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
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