1This chapter applies to:

1. (1)

   every participant firm other than a person with an interim RSRB permission (and no other permissions) because he has submitted an application for interim permission in accordance with article 32(1) of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2009 (SI 2009/1342) and that permission has been given;4

2. (2)

   the FSCS; and

3. (3)

   the Society.

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

   2. (b)

      the conditions in fact continue to apply.

2. (2)

   The exemption takes effect from the date on which the notice was received by the FSCS, subject to FEES 6.2.6 R.

FEES 6.2.1 R does not apply to a participant firm that may be subject to a claim under COMP 3.2.4 R.

A participant firm which is exempt under FEES 6.2.1 R must notify the FSCS in writing as soon as reasonably practicable if the conditions in FEES 6.2.1 R no longer apply.

1For the purposes of FEES 6.2.1 R 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 FEES 6.2.1 R on 31 March of the immediately preceding financial year.

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:

1. (1)

   in the case of a management expenses levy, the level of the FSCS's anticipatedexpenditure in respect of those expenses in the financial year of the compensation scheme in relation to which the levy is imposed; and

2. (2)

   in the case of a compensation costs levy, the level of the FSCS's anticipatedexpenditure in respect of compensation costs in the 12 months following the levy.

The maximum amount of compensation costs for which the FSCS can levy each sub-class and class in any one financial year of the compensation scheme is limited to the amounts set out in the table in FEES 6 Annex 2 R.2

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.5

The FSCS must hold any amount collected from a specific costs levy or compensation costs levy to the credit of the classes2 and relevant sub-classes,2 in accordance with the allocation established under FEES 6.4.6 R and FEES 6.5.2 R.

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

Interest earned by the FSCS in the management of funds held to the credit of a sub-class2 must be credited to that sub-class2, and must be set off against the management expenses or compensation costs2allocated to that sub-class.2

The FSCS must keep accounts which show:

1. (1)

   the funds held to the credit of each class and relevant sub-class;2 and

   22
2. (2)

   the liabilities of that class and relevant sub-class.2

   22

The FSCS may use the money collected from firms within one class2 to pay compensation costs in respect of any sub-class2 within that class,2 so long as it ensures that this is done without prejudice to the participant firms from whom the money has been collected.

1. (1)

   The FSCS may use any money held to the credit of one class2(the creditor class)2 to pay compensation costsin respect of or allocated to 2another class2(the debtor class)2 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.

   2222
2. (2)

   Where the FSCS acts in accordance with (1), it must ensure that:

   1. (a)

      the creditor class2 is reimbursed by the debtor class2 as soon as possible;

      22
   2. (b)

      the debtor class2 pays interest at a rate equivalent to the Bank of England's repo rate from time to time in force; and

      2
   3. (c)

      the amount lent by the creditor class2 to the debtor class2 is taken into account by the FSCS when considering whether to impose a compensation costs levyon the creditor class2 under FEES 6.3.1 R.

      222

Unless FEES 6.3.20 R applies, any recoveries made by the FSCS in relation to protected claims must be credited to the sub-classes2 to which the related compensation costs were allocated.

1. (1)

   This rule applies where the FSCS makes recoveries in relation to protected claims where related compensation costs would have been met by a sub-class (sub-class A) had the levy limit for sub-class A not been reached and have therefore been met by another sub-class or sub-classes.2

2. (2)

   This rule applies even though the recovery is made in a subsequent financial year.2

3. (3)

   Recoveries referred to in (1) must be applied in the following order of priority:

   1. (a)

      (if the compensation costs were allocated to the general retail pool (see FEES 6.5.2 R(2)) to the classes and sub-classes to which the costs were allocated in accordance FEES 6.5.2 R(2) in the same proportion as those classes and respective sub-classes contributed, up to the total amount of that allocation plus interest at a rate equivalent to the Bank of England's repo rate from time to time in force;2

   2. (b)

      (if the compensation costs were allocated to the other sub-class in the same class as sub-class A) to that other sub-class up to the total amount of that allocation plus interest at a rate equivalent to the Bank of England's repo rate from time to time in force; and2

   3. (c)

      sub-class A.2

If the FSCS has more funds to the credit of a sub-class2 than the FSCS believes will be required to meet levies on that sub-class2 for the next 12 months, it may refund the surplus to members or former members of the sub-class2 on any reasonable basis.

The FSCS may adjust the calculation of a participant firm's share of any levy 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; or

2. (2)

   participant firms that are exempt from the levy under FEES 6.2; or

3. (3)

   amounts that the FSCS has not been able to recover from participant firms as a result of FEES 6.3.5 R ; or

   2
4. (4)

   amounts that the FSCS has not been able to recover from participant firms after having taken reasonable steps; or

5. (5)

   FEES 2.3 (Relieving Provisions),4FEES 6.4.8 R (New participant firms), FEES 6.5.9 R (New participant firms),2FEES 6.3.23 R (Remission of levy or additional administrative fee) or FEES 6.6 (Incoming EEA firms); or

6. (6)

   anything else that the FSCS believes on reasonable grounds should be taken into account.

4The FSCS may not adjust the calculation of a participant firm's share of any levy under FEES 6.3.22 R 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.

1. (1)

   4This rule applies to the calculation of the levies of a firm (A) if:

   1. (a)

      either:

      1. (i)

         A acquires all or a part of the business of another firm (B), whether by merger, acquisition of goodwill or otherwise; or

      2. (ii)

         A became authorised as a result of B's simple change of legal status (as defined in FEES 3 Annex 1 Part 6);

   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 FEES 6.5.13 R is drawn up so far as concerns the sub-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 sub-classes if the acquisition or change in 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 FEES 6.5.13 R. A is included in the sub-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 FEES 6.5.13 R drawn up to a date, or as of a date, before the acquisition or change in legal status took place.

If a participant firm's share of a levy or an additional administrative fee under FEES 6.7.4 R 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.

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)

   2a 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. (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 COMP 3.3.1 R or measures taken under COMP 3.3.3 R where:2

   2
   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; and2

   2. (b)

      the protected contracts of insurance in connection with which the costs arise were entered into;2

on or after 1 January 2004.

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

The total of all management expenses levies attributable to a particular period of the compensation scheme may not exceed the limit applicable to that period set out in FEES 6 Annex 1 R.

A participant firm's share of a management expenses levy consists of one or more of: (1) a share of a base costs levy and (2) a share of a specific costs levy.

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 and1specific costs levy .

Unless FEES 6.3.22 R applies, the FSCS must calculate a participant firm's share of a base costs levy by:

1. (1)

   identifying the base costs which the FSCS has incurred, or expects to incur, in the relevant financial year of the compensation scheme, but has not yet levied;

2. (2)

   calculating the amount of the participant firm's regulatory costs as a proportion of the total regulatory costs relating to all participant firms for the relevant financial year; and

3. (3)

   applying the proportion calculated in (2) to the figurein (1).

1The FSCS must allocate any specific costs levy amongst the relevant sub-classes in proportion to the amount of relevant costs arising from, or expected to arise from, claims in respect ofthe different activities represented by those sub-classes.1

The FSCS must calculate a participant firm's share of a specific costs levy (subject to FEES 6.3.22 R (Adjustments to calculation of levy shares) by:1

1. (1)

   identifying each of the relevant sub-classes1to which the participant firm belongs, using the statement of business most recently supplied under FEES 6.5.13 R;

   1
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 sub-classes1 identified in (1), but not yet levied;

   11
3. (3)

   calculating, in relation to each relevant sub-class1FF, the participant firm's tariff base as a proportion of the total tariff base of all participant firms in the sub-class1, using the statement of business most recently supplied under FEES 6.5.13 R;

   11
4. (4)

   applying the proportion calculated in (3) to the figure in (2); and

5. (5)

   if more than one class1 or sub-class1 is relevant, adding together the figure in (4) for each sub-class.1

   11

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.

1. (1)

   22This rule deals with the calculation of:

   1. (a)

      a participant firm'sspecific 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'sspecific 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 class or sub-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 FSCSfinancial 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 relates 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 the 31 December, as the case may be.

   4. (d)

      Where a participant firm is required to use the method in (c) it must notify the FSCS of its intention to do so by the date specified in FEES 6.5.13 R(Reporting Requirements).

   5. (e)

      Where a participant firm is required to use actual data under this ruleFEES 6 Annex 3 R 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.

The compensation costs levy is made up of compensation costs incurred by the FSCS, together with any compensation costs which can reasonably be anticipated as arising in the 12 months following the levy date, and which in each case have not already been subject to a levy.

4The FSCS must allocate any compensation costs levy to the sub-classes in proportion to the amount of compensation costs arising from, or expected to arise from, claims in respect of the different activities represented by those sub-classes up to the levy limit of each relevant sub-class and thereafter in the following order:

1. (1)

   any excess must be allocated to the other sub-class in the same class up to the levy limit of that other sub-class (except in the deposit class, for which there is only one sub-class); and4any excess must be allocated to the other sub-class in the same class up to the levy limit of that other sub-class (except in the deposit class, for which there is only one sub-class); and4

   4
2. (2)

   any excess above the levy limit of the class must be allocated to each other sub-class, other than the home finance provision sub-class E1, whose levy limit has not been reached (the 'general retail pool'), in proportion to the relative sizes of the levy limits of those remaining sub-classes in the general retail pool.4

   4

If a participant firm which is in default has carried on a regulated activity other than in accordance with a permission, the FSCS must allocateany compensation costs or specific costs arising out of that activity to the relevant sub-class4 which covers that activity or if a levy limit of the relevant sub-class or class has been exceeded, FSCS must allocate any compensation costs levy on the same basis as set out in FEES 6.5.2 R4.

If the relevant person in default is an appointed representative, the FSCS must allocateany compensation costs or specific costs arising out of a regulated activity for which his principal has not accepted responsibility to the relevant sub-class4 for that activity or if a levy limit of the relevant sub-class or class has been exceeded, FSCS must allocate any compensation costs levy on the same basis as set out in FEES 6.5.2 R.4

1. (1)

   A participant firm must pay to the FSCS a share of each compensation costs levy unless either the firm is exempt under FEES 6.2 (Exemption) or the FSCS has chosen to exercise its discretion under FEES 6.3.23 R in respect of that firm.4

2. (2)

   If a levy relates solely to costs allocated in excess of a particular levy limit (1) does not apply to a participant firm member of the sub-class or class whose levy limit has been exceeded.

   4

The FSCS must calculate each participant firm's share of a compensation costs levy (subject to FEES 6.3.22 R (Adjustments to calculation of levy shares)) by:4

1. (1)

   identifying each of the sub-classes to which each participant firm belongs, using the statement of business most recently supplied under FEES 6.5.13 R (1);4

2. (2)

   identifying the compensation costs falling within FEES 6.5.1 R allocated, in accordance with FEES 6.5.2 R, to the sub-classes identified in (1);4

3. (3)

   calculating, in relation to each relevant sub-class, the participant firm's tariff base as a proportion of the total tariff base of all participant firms in the sub-class, using the statement of business most recently supplied under FEES 6.5.13 R;4

4. (4)

   applying the proportion calculated in (3) to the figure in (2); and4

5. (5)

   if more than one class or sub-class is relevant, adding together the figure in (4) for each sub-class.4

When calculating a participant firm's share of a compensation costs levy or specific costs levy allocated toeach sub-class the FSCS must use the sub-classes and tariff bases as set out in the table in FEES 6 Annex 3 R.4

1. (1)

   [deleted]4

2. (2)

   [deleted]4

3. (3)

   [deleted]4

4. (4)

   [deleted]4

   24
5. (5)

   [deleted]4

6 FEES 6.4.10AR applies to the calculation of a participant firm'scompensation costs levy and its tariff base as it applies to the calculation of its specific costs levy.

1. (1)

   5Unless exempt under FEES 6.2.1 R, 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 FSA) with a statement of:4

   1. (a)

      sub-classes to which it belongs; and4

   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 FEES 6 Annex 3 R (Financial Services Compensation Scheme - classes and sub-classes)) ending before the relevant year in relation to each of those sub-classes.5

      5
2. (2)

   In this rule the relevant year means the year in which the month of February referred to in (1) falls.4

3. (3)

   This rule does not apply in relation to the home finance provision sub-class E1.4Therefore any reference in the Handbook to information that is or must be supplied under this rule must be read, in the case of sub-class E1, as if it referred to the corresponding provisions relating to FSA periodic fees.5

If the information in FEES 6.5.13 R has been provided to the FSA under other rule obligations, a participant firm will be deemed to have complied with FEES 6.5.13 R.

Where a participant firm can identify that a protected deposit or a protected dormant account was made by or belonged to a person who is not an eligible claimant, it may exclude the amount of that deposit or that account from the tariff base, provided that it notifies the FSCS of the amount of the deposit or the account so excluded and provides the FSCS with such information about the deposit or account as the FSCS may reasonably require.7

If a participant firm does not submit a complete statement by the date on which it is due in accordance with FEES 6.5.13 R 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 under FEES 4 Annex 2 Part 1 or FEES 5.4.1 R for the same financial year); 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 the factor of 1.10 (or, if it has become a participant firm part way through a financial year, on the basis of the information provided to the FSA for the purposes of FEES 4.4.2 R) or on any other reasonable basis, making such adjustments as seem appropriate in subsequent levies once the true figures are known.

If an incoming EEA firm, which is a BCD credit institution, an IMD insurance intermediary or MiFID investment firm1, is a participant firm, the FSCS must give the firm such discount (if any) as is appropriate on the share of any levy it would otherwise be required to pay, taking account of the nature of the levy and the extent of the compensation coverage provided by the firm's Home State scheme.

A participant firm must pay its share of any levy made by the FSCS:

1. (1)

   in one payment; or

2. (2)

   where the FSCS agrees, quarterly, at the beginning of each quarter, by direct debit agreement.

A participant firm's share of a levy to which FEES 6.7.1 R (1) applies is due on, and payable within 30 days of, the date when the invoice is issued.

If a participant firm does not pay its share of a levy subject to a direct debit agreement as required by FEES 6.7.1 R (2), the entire amount of the levy becomes due and payable to the FSCS, and additional administrative fees are payable at the rate set out in FEES 2.2.1 R.

A participant firm liable to pay its share of the levy under FEES 6.7.1 R must do so using one of the methods set out in FEES 4.2.4 R save that no additional amount or discount is applicable.

If a firm ceases to be a participant firm 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;

   1
2. (2)

   the FSCS may make a levy upon it (which may be before or after the firmhas ceased to be a participant firm, 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 at the time of the levy on the firm;

   1
3. (3)

   the FSCS may make a levy upon the firm (which may be before or after the firm has ceased to be a participant firm, but must be before it ceases to be an authorised person) for the purpose of meeting its expenses in relation to compensation costs and/or management expenses incurred or 3expected to be incurred at any time in the future in respect of defaults which have already occurred;2

   12
4. (4)

   the FSCS may estimate any costs referred to in (3) by any method or approach it considers appropriate, and adjust them to reflect the time value of money based on the funding arrangements in place in relation to the default; and1

5. (5)

   paragraphs (3) and (4) apply notwithstanding any other provision in this chapter.1