published its final report, setting an implementation plan for the transition to the T+1 cycle by 11 October 2027. Andrew’s leadership in this initiative has been particularly commendable.

    This comprehensive report outlines concrete steps, recommendations, and timelines that firms must meticulously follow. Companies across the sector are encouraged to review the AST report, as it serves as a foundational document to guide operational adjustments and strategic planning in the lead-up to the deadline.

    Looking Forward – What Should Firms Do Next?

    With the forthcoming transition to T+1, it is critical for firms to begin their preparations without delay. The operational changes required will vary based on the diverse business models, existing settlement systems, and technological capabilities of each firm. It is essential to develop a tailored strategy to address these factors.

    Firms should focus on the following four key areas:

    1. Read the AST Report

    The AST report is the cornerstone of the T+1 transition. It details technical and operational recommendations that firms need to implement. A careful review will enable firms to identify actionable insights relevant to their specific circumstances.

    2. Plan Early

    Proactive planning is vital for a smooth transition. Firms must begin identifying necessary changes now rather than waiting until closer to the deadline. This planning should encompass all elements of securities settlement, including any required updates in associated areas like securities financing and foreign exchange markets.

    A key recommendation in the report involves streamlining operational processes crucial for faster settlement. It will be imperative for firms to assess and enhance their trade allocations, confirmations, and the submission of settlement instructions to the Central Securities Depository.

    3. Budget to Execute the Plan

    Implementing these changes may require adequate resources, both in terms of budget and human capital. Firms are advised to evaluate their financial needs for the transition in 2025, ensuring that they allocate the necessary funds to facilitate enhancements in processes or systems.

    4. Act to Implement and Test the Changes

    Timely execution of the planned changes is critical. This includes adhering to a testing timeline both internally and with external partners. Firms should foster communication among all involved stakeholders, including internal teams such as front, middle, and back offices, as well as external counterparties and service providers. Open dialogue will clarify the roles and responsibilities throughout the transition.

    Our Approach to Support T+1

    The FCA, in collaboration with the Treasury and the Bank of England, has outlined a supportive model for facilitating the transition to T+1. Their strategy encompasses engagement with firms, proactive communication, and a commitment to market monitoring.

    Engagement entails discussions about firms’ T+1 plans, ensuring compliance with the recommendations detailed in the UK T+1 Code of Conduct. Open channels of communication will also exist between the FCA and various market participants impacted by the changes.

    The FCA has launched a dedicated webpage to serve as a ‘one-stop shop’ for T+1 information, continuously updating it during the transition. They will leverage various communication tools to ensure awareness and preparedness for all market participants.

    Monitoring activities will also be integral, as the FCA will analyse data and observations during the transition to assess firm progress. This vigilance will help in identifying and addressing issues early to maintain market integrity.

    International Coordination

    Considering that securities markets operate globally, international cooperation is paramount. The FCA acknowledges ongoing government efforts to align with other European jurisdictions on the T+1 transition. Synchronisation across Europe aims to minimise disruption and ensure a streamlined implementation process. Input from international regulators and industry groups will enhance the understanding and execution of best practices based on experiences, such as those learned from the US transition to T+1.

    Key Takeaways

    The ultimate goal is a successful industry-wide transition to T+1 by 11 October 2027 with minimal market disruption. Firms are urged to prepare diligently by following the outlined key areas:

    • Read and implement the AST report’s recommendations.
    • Start planning for the changes required for T+1.
    • Ensure appropriate budgeting for necessary adjustments.
    • Act promptly to implement and test changes throughout the transition period.

    The FCA stands ready to assist firms throughout this pivotal transition, ensuring they can realise the anticipated benefits and efficiencies from T+1, ultimately aiding in fostering growth and innovation within the UK market.

    How C&G Regulatory Solutions Can Help

    C&G Regulatory Solutions is poised to provide essential support as firms navigate the T+1 transition. Our services include:

    • Transition Planning and Implementation: Assisting firms to develop and execute a roadmap for T+1 compliance.
    • Budgeting Support: Helping firms assess and plan for the financial implications of necessary changes.
    • Stakeholder Engagement Facilitation: Enabling effective communication across all levels of the organisation during the transition.
    • Continuous Monitoring: Providing ongoing support to gauge progress and address issues as they arise.

    If you require expert guidance to facilitate your transition to T+1 and ensure compliance, contact us today to explore how we can assist you. Together, we can achieve a successful transition that contributes to a resilient market environment.

    References

    Our T+1 journey starts now

  • FCA Response to Complaint on Blackmore Bonds PLC

    FCA Response to Complaint on Blackmore Bonds PLC

    Understanding Complaints Against Regulators in Financial Services

    Complaints regarding regulatory bodies, particularly in the financial services, often prompt intense scrutiny. The recent complaints involving Blackmore Bonds PLC highlight how allegations against regulators such as the Financial Conduct Authority (FCA) can lead to complex investigations and significant public interest. This article breaks down the findings of the FCA’s response to these complaints, analysing the implications for financial service providers and investors alike, while also discussing the FCA’s role and responsibilities regarding financial promotions and the regulatory framework governing mini-bonds.

    The Complaint Overview

    Investors in Blackmore Bonds PLC lodged complaints against the FCA claiming neglect in regulatory oversight. They argued that the FCA failed to act on warnings regarding Blackmore’s misleading marketing practices and the potential risks involved with investments in the company’s mini-bonds. The complaints covered several allegations:

    • The FCA was warned about Blackmore’s activities in 2017 but did not take appropriate action.
    • Failures in preventing misleading marketing that misrepresented investment risks.
    • The perception of FCA impotence in protecting investors who declared themselves as sophisticated.
    • Concerns about the FCA not understanding the bogus nature of Blackmore operations.

    FCA’s Investigation Findings

    Following a thorough investigation lasting several years, the FCA determined that the complaints were not upheld for the following reasons:

    • Blackmore was never regulated by the FCA, which limited the FCA’s supervisory capacity over its activities.
    • The FCA did appropriately handle the intelligence reports received regarding Blackmore’s financial promotions.
    • Investigations into the firms that approved Blackmore’s financial promotions (NCM Fund Services Ltd and Northern Provident Investments Ltd) concluded that their communications were largely accurate and contained relevant risk warnings.

    Failure to Compensate

    The FCA stated that it did not uphold the claims for compensation put forward by complainants, reaffirming that the losses were primarily due to the unregulated status of Blackmore and not a failure of the FCA. The FCA’s findings suggest that regulatory responsibility must be understood in the context of the framework governing financial promotions and unregulated entities.

    Marketing Mini-Bonds and Regulatory Framework

    Mini-bonds, essentially IOUs issued to investors, have posed substantial risks, particularly given their illiquid nature and high return promise. Although mini-bonds can be marketed to sophisticated or high net worth investors, promotional activities must comply with the Financial Promotions Regime. This requires that promotions for unregulated entities like Blackmore need to be approved by FCA-authorised firms, a point that was upheld during the investigations.

    Key Regulatory Changes

    The emergence of issues relating to Blackmore has prompted several regulatory changes, particularly concerning financial promotions targeting retail investors. Significant changes over the last few years include:

    • A temporary ban on promoting speculative mini-bonds to retail investors was issued in 2020, later made permanent in 2021.
    • The establishment of the Financial Promotion and Enforcement Taskforce (FPET) by the FCA in 2021 to tackle breaches in financial promotions and market scams.
    • As of 2024, all firms approving financial promotions for unauthorised firms must apply for specific “approver permission”.

    Role of the FCA

    While the FCA is tasked with protecting consumers and maintaining market integrity, its regulatory powers over unregulated firms are inherently limited. Unlike regulated entities, where the FCA can enforce compliance readily, it relies on prior warnings and reports to guide potential actions. For Blackmore, the regulatory apparatus behaved according to the statutory limits of its powers. The FCA noted that it shared intelligence with law enforcement agencies whenever appropriate, although specific details of these communications could not be disclosed due to confidentiality laws.

    Implications for Investors and Financial Firms

    The findings of the FCA send a strong message about the importance of regulatory compliance and foresight in promoting financial products. Investors need to ensure that they only engage with products highlighted by responsible firms that follow regulatory protocols. The implications for product promoters in the financial services industry are equally significant:

    • Robust compliance systems must be established, ensuring promotions are accurate and fair while adequately warning investors of potential risks.
    • Firms must assess their relationship with promoters and ensure compliance with FCA requirements regarding marketing unregulated products.
    • Encouragement of educational initiatives to ensure potential investors understand the risks involved with mini-bonds and other complex financial products.

    Staying Ahead of Regulatory Expectations

    The FCA’s investigations and their outcomes serve as a reinforcement of the ongoing need for compliance in financial promotion activities. Controls must be in place to monitor marketing materials and guarantee they align with regulatory directives. Firms are urged to seek continuous improvement and adaptation in their compliance frameworks.

    The Role of Financial Promotions and Investor Education

    Proper regulation of financial promotions improves investor confidence and ensures the market functions equitably. Investors are advised to do their due diligence, researching both the investment products and the associated firms before committing funds. Enhanced awareness of the risks can protect individuals from high-risk investments that can lead to losses.

    Next Steps and Conclusion

    The FCA’s response to the complaints regarding Blackmore underscores the necessity for both regulatory compliance and consumer education. To protect investors effectively, an understanding of the regulatory landscape is crucial. Financial service firms must develop robust internal controls and educational campaigns aimed at demystifying investment risks associated with unregulated products. Recognising the FCA’s updated mandates will help avoid future pitfalls, thus bolstering the integrity of the financial sector.

    How C&G Regulatory Solutions Can Support Financial Firms

    If you are a financial service provider seeking to enhance your compliance measures or navigate the complexities of financial promotions, contact us today. Our team of experts can assist with your regulatory challenges and ensure that your promotional strategies are robust and compliant with the latest FCA regulations.

    References

    Decision letter: Complaint to the FCA regarding Blackmore Bonds PLC

  • FCA Files Fraud Charges Against Independent Financial Adviser

    FCA Files Fraud Charges Against Independent Financial Adviser

    FCA Charges Independent Financial Adviser with Fraud

    The Financial Conduct Authority (FCA) has charged Mrs Lisa Campbell, the sole director of Campbell & Associates Independent Financial Advice Ltd, with several serious criminal offences, including fraud by abuse of position and the provision of false or misleading information to the FCA. This case exemplifies the ongoing concerns regarding financial misconduct within the advisory sector in the UK. Notably, the FCA claims that from 1 April 2013 to 10 May 2023, Mrs Campbell misappropriated over £2.3 million from her clients, leading to significant losses for various victims, including vulnerable individuals.

    This article delves into the details of the case, the regulatory implications, and the broader context surrounding fraud within the financial advisory landscape. Understanding these elements is crucial for financial firms to reinforce their compliance frameworks and client protections.

    Overview of the Charges

    Mrs Campbell, operating under the name Campbell & Raffle Independent Financial Advice Ltd until November 2020, provided advice on investments, insurance, and pensions while being explicitly prohibited from holding or controlling client money. Allegations suggest that she misappropriated funds on multiple occasions by crafting fraudulent documents to mislead clients into believing their investments were secure.

    Additionally, the FCA asserts that Mrs Campbell supplied false information to conceal her breaches, further complicating her already unlawful actions. The impact of her alleged fraud is profound, affecting family members, friends, and even vulnerable clients who relied on her financial expertise.

    Impact on Victims

    The ramifications of Mrs Campbell’s actions are severe. More than £2.3 million was allegedly stolen, representing significant financial distress for the affected parties. The victims include not only her clients but also those who trusted her personally, showcasing the breach of trust that is particularly devastating in these cases. Financial abuse disproportionately affects vulnerable groups, and instances such as this highlight the systemic issues within the advisory sector that must be addressed.

    Regulatory Response

    The FCA has noted that their investigation proceeded with unprecedented speed, taking just 24 months from initiation to the filing of charges. This is a marked improvement compared to the average of 42 months for other cases closed in the 2023/24 period. The rapid progress highlights the FCA’s commitment to enhancing the pace and effectiveness of its enforcement actions.

    With Mrs Campbell’s case, the FCA aims to reaffirm its stance against fraud, particularly within the financial advisory space. Therese Chambers, joint executive director of Enforcement and Market Oversight at the FCA, characterised Mrs Campbell’s alleged actions as a “betrayal of trust on a massive scale.” The authority’s resolve to hold Mrs Campbell accountable signals a broader initiative to ensure that financial advisers comply with their professional and legal obligations.

    Legal Framework and Compliance Obligations

    Fraud by abuse of position falls under sections 1 and 4 of the Fraud Act 2006, which delineates the specific offences related to exploiting a position of trust. In Mrs Campbell’s case, the FCA alleges six distinct offences of this nature. Furthermore, knowingly providing false information in purported compliance with the Financial Services and Markets Act 2000 constitutes an offence under section 177 of the same Act.

    Campbell & Associates held FCA permissions from 4 October 2013 until the firm was ordered to cease activities on 9 February 2023. These permissions underscore the responsibilities entrusted to employees within financial advisory firms, as they are expected to uphold compliance with both regulatory and ethical standards. Such breaches, when committed by senior figures, can have disastrous implications for the wider regulatory landscape.

    Lessons Learned from the Investigation

    This case serves as a critical reminder of the need for firms to implement robust compliance frameworks and ethical guidelines. Financial institutions must continuously assess their systems to mitigate the risk of fraud. Effective compliance measures could include:

    • Regular training: Ensuring all staff are adequately trained in compliance protocols and ethical standards is vital.
    • Robust controls: Implementing internal controls to monitor and review financial transactions can catch anomalies before they escalate.
    • Whistleblower policies: Establishing a culture where employees can report dishonest practices without fear of retribution fosters transparency.

    Regulatory Trends and Future Considerations

    The FCA has increasingly focused on transparency and accountability within financial institutions. As investigations into fraud become more rigorous, firms must be vigilant in their compliance efforts. This includes adhering closely to FCA guidelines and proactively engaging in risk management practices to deter fraudulent activities. The collaboration between regulatory bodies like the FCA and law enforcement agencies, such as Hampshire Police in Mrs Campbell’s case, further reinforces the commitment to tackling financial crime.

    As fraud within the financial advisory sector continues to pose significant challenges, firms must evolve their compliance strategies to meet these emerging threats. This case specifically illustrates the dire consequences of neglecting duty, demonstrating that even established firms can fall prey to employee misconduct.

    Call to Action

    For businesses within the financial advisory sector, it is vital to review and strengthen compliance frameworks in light of ongoing regulatory scrutiny. If your firm requires assistance in enhancing its compliance measures or addressing specific regulatory challenges, contact us today for expert guidance. Together, we can fortify your operations against potential misconduct and build a resilient financial advisory framework.

    References

    FCA charges Hampshire-based independent financial adviser with multiple fraud offences

  • Outlook on Claims Management Companies (CMCs) for 2025

    Outlook on Claims Management Companies (CMCs) for 2025

    The FCA’s Strategic Vision for Claims Management Companies: 2024-2026

    The Financial Conduct Authority has outlined its supervisory strategy for Claims Management Companies (CMCs) through 2026, highlighting key areas of concern and setting clear expectations for the industry. Since taking over regulation in April 2019, the FCA has observed a significant transformation in the sector, with lead generators now representing more than half of all CMCs.

    Current State of the Industry

    The FCA’s recent assessment reveals both progress and persistent challenges. Through three major initiatives examining unregulated claims, client money handling, and lead generation practices, the regulator has identified several critical areas requiring attention:

    • 26 CMCs were evaluated for the ‘halo effect’ in unregulated claims, with most ceasing such activities
    • Client money handling reviews led to improved standards, with 80% of historic client money now repaid
    • Lead generation assessment of 30 CMCs found 90% non-compliant with CMCOB 2.2 requirements

    Priority Areas for Supervision

    Service Standards

    The FCA will scrutinize how CMCs investigate claim merits before pursuit, particularly focusing on firms with high complaint volumes but low uphold rates at the Financial Ombudsman Service.

    Personal Injury Claims

    Special attention will be paid to marketing literature and lead generation due diligence in personal injury claims, ensuring compliance with Consumer Duty requirements and clear differentiation between regulated and unregulated activities.

    Lead Generation

    The regulator is considering modifications to the annual CMC001 report to better monitor lead generation activities and ensure proper data handling.

    Key Compliance Requirements

    Marketing and Advertising

    CMCs must ensure all promotional materials are clear, fair, and not misleading, adhering to CMCOB 2 and CMCOB 3 standards. Recent concerns have centered on housing disrepair and motor finance claims advertising.

    Customer Data Protection

    Firms must implement robust due diligence processes when accepting leads from third parties, ensuring lawful and transparent data processing.

    Service Quality

    CMCs are expected to provide meaningful pre-contract engagement, conduct thorough claim investigations, and maintain professional cooperation with regulated firms.

    Motor Finance Complaints

    New rules introduced in December 2024 (PS24/18) extend response times for motor finance complaints until December 2025. CMCs must clearly communicate these changes to customers and avoid misleading advertising about potential refunds.

    Regulatory Reporting Requirements

    The FCA has noted concerns about CMCs failing to register principal users on RegData, resulting in overdue returns. Senior managers are responsible for ensuring timely and accurate regulatory reporting compliance.

    Need Support with Regulatory Compliance?

    Ensuring compliance with FCA regulations requires expertise and attention to detail. For professional guidance on meeting these regulatory requirements and implementing effective compliance systems, contact our team for specialized support.

    References

    Portfolio letter: Claims Management Companies (CMC’s) 2025

  • FCA Clarifies Motor Finance Regulations Following High Court Ruling

    FCA Clarifies Motor Finance Regulations Following High Court Ruling

    FCA’s Response to High Court Ruling on Motor Finance

    The recent High Court judgment has clarified the regulatory landscape concerning discretionary commission arrangements (DCAs) in motor finance. This ruling is significant for consumers and financial firms alike, as it highlights the responsibilities of lenders and dealers in their commission disclosures. The Court sided with the Financial Ombudsman Service, reinforcing consumer protection in the financial services sector.

    Judicial Review Outcome

    On 17 December 2024, the High Court ruled in favor of the Financial Ombudsman Service regarding a complaint about a DCA within a motor finance agreement involving Barclays Partner Finance. The judgment dismissed all three grounds of appeal made by the lender, indicating a clear interpretation of the rules as set forth by the Financial Conduct Authority (FCA) and the Consumer Credit Act 1974.

    Key Findings of the Judgment

    The judgment emphasized that Barclays Partner Finance, along with the car dealer, failed to meet mandatory standards in their dealings with the borrower. Specifically, the Judge upheld the Financial Ombudsman’s stance that:

    • The commission arrangements were not adequately disclosed to the borrower.
    • The relationship between the lender and the borrower was assessed as unfair under existing regulations.

    This ruling establishes a precedent for how DCAs should be handled, promoting transparency and fairness in motor finance agreements.

    Ongoing FCA Review

    The FCA is currently conducting a review of DCAs within the motor finance market, following a temporary ban implemented in 2021. The aim of this review is multifaceted:

    • To investigate the prevalence of misconduct associated with DCAs.
    • To determine if consumers have suffered losses due to inadequate disclosure practices.
    • To recommend pathways for ensuring fair compensation for affected consumers.

    In light of this ongoing review, firms were given additional time to respond to complaints regarding motor finance involving DCAs. This extension aims to ensure comprehensive and fair resolutions.

    Implications of the Supreme Court Appeal

    Alongside the High Court decision, the Supreme Court will hear an appeal related to three additional motor finance cases. These cases involve both DCAs and non-DCAs and pertain to the application of common law and equitable principles surrounding the Consumer Credit Act. The implications of this appeal are broad, affecting not only the current review but also the general understanding of compliance obligations for motor finance providers.

    Anticipated Changes in Industry Practices

    Following the Court of Appeal’s ruling, firms in the motor finance sector can expect an influx of complaints regarding DCAs as well as non-DCA transactions. To manage this effectively, the FCA has proposed extensions to the response time for dealing with such complaints. This measure aims to maintain order and consistency in resolving disputes between consumers and firms.

    Next Steps in Regulation

    The FCA plans to announce its policy statement by 19 December 2024, outlining the outcome of its consultation regarding the extension of time for complaints related to non-DCAs. Furthermore, the FCA intends to outline future steps in its DCA review by May 2025. However, the progress of the Supreme Court appeal may influence the specifics of these advancements.

    Conclusion

    The High Court’s ruling and ongoing FCA review are critical in reshaping the landscape of motor finance, reinforcing the necessity for transparent practices in commission arrangements. With regulatory scrutiny increasing, firms must reassess their compliance frameworks to align with evolving standards. Stakeholders are encouraged to reflect on their practices and consider the potential impacts of these judicial decisions.

    For businesses needing guidance on compliance in the regulatory landscape, seeking expert support is crucial. Contact us for tailored assistance on navigating these changes and ensuring adherence to FCA regulations. Contact Us today.

    References

    FCA responds to High Court motor finance judicial review decision

  • Non Insights Test

    Non Insights test

  • Financial Services Compensation Scheme Management Expenses Levy Limit for 2025/26 Explained

    Financial Services Compensation Scheme Management Expenses Levy Limit for 2025/26 Explained

    Understanding the FSCS Management Expenses Levy Limit for 2025/26

    The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have proposed a Management Expenses Levy Limit (MELL) of £108.6m for the Financial Services Compensation Scheme (FSCS) for 2025/26. This levy comprises a management expenses budget of £103.6m and an unlevied reserve of £5m.

    Key Changes and Budget Overview

    The proposed MELL represents a modest 0.5% increase (£0.5m) from the 2024/25 limit of £108.1m. Notably, the FSCS is absorbing approximately £2.7m of inflationary costs, making the actual levy lower in real terms. The management expenses budget covers essential operating costs including IT infrastructure, staffing, outsourcing, legal services, and claims handling.

    Budget Allocation and Cost Management

    Key budgetary changes for 2025/26 include:

    • Staff costs increase of 5% (£2.5m)
    • IT costs rise of 7% (£0.5m)
    • Professional and legal fees reduction of 8% (£0.8m)
    • Outsourced claims handling decrease of 13% (£1.8m)

    Operational Changes and Efficiency Measures

    The FSCS is implementing a new hybrid operating model from April 2025, bringing most claims processing in-house while partnering with PwC for remaining claims. This strategic shift aims to improve service quality, strengthen core processes, and achieve long-term cost efficiencies.

    Funding Structure and Industry Impact

    The management expenses budget is allocated across FCA and PRA firms through:

    • Base costs of £36.9m (split 50/50 between FCA and PRA regulatory fee blocks)
    • Specific costs of £66.7m (allocated based on claims volumes and types)

    The FCA funding class allocation is set to increase by £0.7m to £63.2m, while the PRA funding class allocation will decrease by £0.2m to £40.4m.

    Consumer Protection and Market Confidence

    The FSCS plays a crucial role in maintaining consumer confidence in financial services by providing compensation when authorized firms fail. For 2025/26, the FSCS forecasts compensation payments of £367m, demonstrating its vital consumer protection function.

    Seeking Professional Compliance Support

    Understanding and preparing for regulatory levies can be complex. For guidance on how these changes might affect your firm and ensuring compliance with regulatory requirements, contact our regulatory experts for specialized support.

    References

    CP25/1: Financial Services Compensation Scheme – Management Expenses Levy Limit 2025/26
    [pdf]

  • Financial Services Compensation Scheme Management Expenses Levy Limit for 2025/26 Explained

    Financial Services Compensation Scheme Management Expenses Levy Limit for 2025/26 Explained

    Understanding the FSCS Management Expenses Levy Limit for 2025/26

    The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have proposed a Management Expenses Levy Limit (MELL) of £108.6m for the Financial Services Compensation Scheme (FSCS) for 2025/26. This levy comprises a management expenses budget of £103.6m and an unlevied reserve of £5m.

    Key Changes and Budget Overview

    The proposed MELL represents a modest 0.5% increase (£0.5m) from the 2024/25 limit of £108.1m. Notably, the FSCS is absorbing approximately £2.7m of inflationary costs, making the actual levy lower in real terms. The management expenses budget covers essential operating costs including IT infrastructure, staffing, outsourcing, legal services, and claims handling.

    Budget Allocation and Cost Management

    Key budgetary changes for 2025/26 include:

    • Staff costs increase of 5% (£2.5m)
    • IT costs rise of 7% (£0.5m)
    • Professional and legal fees reduction of 8% (£0.8m)
    • Outsourced claims handling decrease of 13% (£1.8m)

    Operational Changes and Efficiency Measures

    The FSCS is implementing a new hybrid operating model from April 2025, bringing most claims processing in-house while partnering with PwC for remaining claims. This strategic shift aims to improve service quality, strengthen core processes, and achieve long-term cost efficiencies.

    Funding Structure and Industry Impact

    The management expenses budget is allocated across FCA and PRA firms through:

    • Base costs of £36.9m (split 50/50 between FCA and PRA regulatory fee blocks)
    • Specific costs of £66.7m (allocated based on claims volumes and types)

    The FCA funding class allocation is set to increase by £0.7m to £63.2m, while the PRA funding class allocation will decrease by £0.2m to £40.4m.

    Consumer Protection and Market Confidence

    The FSCS plays a crucial role in maintaining consumer confidence in financial services by providing compensation when authorized firms fail. For 2025/26, the FSCS forecasts compensation payments of £367m, demonstrating its vital consumer protection function.

    Seeking Professional Compliance Support

    Understanding and preparing for regulatory levies can be complex. For guidance on how these changes might affect your firm and ensuring compliance with regulatory requirements, contact our regulatory experts for specialized support.

    References

    CP25/1: Financial Services Compensation Scheme – Management Expenses Levy Limit 2025/26
    [pdf]

  • Financial Services Compensation Scheme Management Expenses Levy Limit for 2025/26 Explained

    Financial Services Compensation Scheme Management Expenses Levy Limit for 2025/26 Explained

    Understanding the FSCS Management Expenses Levy Limit for 2025/26

    The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have proposed a Management Expenses Levy Limit (MELL) of £108.6m for the Financial Services Compensation Scheme (FSCS) for 2025/26. This levy comprises a management expenses budget of £103.6m and an unlevied reserve of £5m.

    Key Changes and Budget Overview

    The proposed MELL represents a modest 0.5% increase (£0.5m) from the 2024/25 limit of £108.1m. Notably, the FSCS is absorbing approximately £2.7m of inflationary costs, making the actual levy lower in real terms. The management expenses budget covers essential operating costs including IT infrastructure, staffing, outsourcing, legal services, and claims handling.

    Budget Allocation and Cost Management

    Key budgetary changes for 2025/26 include:

    • Staff costs increase of 5% (£2.5m)
    • IT costs rise of 7% (£0.5m)
    • Professional and legal fees reduction of 8% (£0.8m)
    • Outsourced claims handling decrease of 13% (£1.8m)

    Operational Changes and Efficiency Measures

    The FSCS is implementing a new hybrid operating model from April 2025, bringing most claims processing in-house while partnering with PwC for remaining claims. This strategic shift aims to improve service quality, strengthen core processes, and achieve long-term cost efficiencies.

    Funding Structure and Industry Impact

    The management expenses budget is allocated across FCA and PRA firms through:

    • Base costs of £36.9m (split 50/50 between FCA and PRA regulatory fee blocks)
    • Specific costs of £66.7m (allocated based on claims volumes and types)

    The FCA funding class allocation is set to increase by £0.7m to £63.2m, while the PRA funding class allocation will decrease by £0.2m to £40.4m.

    Consumer Protection and Market Confidence

    The FSCS plays a crucial role in maintaining consumer confidence in financial services by providing compensation when authorized firms fail. For 2025/26, the FSCS forecasts compensation payments of £367m, demonstrating its vital consumer protection function.

    Seeking Professional Compliance Support

    Understanding and preparing for regulatory levies can be complex. For guidance on how these changes might affect your firm and ensuring compliance with regulatory requirements, contact our regulatory experts for specialized support.

    References

    CP25/1: Financial Services Compensation Scheme – Management Expenses Levy Limit 2025/26
    [pdf]

  • Financial Services Compensation Scheme Management Expenses Levy Limit for 2025/26 Explained

    Financial Services Compensation Scheme Management Expenses Levy Limit for 2025/26 Explained

    Understanding the FSCS Management Expenses Levy Limit for 2025/26

    The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have proposed a Management Expenses Levy Limit (MELL) of £108.6m for the Financial Services Compensation Scheme (FSCS) for 2025/26. This levy comprises a management expenses budget of £103.6m and an unlevied reserve of £5m.

    Key Changes and Budget Overview

    The proposed MELL represents a modest 0.5% increase (£0.5m) from the 2024/25 limit of £108.1m. Notably, the FSCS is absorbing approximately £2.7m of inflationary costs, making the actual levy lower in real terms. The management expenses budget covers essential operating costs including IT infrastructure, staffing, outsourcing, legal services, and claims handling.

    Budget Allocation and Cost Management

    Key budgetary changes for 2025/26 include:

    • Staff costs increase of 5% (£2.5m)
    • IT costs rise of 7% (£0.5m)
    • Professional and legal fees reduction of 8% (£0.8m)
    • Outsourced claims handling decrease of 13% (£1.8m)

    Operational Changes and Efficiency Measures

    The FSCS is implementing a new hybrid operating model from April 2025, bringing most claims processing in-house while partnering with PwC for remaining claims. This strategic shift aims to improve service quality, strengthen core processes, and achieve long-term cost efficiencies.

    Funding Structure and Industry Impact

    The management expenses budget is allocated across FCA and PRA firms through:

    • Base costs of £36.9m (split 50/50 between FCA and PRA regulatory fee blocks)
    • Specific costs of £66.7m (allocated based on claims volumes and types)

    The FCA funding class allocation is set to increase by £0.7m to £63.2m, while the PRA funding class allocation will decrease by £0.2m to £40.4m.

    Consumer Protection and Market Confidence

    The FSCS plays a crucial role in maintaining consumer confidence in financial services by providing compensation when authorized firms fail. For 2025/26, the FSCS forecasts compensation payments of £367m, demonstrating its vital consumer protection function.

    Seeking Professional Compliance Support

    Understanding and preparing for regulatory levies can be complex. For guidance on how these changes might affect your firm and ensuring compliance with regulatory requirements, contact our regulatory experts for specialized support.

    References

    CP25/1: Financial Services Compensation Scheme – Management Expenses Levy Limit 2025/26
    [pdf]