Prudential Regulation Authority Rulebook

21.1

If a participant firm does not pay the total amount of the participant firm’s share of the FSCS levy, before the end of the date on which it is due, under the relevant provision in this Part, that participant firm must pay an additional amount as follows:

1. (1) if the share of the FSCS levy owing was not paid in full before the end of the due date, an administrative fee of £250; plus
2. (2) interest on any unpaid part of the share of the FSCS levy owing at the rate of 5% per annum above the Official Bank Rate from time to time in force, accruing on a daily basis from the date on which the amount concerned became due.

21.2

If it appears to the PRA or the FSCS that in the exceptional circumstances of a particular case, the payment of any FSCS levy would be inequitable, the PRA or the FSCS may (unless 21.4 applies) reduce or remit all or part of the levy in question which would otherwise be payable.

21.3

If it appears to the PRA or the FSCS that in the exceptional circumstances of a particular case to which 21.2 does not apply, the retention by the FSCS of any FSCS levy which has been paid would be inequitable, the FSCS may (unless 21.4 applies) refund all or part of that fee or levy.

21.4

The PRA or the FSCS may not consider a claim under 21.2 and/or 21.3 to reduce, remit or refund any overpaid amounts paid by a fee or levy payer in respect of a particular period, due to a mistake of fact or law by the fee or levy payer, if the claim is made by the fee or levy payer more than 2 years after the beginning of the period to which the overpayment relates.

21.5

1. (1) A participant firm which does not conduct business that could give rise to a protected claim by an eligible claimant and has no reasonable likelihood of doing so is exempt from a specific costs levy, or a compensation costs levy, or both, provided that:
1. (a) it has notified the FSCS in writing that those conditions apply, and has received written confirmation from FSCS that those conditions apply; and
2. (b) the conditions in fact continue to apply.
2. (2) The exemption takes effect from the date on which the participant firm receives confirmation from the FSCS that those conditions apply.

21.6

A participant firm which is exempt under 21.5 must notify the FSCS in writing as soon as reasonably practicable if the conditions in 21.5 no longer apply.

21.7

If a participant firm ceases to conduct business that could give rise to a protected claim by an eligible claimant and notifies the FSCS of this under 21.5(1)(a), it will be treated as a participant firm to which 21.48 applies until the end of the financial year of the compensation scheme in which the notice was given.

21.8

For the purposes of 21.5, a participant firm will only be exempt from a specific costs levy or compensation costs levy for any given financial year if it met the conditions in 21.5 on 31 March of the immediately preceding financial year.

21.9

The FSCS may at any time impose a management expenses levy or a compensation costs levy, provided that the FSCS has reasonable grounds for believing that the funds available to it to meet relevant expenses are, or will be, insufficient, taking into account expenditure already incurred, actual and expected recoveries and:

1. (1) in the case of a management expenses levy, the level of the FSCS’s expected expenditure in respect of those expenses in the financial year of the compensation scheme in relation to which the levy is imposed;
2. (2) in the case of a compensation costs levy relating to protected claims:
1. (a) the FSCS’s expenditure in respect of compensation costs expected in the 12 months following the levy; or, if greater
2. (b) one third of the FSCS’s expenditure in respect of compensation costs expected in the 36 months following the levy.

21.10

In the calculation of levies, the FSCS will also take into account previous levies, where funds raised in anticipation of meeting liabilities prove either more or less than the amount actually required.

21.11

The maximum aggregate amount of compensation costs and specific costs for which the FSCS can levy each insurance class in any one financial year of the compensation scheme is limited to the amounts set out in the table in Annex 1.

21.12

The FSCS may include in a compensation costs levy the costs of compensation paid by the FSCS in error, provided that the payment was not made in bad faith.

21.13

The FSCS must hold any amount collected from a specific costs levy or compensation costs levy to the credit of the insurance classes in accordance with the allocation established under 21.31 and 21.35.

21.14

Any funds received by the FSCS by way of levy or otherwise for the purposes of the policyholder protection scheme are to be managed as the FSCS considers appropriate, and in doing this the FSCS must act prudently.

21.15

Interest earned by the FSCS in the management of funds held to the credit of an insurance class must be credited to that insurance class, and must be set off against the management expenses or compensation costs allocated to that insurance class.

21.16

The FSCS must keep accounts which include:

1. (1) the funds held to the credit of each insurance class; and
2. (2) the liability of that insurance class.

21.17

1. (1) The FSCS may use any money held to the credit of one insurance class (the creditor insurance class) to pay compensation costs or specific costs attributable or allocated by way of levy to the other insurance class (the debtor insurance class) if the FSCS has reasonable grounds to believe that this would be more economical than borrowing funds from a third party or raising a levy.
2. (2) Where the FSCS acts in accordance with (1), it must ensure that:
1. (a) the creditor insurance class is reimbursed by the debtor insurance class as soon as possible;
2. (b) the debtor insurance class pays interest at a rate equivalent to the Bank of England's repo rate from time to time in force; and
3. (c) the amount lent by the creditor insurance class to the debtor insurance class is taken into account by the FSCS when considering whether to impose a compensation costs levy on the creditor insurance class under 21.9.

21.18

Unless 21.19 applies, any recoveries made by the FSCS in relation to protected claims must be credited to the insurance classes to which the related compensation costs was attributable.

21.19

1. (1) Where the FSCS makes recoveries in relation to protected claims where a related compensation costs levy would have been allocated to a insurance class (class X) had the levy limit for class X not been reached and has been allocated to the other insurance class, the recoveries must be applied:
1. (a) first, to the insurance class to which the costs levied were allocated in the same proportion as that insurance class contributed, up to the total amount of that allocation plus interest at a rate equivalent to the Bank of England's Official Bank Rate from time to time in force; and
2. (b) thereafter, to class X.
2. (2) This rule applies even though the recovery is made in a subsequent financial year.

21.20

Recoveries under 21.19 are net of the costs of recovery.

21.21

If the FSCS has more funds (whether from levies, recoveries or otherwise) to the credit of an insurance class than the FSCS believes will be required to meet levies on that insurance class for the next 12 months, it may refund the surplus to members or former members of the insurance class on any reasonable basis.

21.22

The FSCS may adjust the calculation of a participant firm’s share of any levy imposed in accordance with this Chapter to take proper account of:

1. (1) any excess, not already taken into account, between previous levies of that type imposed in relation to previous periods and the relevant costs actually incurred in that period;
2. (2) participant firms that are exempt from the levy under 21.5 to 21.8;
3. (3) amounts that the FSCS has not been able to recover from participant firms as a result of 21.11;
4. (4) amounts that the FSCS has not been able to recover from participant firms after having taken reasonable steps;
5. (5) 21.25, 21.33 or 21.40; or
6. (6) anything else that the FSCS believes on reasonable grounds should be taken into account.

21.23

The FSCS may not adjust the calculation of a participant firm's share of any levy imposed under this Chapter under 21.22 on the grounds that it would be inequitable for that firm to pay that share or part of it or on the grounds that it would be inequitable for the FSCS to retain that share or part of it.

21.24

1. (1) This rule applies to the calculation of the levies of a firm (A) if:
1. (a) A:
1. (i) acquires all or a part of the business of another firm (B), whether by merger, acquisition, goodwill or otherwise; or
2. (ii) becomes authorised as a result of B’s simple change of legal status (as defined in Fees 4.5 (4));
2. (b) B is no longer liable to pay a levy; and
3. (c) that acquisition or change takes place after the date to which, or as of which, A’s most recent statement of business under 21.42 is drawn up so far as concerns the insurance classes covered by B’s business.
2. (2) A must pay an additional amount equal to the levy that would have been payable by B in relation to the relevant business and relevant insurance class if the acquisition or change in legal status had not taken place and B had remained liable to pay levies. The amount is based on the most recent information supplied by B under 21.42. A is included in the insurance classes applicable to the relevant business.
3. (3) This rule only applies with respect to those financial years of the FSCS for which A's levies are calculated on the basis of a statement of business under 21.42 drawn up to a date.

21.25

If a participant firm's share of a levy or an additional administrative fee under 21.42 would be so small that, in the opinion of the FSCS, the costs of collection would be disproportionate to the amount payable, the FSCS may treat the participant firm as if its share of the levy or additional administrative fee amounted to zero.

21.26

The FSCS may impose a levy on the Society to be calculated as the aggregate of the levies that would be imposed on each member if this Chapter applied to members, as follows:

1. (1) a proportionate share of a base costs levy in respect of the compensation scheme's costs for the period from 1 January 2004 to the end of the compensation scheme's financial year and a share of such levies for all subsequent financial years; and
2. (2) a specific costs levy and a compensation costs levy in respect of costs arising out of a relevant person being in default, arrangements made under 4.1 or measures taken under 5.1 where:
1. (a) the default occurs or the circumstances giving rise to the arrangements being made or the measures being taken, as the case may be, occur; and
2. (b) the protected contracts of insurance in connection with which the costs arise were entered into;

on or after 1 January 2004.

21.27

A participant firm must pay to the FSCS a share of each management expenses levy.

21.28

A participant firm's share of a management expenses levy consists of one or more of:

1. (1) a share of a base costs levy; and
2. (2) a share of a specific costs levy.

21.29

The FSCS must ensure that each participant firm's share of a management expenses levy separately identifies the firm's share of the base costs levy and specific costs levy.

21.30

Subject to 21.25, the FSCS must calculate a participant firm's share of a base costs levy in accordance with the FSCS Management Expenses Levy Limit and Base Costs Part.

21.31

The FSCS must allocate any specific costs levy amongst the relevant insurance class in proportion to the amount of relevant costs arising from the different activities for which firms in that insurance class has permission up to the levy limit of the relevant insurance class.

21.32

The FSCS must calculate a participant firm's share of a specific costs levy (subject to 21.24) by:

1. (1) identifying each relevant insurance class to which the participant firm belongs, using the statement of business most recently supplied under 21.42;
2. (2) identifying the management expenses other than base costs which the FSCS has incurred, or expects to incur, in the relevant financial year of the compensation scheme, allocated to the insurance classes identified in (1), but not yet levied;
3. (3) calculating, in relation to each relevant insurance class, the participant firm's tariff base (see Annex 2) as a proportion of the total tariff base of all participant firms in the insurance class, using the statement of business most recently supplied under 21.42;
4. (4) applying the proportion calculated in (3) to the figure in (2); and
5. (5) if more than one insurance class is relevant, adding together the figure in (4) for each insurance class.

21.33

A firm which becomes a participant firm part way through a financial year of the compensation scheme will not be liable to pay a share of a specific costs levy made in that year.

21.34

1. (1) This rule deals with the calculation of:
1. (a) a participant firm’s specific costs levy in the financial year of the FSCS following the FSCS financial year in which it became a participant firm; or
2. (b) a participant firm’s specific costs levy in the financial year of the FSCS in which it had its permission extended, and the following FSCS financial year; and
3. (c) the tariff base for the insurance classes that relate to the relevant permissions or extensions, as the case may be.
2. (2) Unless this rule says otherwise the tariff base is calculated, where necessary, using the projected valuation of the business to which the tariff relates.
3. (3) The rest of this rule only applies to a firm that becomes a participant firm, or extends its permission, on or after 1 April 2009:
1. (a) If a participant firm’s tariff base is calculated using data from a period that begins on or after it became a participant firm or on or after the date that the participant firm receives its extension of permission, as the case may be, the participant firm must use that data.
2. (b) If a participant firm satisfies the following conditions it must calculate its tariff base under (c) for the FSCS financial year following the FSCS financial year it became a participant firm:
1. (i) it became a participant firm or receives its extension of permission, as the case may be, between 1 April and 31 December inclusive; and
2. (ii) its tariff base, but for this rule, is calculated by reference to the financial year ended in the calendar year ending 31 December or the twelve months ending 31 December before the FSCS financial year.
3. (c) If a participant firm satisfies the conditions in (b) it must calculate its tariff base as follows:
1. (i) it must use actual data in relation to the business to which the tariff rather than projected valuations;
2. (ii) the tariff is calculated by reference to the period beginning on the date it became a participant firm or had its permission extended, and ending on the 31 December before the start of the FSCS financial year; and
3. (iii) the figures are annualised by increasing them by the same proportion as the period of 12 months bears to the period starting from when the participant firm became a participant firm or had its permission extended to 31 December, as the case may be.
4. (d) Where a participant firm is require to use a method in (c) it must notify the FSCS of its intention to do so by the date specified in 21.42.
5. (e) Where a participant firm is required to use actual data under this rule, Annex 2 is disapplied, to the extent it is incompatible, in relation to the calculation of that participant firm’s valuation date in its second financial year.

21.35

The FSCS must allocate any compensation costs levy to the relevant insurance classes in proportion to the amount of compensation costs arising from, or expected to arise from, claims in respect of the different activities for which firms in those insurance classes have permission up to the levy limit of each relevant insurance class.

21.36

If a participant firm which is in default has carried on a regulated activity other than in accordance with a permission, the FSCS must treat any compensation costs or specific costs arising out of that activity as if the relevant permission were held by the participant firm.

21.37

A participant firm must pay to the FSCS a share of each compensation costs levy allocated to the insurance classes of which it is a member unless the firm is exempt under 21.5 to 21.8 or the FSCS has chosen to exercise its discretion under 21.25 in respect of that firm.

21.38

The FSCS must calculate each participant firm's share of a compensation costs levy (subject to 21.22) by:

1. (1) identifying each of the insurance classes to which each participant firm belongs, using the statement of business most recently supplied under 21.42(1);
2. (2) identifying the compensation costs falling within 21.35 allocated, in accordance with 21.32, to the insurance classes identified in (1);
3. (3) calculating, in relation to each relevant insurance class, the participant firm's tariff base (see Annex 2) as a proportion of the total tariff base of all participant firms in the insurance class, using the statement of business most recently supplied under 21.42;
4. (4) applying the proportion calculated in (3) to the figure in (2); and
5. (5) if more than one insurance class is relevant, adding together the figure in (4) for each insurance class.

21.39

When calculating a participant firm's share of a compensation costs levy or specific costs levy allocated to each insurance class the FSCS must use the insurance classes and tariff bases as set out in the table in Annex 2.

21.40

A firm which becomes a participant firm part way through a financial year of the compensation scheme will not be liable to pay a share of a compensation costs levy made in that year.

21.41

21.34 applies to the calculation of a participant firm's compensation costs levy and its tariff base as it applies to the calculation of its specific costs levy.

21.42

1. (1) Unless exempt under 21.5, a participant firm must provide the FSCS by the end of February each year (or, if it has become a participant firm part way through the financial year, by the date requested by the PRA) with a statement of:
1. (a) the insurance class to which it belongs; and
2. (b) the total amount of business (measured in accordance with the appropriate tariff base or tariff bases) which it conducted, in respect of the most recent valuation period (as specified by Annex 2) ending before the relevant year in relation to each insurance class.
2. (2) In this rule the relevant year means the year in which the month of February referred to in (1) falls.

21.43

If the information in 21.42 has been provided to the PRA under other rule obligations, a participant firm will be deemed to have complied with 21.42.

21.44

If a participant firm does not submit a complete statement by the date on which it is due in accordance with 21.42 and any prescribed submission procedures:

1. (1) the firm must pay an administrative fee of £250 (but not if it is already subject to an administrative fee for non-submission of data in the same financial year required under this Part, or any other PRA rule or rule in the FCA Handbook); and
2. (2) the compensation costs levy and any specific costs levy will be calculated using (where relevant) the valuation or valuations of business applicable to the previous period, multiplied by a factor of 1.10 (or if it has become a participant firm part way through the financial year, on the basis of information provided to the PRA for the purposes of Fees 3.6 (1) or on any other reasonable basis, making such adjustments as seem appropriate in subsequent levies once the true figures are known).

21.45

A participant firm must pay its share of any levy made by the FSCS in one payment.

21.46

A participant firm's share of a levy to which 21.45 applies is due on, and payable within 30 days of, the date when the invoice is issued.

21.47

A participant firm liable to pay its share of the levy under 21.45 must do so using one of the methods specified by the PRA’s collection agent for fees as required by Fees 2.5 save that no additional amount or discount is applicable.

21.48

If a firm ceases to be a participant firm or carries out activities within one or more insurance classes part way through a financial year of the compensation scheme:

1. (1) it will remain liable for any unpaid levies which the FSCS has already made on the firm; and
2. (2) the FSCS may make one or more levies upon it (which may be before or after the firm has ceased to be a participant firm or carry out activities within one or more insurance classes, but must be before it ceases to be an authorised person) for the costs which it would have been liable to pay had the FSCS made a levy on all participant firms or firms carrying out activities within that insurance class in the financial year it ceased to be a participant firm or carry out activities within that insurance class.