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FEES 6.1 Application

FEES 6.1.1 R RP

1This chapter applies to:

  1. (1)

    every participant firm;7

    4
  2. (2)

    the FSCS; and

  3. (3)

    the Society.

FEES 6.1.2 G RP
  1. (1)

    Firms which are not participant firms (such as certain types of incoming EEA firms, service companies and ICVCs) are not required to contribute towards the funding of the compensation scheme.

  2. (2)

    Although a member is a participant firm for the purposes of most provisions of COMP, a member is excluded from the definition of participant firm for the purposes of FEES 6 (see definition of participant firm in Glossary). This is because the fees levied in relation to the carrying on of insurance market activities by members will be imposed on the Society rather than individually on each member (see FEES 6.3.24 R).

Purpose

FEES 6.1.3 G RP

The purpose of this chapter is to set out the requirements on participant firms to pay levies imposed by the FSCS to provide funding for its functions.

General structure

FEES 6.1.4 G RP

Section 213(3)(b) of the Act requires the appropriate regulator to make rules to enable the FSCS to impose levies on authorised persons, and on recognised investment exchanges that are operating a multilateral trading facility or operating an organised trading facility,13 in order to meet its expenses. These expenses include in particular expenses incurred, or expected to be incurred, in paying compensation, borrowing or insuring risks.

FEES 6.1.4A G RP

Section 224F of the Act enables the appropriate regulator to make rules to enable the FSCS to impose levies on authorised persons (or any class of authorised persons) in order to meet its management expenses incurred if, under Part 15A of the Act, it is required by HM Treasury to act in relation to relevant schemes. But those rules must provide that the FSCS can impose a levy only if the FSCS has tried its best to obtain reimbursement of those expenses from the manager of the relevant scheme.6

FEES 6.1.5 G RP

The FSCS may impose three 6types of levy: a management expenses levy (consisting of a base costs levy and a specific costs levy)9, a compensation costs levy and a MERS levy.6 The FSCS has discretion as to the amount and 9timing of the levies imposed.

6 6 2
FEES 6.1.6 G RP

In calculating a compensation costs levy, the FSCS:9

9 8 9 9 9 9
  1. (1)

    for claims for protected deposits, may include compensation costs expected in the 12-month period following the date of the levy; and9

  2. (2)

    for other protected claims, may include up to the greater of one third of the compensation costs expected in the 36-month period following the date of the levy, or the compensation costs expected in the 12 months following that date.9

FEES 6.1.6A G RP

9The total amount of all management expenses levies attributable to a financial year will be restricted to the amount set out on an annual basis in FEES 6 Annex 1 R.

FEES 6.1.7A G RP

10In order to allocate a share of the amount of specific costs and compensation costs to be funded by an individual participant firm, the funding arrangements are split into twelve classes: the deposits class; the life and pensions provision class; the general insurance provision class; the investment provision class; the life and pensions intermediation class; the home finance intermediation class, the investment intermediation class; the general insurance intermediation class; the deposit acceptor's contribution class; the insurers - life contribution class; the insurers - general contribution class; and the home finance providers and administrators' contribution class. The permissions held by a participant firm determine into which class, or classes, it falls.

FEES 6.1.8 G RP

The9 provisions on the allocation of levies to classes9 up to their levy limits2 meet9 a requirement of section 213(5) of the Act that the appropriate regulator , in making rules to enable the FSCS to impose levies, must take account of the desirability of ensuring that the amount of the levies imposed on a particular class of authorised person reflects, so far as practicable, the amount of claims made, or likely to be made, in respect of that class of person.

2 2 2 2 9 9 9 9

The management expenses levy

FEES 6.1.9 G RP

Section 223 of the Act (Management expenses) prevents the FSCS from recovering, through a levy, any management expenses attributable to a particular period in excess of the limit set in COMP as applicable to that period. 'Management expenses' are defined in section 223(3) to mean expenses incurred or expected to be incurred by the FSCS in connection with its functions under the Act, except:

  1. (1)

    expenses incurred in paying compensation;

    5
  2. (2)

    expenses incurred as a result of the FSCS making the arrangements to secure continuity of insurance set out in COMP 3.3.1 R and COMP 3.3.2 R or taking the measures set out in COMP 3.3.3 R and COMP 3.3.4 R when a relevant person is an insurer in financial difficulties;5

    6
  3. (3)

    expenses incurred under section 214B or section 214D of the Act as a result of the FSCS being required by HM Treasury to make payments in connection with the exercise of the stabilisation power under Part 1 of the Banking Act 2009; and65

  4. (4)

    expenses incurred under Part XVA of the Act as a result of the FSCS being required by HM Treasury to act in relation to a relevant scheme.6

FEES 6.1.10 G RP

A management expenses levy may consist of two 2elements. The first is a base costs levy, for the base costs of running the compensation scheme in a financial year, that is, costs which are not dependent upon the level of activity of the compensation scheme and which therefore are not attributable to any specific class.9 Included in this category are items such as the salary of the members of the board of the FSCS, the costs of the premises which the FSCS occupies, and its audit fees. It would also likely include the cost of any insurance cover secured by FSCS against the risk of it paying claims out in circumstances where the levy limit of the particular class to which the claim would otherwise be attributable has exceeded its levy limit for the year, as the insurance cover is likely to benefit all classes which may have costs allocated to them if the levy limit of another class is breached.2 The amount that each participant firm pays towards a base costs levy is calculated by reference to the regulatory costs paid by the firm. All participant firms are liable to contribute towards a base costs levy.

9 2 9
FEES 6.1.11A G RP

10The second element of a management expenses levy is a specific costs levy for the "specific costs" of running the compensation scheme in a financial year. These costs are attributable to a class, and include the salary costs of certain staff of the FSCS and claims handling and legal and other professional fees. It also may include the cost of any insurance cover that FSCS secures against the risk of FSCS paying out claims above a given level in any particular class (but below the levy limit for that class for the year). The specific costs are attributed to the class which is responsible for those costs. When the FSCS imposes a specific costs levy, the levy is allocated to the class which is responsible for those costs up to the relevant levy limits. Specific costs attributable to certain classes, which exceed the classlevy limits, may be allocated to the retail pool. The FSCS may include in a specific costs levy the specific costs that the FSCS expects to incur (including in respect of defaults not yet declared at the date of the levy) during the financial year of the compensation scheme to which the levy relates. The amount that each participant firm pays towards the specific costs levy is calculated by reference to the amount of business conducted by the firm in each of the classes to which the FSCS has allocated specific costs. Each class has a separate "tariff base" for this purpose, set out in FEES 6 Annex 3A. Participant firms may be exempt from contributing to the specific costs levy.

FEES 6.1.12 G

[deleted]2

2
FEES 6.1.13 G RP

The20 limit on the management expenses attributable to the forthcoming financial year of the FSCS. will be consulted on in January each year.20

20

The compensation costs levy

FEES 6.1.14 G RP

In imposing a compensation costs levy in each financial year of the compensation scheme the FSCS will take into account the compensation costs which the FSCS has incurred and has not yet raised through levies, any recoveries it has had made using the rights that have been assigned to it or to which it is subrogated and9 a further amount calculated taking into account:

9
  1. (1)

    9for claims for protected deposits, those compensation costs it expects to incur (including in respect of defaults yet to be declared) in the 12 months following the date of the levy; and

  2. (2)

    21for other protected claims:

    1. (a)

      the compensation costs it expects to incur in the 12 months following the date of the levy; or, if greater

    2. (b)

      one third of the compensation costs it expects to incur in the 36 months following the date of the levy (see FEES 6.3.1 R (Imposing management expenses and compensation costs levies)).

FEES 6.1.15 G RP

9 Compensation costs are principally the costs incurred in paying compensation. Costs incurred:

5 2 3 9
  1. (1)

    in securing continuity of long-term insurance; or

  2. (2)

    in safeguarding eligible claimants when insurers are in financial difficulties; or

  3. (3)

    in making payments or giving indemnities under COMP 11.2.3 R; or

  4. (4)

    as a result of the FSCS being required by HM Treasury to make payments in connection with the exercise of the stabilisation power under Part 1 of the Banking Act 2009; or

  5. (5)

    in paying interest, principal and other costs from borrowing to allow the FSCS to pay claims attributable to a particular class;

are also treated as compensation costs. Compensation costs are attributed to the class which is responsible for the costs. When the FSCS imposes a compensation costs levy the levy is allocated to the class which is responsible for the costs up to relevant levy limits. Certain classes may be funded, for compensation costs levies beyond the classlevy limit, by the retail pool.

Participant firms that are members of more than one class9

FEES 6.1.16 G RP

If a participant firm is a member of more than one class9,2 the total compensation costs levy and specific costs levy for that firm in a particular year9 will be the aggregate of the individual levies calculated for the firm9 in respect of each of the classes for that year. Each class9 has a levy limit which is the maximum amount of compensation costs and specific costs9 which may be allocated to a particular class9 in a financial year for the purposes of a levy.29

2 9 9 2 9 9

The retail pool

FEES 6.1.16A G RP

The FCA has made rules providing that compensation costs and specific costs attributable to the intermediation classes and the investment provision class, which exceed the classlevy limits, may be allocated to the retail pool. Levies allocated to the retail pool are then allocated amongst the other such classes, together with certain classes (known as FCA provider contribution classes). The FCA provider contribution classes may contribute to compensation costs levies or specific costs levies funded by the retail pool, but may not themselves receive any such funding. The FCA provider contribution classes have a different tariff structure to the other classes, based on regulatory costs (see FEES 6.5A.6 R).1011

9

Incoming EEA firms

FEES 6.1.17 G RP

Incoming EEA firms which obtain cover or 'top up' under the provisions of COMP 14 are firms whose Home State scheme provides no or limited compensation cover in the event that they are determined to be in default. Under FEES 6.6, the FSCS is required to consider whether incoming EEA firm's should receive a discount on the amount that they would otherwise pay as their share of the levy, to take account of the availability of their Home State cover. The amount of any discount is recoverable from the other members of the incoming EEA firm'sclass.92

2 9

FEES 6.2 Exemption

FEES 6.2.1A R RP
  1. (1)

    3Except as set out in (3), 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.

  3. (3)

    The exemption in (1) does not apply in respect of a specific costs levy or compensation costs levy arising from the firm's membership of an FCA provider contribution class.

FEES 6.2.2 R RP

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.

FEES 6.2.3 G RP

A participant firm to which FEES 6.2.2 R applies must report annual eligible income in accordance with FEES 6.5.13 R. Such a participant firm may take advantage of the option to report its annual income attributable to business conducted with or on behalf of eligible claimants.

FEES 6.2.4 R RP

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.

FEES 6.2.5 G

A participant firm to which the conditions in FEES 6.2.1 R no longer apply will then become subject to FEES 6.3.

FEES 6.2.6 R RP
FEES 6.2.7 G RP

The financial year of the compensation scheme is the twelve months ending on 31 March. The effect of FEES 6.2.6 R and FEES 6.2.1 R (2) is that if a firm fails to notify FSCS of an exemption under FEES 6.2.1 R by 31 March it will be treated as non-exempt for the whole of the next financial year.2

FEES 6.2.8 R RP

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.

FEES 6.3 The FSCS's power to impose levies

Imposing management expenses and compensation costs levies8

FEES 6.3.1 R RP

The FSCS may at any time impose a management expenses levy or a compensation costs levy,6 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 and8:

6 6 8
  1. (1)

    in the case of a management expenses levy, the level of the FSCS's expected8 expenditure in respect of those expenses in the financial year of the compensation scheme in relation to which the levy is imposed;

    88
  2. (2)

    in the case of a compensation costs levy relating to claims for protected deposits8, the level of the FSCS's expected8expenditure in respect of compensation costs in the 12 months immediately8 following the levy; and8

    8
  3. (3)

    8in the case of a compensation costs levy relating to other 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.

FEES 6.3.2 G RP

The calculation of levies 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.

FEES 6.3.2A G RP

8The FSCS will usually levy once in each financial year (and in respect of compensation costs, for expenditure expected in the period of 12 months or, if greater, one third of the expenditure expected in the period of 36 months8following 1 July in that year). However, if the compensation costs or specific costs incurred, or expected to be incurred, exceed the amounts held, or reasonably expected to be held, to meet those costs, the FSCS may, at any time during the financial year, do one or more of the following:

  1. (1)

    impose an

  2. (1)

    interim compensation costs levy or management expenses levy; or

  3. (2)

    utilise other sources of funding such as commercial borrowing or other borrowing including from the National Loans Fund; or

  4. (3)

    utilise money collected from firms as set out in, and subject to, FEES 6.3.17 R (Management of funds).

The FSCS will generally impose a levy rather than borrow or utilise funds as described in (3), unless the latter options appear to it to be preferable in the specific circumstances prevailing at the relevant time; for example, to address short-term liquidity issues, or in order to deal with a significant failure without having to wait for a levy to be imposed or collected.

FEES 6.3.3 G RP

The FSCS has committed itself in Memorandum of Understanding with each of the FCA and the PRA15 to publish its policy in respect of levying.815

6 8 15 15 15 15
FEES 6.3.4 G RP

The discretion over levying in FEES 615 also gives the FSCS, if it thinks this appropriate, the ability to use third parties as its agents in raising and collecting the levies.

15

Imposing a MERS levy

FEES 6.3.4A R RP

8The FSCS may at any time impose a MERS 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 relevant expenses incurred or expected to be incurred in the 12 months following the date of the levy.

Limits on compensation costs and specific costs levies on classes823

FEES 6.3.5 R RP

The maximum aggregate amount of compensation costs and specific costs for which the FSCS can levy each8class 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

2
FEES 6.3.6 R

[deleted]2

2
FEES 6.3.7 R

[deleted]2

2
FEES 6.3.8 R

[deleted]2

2
FEES 6.3.9 R

[deleted]2

2

Levy for compensation costs paid in error

FEES 6.3.10 R RP

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

5

Management of funds

FEES 6.3.11 R RP

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

2 2 8
FEES 6.3.12 R RP

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.

FEES 6.3.13 R RP

Interest earned by the FSCS in the management of funds held to the credit of a class must be credited to that class8, and must be set off against the management expenses or compensation costs2allocated to that class.82

2 2 2 8
FEES 6.3.14 R RP

The FSCS must keep accounts which include:8

8
  1. (1)

    the funds held to the credit of each class; and

    228
  2. (2)

    the liabilities of that class.8

    22
FEES 6.3.15 R

[deleted]8

2 2 2 8
FEES 6.3.15A G

[deleted]8

8
FEES 6.3.16 G

[deleted]8

FEES 6.3.17 R RP
  1. (1)

    The FSCS may use any money held to the credit of one class2(the creditor class)2 to pay compensation costs or specific costs attributable 8or allocated by way of levy8 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.

    228822
  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 levy8 on the creditor class2 under FEES 6.3.1 R.

      2282
FEES 6.3.18 G RP

2 FEES 6.3.17 R deals with how FSCS may use money available to it and does not affect the rules on levy allocation in FEES 6.4, 6.5 and 6.5A8.

8
FEES 6.3.19 R RP

Unless FEES 6.3.20 R applies, any recoveries made by the FSCS in relation to protected claims must be credited to the classes8 to which the related compensation costs was attributable.8

2 8
FEES 6.3.20 R RP
  1. (1)

    Where8 the FSCS makes recoveries in relation to protected claims where a8 related compensation costs levy8 would have been allocated to a class (class A) had the levy limit for class A not been reached and has been allocated to another class or classes in the retail pool, the recoveries must be applied:8

    888
    1. (a)

      8first, to the classes to which the costs levied were allocated in accordance with FEES 6.5A in the same proportion as those classes 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 A.

  2. (2)

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

  3. (3)

    [deleted]8

    8
2
FEES 6.3.20A G RP

2Recoveries under FEES 6.3.20 R are net of the costs of recovery.

FEES 6.3.21 R RP

If the FSCS has more funds (whether from levies, recoveries or otherwise)8 to the credit of a class82 than the FSCS believes will be required to meet levies on that class82 for the next 12 months, it may refund the surplus to members or former members of the class82 on any reasonable basis.

2 8 2 2 8

Adjustments to calculation of levy shares

FEES 6.3.22 R RP

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.

FEES 6.3.22A R RP

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.

FEES 6.3.22B G RP

4The reason for FEES 6.3.22A R is that any such claim should be dealt with under FEES 2.3 (Relieving Provisions).

Firms acquiring businesses from other firms

FEES 6.3.22C R RP
  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 classes8 covered by B's business.

      8
  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 classes8 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 classes8 applicable to the relevant business.

    88
  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.

Remission of levy or additional administrative fee

FEES 6.3.23 R RP

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.

FEES 6.4 Management expenses

Obligation on participant firm to pay

FEES 6.4.1 R RP

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

Limit on management expenses

FEES 6.4.2 R RP

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.

Participant firm's share

FEES 6.4.3 R RP

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.

1 1
FEES 6.4.4 R RP

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 .

1 1

Base costs levy

FEES 6.4.5 R RP

Subject to3FEES 6.3.22 R, the FSCS must calculate a participant firm's share of a base costs levy by:

3 3
  1. (1)

    for recognised investment exchanges, providing for £1,000 per RIE for each financial year of the compensation scheme (other than in the financial year in which the recognised investment exchange becomes a participant firm, when its share is nil);6

    33
  2. (2)

    for other participant firms:6

    33
    1. (a)

      identifying the base costs which the FSCS has incurred, or expects to incur, in the relevant financial year6 of the compensation scheme, but has not yet levied and allocating 50% of those base costs (less any contribution to be made by recognised investment exchanges under (1))6 as the sum to be levied on participants in all the activity groups listed in FEES 4 Annex 1AR;6

      3
    2. (b)

      calculating the amount of the participant firm’s regulatory costs6 as a proportion of the total regulatory costs relating to all participant firms (other than recognised investment exchanges)6 for the relevant financial year; and6

      3
    3. (c)

      applying the proportion calculated in (b) to the sum in (a).6

FEES 6.4.5A G RP

3The effect of FEES 6.4.5 R is that if a participant firm belongs to activity groups in both (1)(a) and (1)(b) of that rule, it will be required to pay a share of the base costs levy in respect of both sets of activity groups.

Specific costs levy

FEES 6.4.6A R RP

4The FSCS must allocate any specific costs levy:

  1. (1)

    first, amongst the relevant classes in proportion to the amount of relevant costs arising from the different activities for which firms in those classes have permission up to the levy limit of each relevant class. The FCA provider contribution classes are not relevant classes for this purpose; and

  2. (2)

    thereafter, where the levy limit has been reached (whether as a result of compensation costs or specific costs or both) for a class whose attributable costs may be allocated to the retail pool (see FEES 6 Annex 5), to the retail pool, in accordance with and subject to FEES 6.5A.

FEES 6.4.7A R

4The 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)

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

  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 classes identified in (1), but not yet levied;

  3. (3)

    calculating, in relation to each relevant class, the participant firm's tariff base (see FEES 6 Annex 3A) as a proportion of the total tariff base of all participant firms in the class, using the statement of business most recently supplied under FEES 6.5.13 R (but this paragraph is modified for a specific costs levy allocated to an FCA provider contribution class in the retail pool by FEES 6.5A.6 R);

  4. (4)

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

  5. (5)

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

New participant firms

FEES 6.4.8 R RP

A firm or a recognised investment exchange6 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.

FEES 6.4.9 G

[deleted]1

FEES 6.4.10 G RP

Since a firm that becomes a participant firm in the course of a financial year of the compensation scheme will already be obtaining a discount in relation to the base costs levy through the modified fee provisions of FEES 4.2.6 R, no rule is necessary in FEES 69 for discounts on the base costs levy.1

1 9

Specific costs levy for newly authorised firms

FEES 6.4.10A R RP
  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 classes3 that relate to the relevant permissions or extensions, as the case may be.

      3
  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.

2Application of FEES 6.4.10AR

FEES 6.4.10B G RP

The table below sets out the period within which a participant firm's tariff base is calculated ("the data period") for second year levies calculated under FEES 6.4.10B. The example is based on a participant firm that extends its permission on 1 November 2009 and has a financial year ending 31 March.

References in this table to dates or months are references to the latest one occurring before the start of the FSCS financial year unless otherwise stated.

Type of permission acquired on 1 November

Tariff base

Valuation date but for FEES 6.5.13BR

Data period under FEES 6.5.13bR

Accepting deposits

Protected deposits

As at 31 December 2009

As at 31 December 2009

Effecting contracts of insurance

(Insurers - general)

Relevant net premium income

The firm's tariff base calculated in the year 2009 - so projected valuation will be used.

1 November to 31 December 2009

Dealing in investments as agent in relation to General Insurance Intermediation

Annual eligible income

Financial year ended 31 March 2009 - so projected valuations will be used.

1 November to 31 December 2009
FEES 6.4.11 R

[deleted]1

1
FEES 6.4.12 R

[deleted]1

1

FEES 6.4A Management expenses in respect of relevant schemes

Obligation on participant firm to pay

FEES 6.4A.1 R RP

1A participant firm (but not a recognised investment exchange)2 must pay to the FSCS a share of each MERS levy.

Restriction on management expenses in respect of relevant schemes

FEES 6.4A.2 R RP

The FSCS can impose a MERS levy only if the FSCS has tried its best and has failed to obtain reimbursement of those expenses from the manager of the relevant compensation scheme.

Management expenses in respect of relevant schemes levy

FEES 6.4A.3 R RP

The FSCS must calculate a participant firm's share of a MERS levy on a reasonable basis.

FEES 6.5 Compensation costs

FEES 6.5.1 R

[deleted]10

10

Allocation: all classes except A, B and C

FEES 6.5.2-A R RP

12The FSCS must allocate any compensation costs levy:

  1. (1)

    first, to the relevant 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 classes have permission up to the levy limit of each relevant class. The FCA provider contribution classes are not relevant classes for this purpose; and

  2. (2)

    thereafter, where the levy limit has been reached (whether as a result of compensation costs or specific costs or both) for a class whose attributable costs may be allocated to the retail pool (see FEES 6 Annex 5), to the retail pool, in accordance with, and subject to, FEES 6.5A.

FEES 6.5.2A G RP

4The use made by FSCS of borrowing facilities to provide liquidity until the next levy does not affect the attribution of compensation costs, nor the10 allocation of compensation cost levies; the allocation of a compensation costs levy occurs at the time that the FSCS imposes a levy.

10
FEES 6.5.2B G

[deleted]10

10
FEES 6.5.2C G

[deleted]10

10
FEES 6.5.3 R RP

If a participant firm which is in default has carried on a regulated activity other than in accordance with a permission, the FSCS must treat10 any compensation costs or specific costs arising out of that activity as if the relevant permission were held by the participant firm.10

10 4 10
FEES 6.5.4 R RP

If the relevant person in default is an appointed representative, the FSCS must treat10 any compensation costs or specific costs arising out of a regulated activity for which his principal has not accepted responsibility to as if the principal had accepted responsibility.10

10 4 10
FEES 6.5.5 R RP
4
  1. (1)

    A participant firm must pay to the FSCS a share of each compensation costs levy allocated to the classes of which it is a member10 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)

    [deleted]10

    104
FEES 6.5.6A R RP

12The 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:

  1. (1)

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

  2. (2)

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

  3. (3)

    calculating, in relation to each relevant class, the participant firm's tariff base (see FEES 6 Annex 3A) as a proportion of the total tariff base of all participant firms in the class, using the statement of business most recently supplied under FEES 6.5.13 R (but this paragraph is modified for a compensation costs levy allocated to an FCA provider contribution class in the retail pool by FEES 6.5A.6 R);

  4. (4)

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

  5. (5)

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

4Classes and tariff bases for compensation cost levies and specific costs levies10

FEES 6.5.8 G RP

Guidance on parts of FEES 6 Annex 3 R can be found in FEES 6 Annex 4 G.44

New participant firms4

FEES 6.5.9 R RP

A firm or a recognised investment exchange14 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.4

Compensation costs levy for newly authorised firms

FEES 6.5.9A R RP

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.

FEES 6.5.9B G RP

6The example table in FEES 6.4.10B G can be applied to the calculation of the tariff bases under FEES 6.5.9AR.

Membership of several classes105

FEES 6.5.10 R

[deleted]4

FEES 6.5.11 R

[deleted]44

FEES 6.5.12 G

A participant firm may belong to more than one class4.10

4 10 4 4 10

Reporting requirements

FEES 6.5.13 R RP
  1. (1)

    5Unless exempt under FEES 6.2.1 R or FEES 6.2.1A R11, 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 appropriate regulator) with a statement of:4

    1. (a)

      10classes to which it belongs; and4

      10
    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)) ending before the relevant year in relation to each of those classes10.5

      105
  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)

    [deleted]10

    10
FEES 6.5.13A G RP

For example, when the tariff base for a particular class10 is based on a firm'sannual eligible income the valuation period for that class10 is the firm's last financial year ending in the year to 31 December preceding the financial year of the FSCS for which the calculation is being made. In the case of a firm in class10 A1 (Deposits) its valuation period will be 31 December.5

10 10
FEES 6.5.14 R RP

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

FEES 6.5.16 R RP

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 2A R, Part 119 or FEES 5.4.1 R for the same financial year); and

    19
  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 appropriate regulator 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.

4
FEES 6.5.17 R

[deleted]4

4

FEES 6.5A 1The retail pool

Allocation of compensation costs levies and specific costs levies through the retail pool

FEES 6.5A.1 R RP

The FSCS must allocate a compensation costs levy or specific costs levy, which has been allocated to the retail pool (under FEES 6.5.2-A R(2)):

  1. (1)

    to classes whose retail pool levy limit has not been reached as at the date of the levy;

  2. (2)

    in proportion to the relative sizes of the retail pool levy limits of the classes in (1); and

  3. (3)

    in accordance with the table in FEES 6 Annex 5.

[Note: The retail pool levy limits for classes other than FCA provider contribution classes are the normal levy limits for that class. See the table in FEES 6 Annex 5 for the retail pool levy limits for all relevant classes.]

FEES 6.5A.2 R RP
  1. (1)

    An allocation in FEES 6.5A.1 R to an FCA provider contribution class other than the home finance providers and administrators' contribution class may not be of an amount that, if it were added to any compensation costs levies or specific costs levies which have previously been imposed on the PRA funding class which corresponds to that FCA provider contribution class (as set out in FEES 6.5A.7 R) the combined figure would be greater than the levy limit of the corresponding PRA funding class.

  2. (2)

    Where:

    1. (a)

      an FCA provider contribution class has already contributed to specific costs or compensation costs (through the retail pool); and

    2. (b)

      if the amount of that previous contribution by the class in (a) were added to a compensation costs levy or specific costs levy which is being imposed on the PRA funding class which corresponds to the class in (a) (and any previous such levies), the combined figure would be greater than the levy limit of the corresponding PRA funding class;

    the FSCS must, so far as reasonably possible, obtain repayment of the previous contribution by the class in (a) from the retail pool (including the FCA provider contribution classes except the class in (a)) to the extent that ensures that the combined figure in (b) would no longer be greater than the levy limit of the corresponding PRA funding class, and credit the repayment to the class in (a).

  3. (3)

    The FSCS may obtain the repayment in (2) by:

    1. (a)

      a levy;

    2. (b)

      commercial or other borrowing; or

    3. (c)

      utilising funds as set out in, and subject to, FEES 6.3.17 R.

[Note: the home finance providers and administrators' contribution class does not have a corresponding PRA funding class.]

FEES 6.5A.3 G RP

In considering which of the options in FEES 6.5A.2 R (2) to adopt, the FSCS will generally impose a levy, rather than borrow or utilise funds as described in FEES 6.5A.2R(2)(c), unless the latter options appear to be preferable in the specific circumstances prevailing at the relevant time.

FEES 6.5A.4 R RP

The calculation of the relative sizes of the retail pool levy limit (for the purpose of FEES 6.5A.1 R) is based on the original retail pool levy limits for the classes (as set out in FEES 6 Annex 5) and not the remaining capacity in each class.

FEES 6.5A.5 R RP

When the FSCS allocates excess compensation costs levies or specific costs levies under FEES 6.5A.1 R or any levy imposed under FEES 6.5A.2 R (3)(a) , a class to which part of the excess is allocated (a "receiving class") may, as a result of that allocation, itself reach its limit. In that case, the FSCS must apply FEES 6.5A.1 R or FEES 6.5A.2 R so that any resulting excess levy beyond the limit of the receiving class is allocated amongst the remaining classes whose limits have not been reached, to the exclusion of the receiving class. This process is repeated until the compensation costs levy or specific costs levy has been met in full or the limits of all classes have been exhausted.

Calculation of participant firms' shares in levies allocated to classes in the retail pool

FEES 6.5A.6 R RP

In relation to a specific costs levy or compensation costs levy allocated to an FCA provider contribution class in the retail pool, FEES 6.4.7A R (3) and FEES 6.5.6A R (3), respectively, are replaced by the following: "calculating, in relation to each relevant class, the participant firm's most recent regulatory costs arising from its membership of the corresponding activity group (as listed in FEES 4 Annex 1A R) set out in FEES 6.5A.7 R, as a proportion of the total most recent regulatory costs of all participant firms in that activity group arising from their membership of that group;".

FEES 6.5A.7 R RP

The corresponding PRA funding classes and corresponding activity groups referred to in FEES 6.5A.2 R and FEES 6.5A.6 R respectively are as follows:

FCA provider contribution class

Corresponding PRA funding class

Corresponding activity group

Deposit acceptor's contribution class

Deposits

A.1: Deposit acceptors

Insurers - life contribution class

Life and pensions provision

A.4: Insurers - life

Insurers - general contribution class

General insurance provision

A.3: Insurers - general

Home finance providers and administrators' contribution class

None

A.2: Home finance providers and administrators

FEES 6.7 Payment of levies

FEES 6.7.1 R RP

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.

FEES 6.7.2 G RP

The amount paid under a direct debit arrangement will be adjusted on a continuous basis to take account of interim levies and other adjustments made during the course of the financial year.

FEES 6.7.3 R RP

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.

FEES 6.7.4 R RP

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.

FEES 6.7.5 R RP

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.

FEES 6.7.6 R RP

If a firm ceases to be a participant firm or carry out activities within one or more classes54 part way through a financial year4 of the compensation scheme:

4
  1. (1)

    it will remain liable for any unpaid levies which the FSCS has already made on the firm; and4

    1
  2. (2)

    the FSCS may make one or more levies4 upon it (which may be before or after the firm5 has ceased to be a participant firm or carry out activities within one or more classes5,4 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 firms5 carrying out activities within that class5 in the financial year it ceased to be a participant firm or carry out activities within that class5.4

    45555541
  3. (3)

    [deleted]4

    124
  4. (4)

    [deleted]4

    4
  5. (5)

    [deleted]4

    4

FEES 6 Annex 1 Financial Services Compensation Scheme - 1Management Expenses Levy Limit

R

This table belongs to FEES 6.4.2 R

Period

Limit on total of all management expenses levies attributable to that period (£)

1 December 2001 to 1 April 2002

£4,209,000

1 April 2002 to 31 March 2003

£13,228,000

1 April 2003 to 31 March 2004

£13,319,000

1 April 2004 to 31 March 2005

£17,590,000

1 April 2005 to 31 March 2006

£27,030,000

11 April 2006 to 31 March 2007

£37,060,000

21 April 2007 to 31 March 2008

£37,520,000

31 April 2008 to 31 March 2009

£1,000,000,0005 provided that £600,000,000 5may be recovered in respect of5specific costs relating to the declaration by the FSA on 27 September 2008 that Bradford & Bingley plc is in default only.54

5 5 5 5

61 April 2009 to 31 March 2010

£1,000,000,0007

71 April 2010 to 31 March 2011

£1,000,000,0008

81 April 2011 to 31 March 2012

£1,000,000,000

91 April 2012 to 31 March 2013

£1,000,000,00010

101 April 2013 to 31 March 2014

£94,400,0001211

111 April 2014 to 31 March 2015

£80,000,000

131 April 2015 to 31 March 2016

£74,429,000

141 April 2016 to 31 March 2017

£72,694,000

151 April 2017 to 31 March 2018

£74,540,000

FEES 6 Annex 2 Financial Services Compensation Scheme - annual levy limits

R

1This table belongs to FEES 6.3.5 R and FEES TP 2.5.2R

2Class

Levy Limit (£ million)

A: Deposits

1,500

B1: General insurance provision

600

B2: General insurance intermediation

300

C1: Life and pensions provision

690

C2: Life and pensions intermediation

100

D1: Investment provision

200

D2: Investment intermediation

150

E2: Home finance intermediation

40

FEES 6 Annex 3A 1Financial Services Compensation Scheme - classes

R

This table belongs to FEES 6.4.7A R and

Class A

Deposits

Firms with permission for:

accepting deposits and/or operating a dormant account fund. BUT does not include any fee payer who either effects or carries out contracts of insurance.

Tariff base

(1) Protected deposits and/or

(2) Protected dormant accounts multiplied by 0.2 as at 31 December. Except where paragraph (4) says otherwise, protected deposits must be adjusted as follows.

(1) Only include a protected deposit to the extent that an eligible claimant would have a claim in respect of it.

(2) Exclude any amount in respect of which the FSCS would not pay compensation due to the maximum payment limits in COMP 10.2.

(3) The tariff base calculation is made on the basis of the information that the firm would have to include in the single customer views it has to be able to produce under COMP 17 (Systems requirements for firms that accept deposits). The information must be of the extent and standard required if the firm was preparing the single customer views as at the valuation date for the tariff base (31 December).

(4) (a) If this paragraph applies, the adjustments in (1) to (3) do not apply and the calculation is based on protected deposits.

(b) This paragraph applies with respect to a protected deposit to the extent that, under COMP 17, the firm does not have to identify an eligible claimant with respect to that protected deposit because the account is held by the account holder on behalf of others.

(c) This paragraph applies with respect to a protected deposit that has been excluded from the single customer view because it is an account that is not active, as defined in COMP 17.2.3 R(2).

General Insurance

Class B1

General Insurance Provision

Firms with permission for:

effecting contracts of insurance; and/or

carrying out contracts of insurance;

that are general insurance contracts.

Class B2

General Insurance Intermediation

Firms with permission for:

Any of the following in respect of general insurance contracts:

dealing in investments as agent;

arranging (bringing about) deals in investments;

making arrangements with a view to transactions in investments;

assisting in the administration and performance of a contract of insurance;

advising on investments;

agreeing to carry on a regulated activity which is within any of the above.

Tariff base

Class B1: Relevant net premium income and eligible gross technical liabilities. The levy is split into two in the ratio 75:25. The tariff base for the first portion (75%) is calculated by reference to relevant net premium income. The tariff base for the second portion (25%) is based on eligible gross technical liabilities.

Eligible gross technical liabilities are calculated in accordance with the method for calculating gross technical liabilities in fee block A3 in part 34 of FEES 4 Annex 1B R with the following adjustments.

(1) Eligible gross technical liabilities are calculated by reference to protected contracts of insurance with eligible claimants.

(2) A firm may choose not to apply paragraph (1) and instead include all gross technical liabilities that it would be obliged to take into account for fee block A3 as long as the amount that it would include under (1) is lower.

(3) If an incoming EEA firm does not report gross technical liabilities in the way contemplated by this table, the firm's gross technical liabilities are calculated in the same way as they would be for a UK firm.

(4) None of the notes for the calculation of fees in fee block A3 in part 34 of FEES 4 Annex 1B R apply except for the purposes of (2).

(5) A directive friendly society must also calculate eligible gross technical liabilities in accordance with this table.

(6) A non-directive friendly society must calculate gross technical liabilities as the amount that it is required to show in FSC 2 - Form 9 line 11 in Appendix 10 of IPRU(FSOC) (assets allocated towards the general insurance business required minimum margin) in relation to the most recent financial year of the firm (as at the applicable reporting date under FEES 6.5.13 R) for which the firm is required to have reported that information to the PRA under IPRU(FSOC). A non-directive friendly society must disregard for this purpose such amounts as are not required to be included by reason of a waiver or a written concession carried forward as an amendment to the rule to which it relates under SUP TP.

4 4

Class B2: annual eligible income where annual eligible income means annual income adjusted in accordance with this table. Annual income is calculated as the sum of (a) and (b):

(a) the net amount retained by the firm of all brokerages, fees, commissions and other related income (for example, administration charges, overriders and profit shares) due to the firm in respect of or in relation to class B2 activities, including any income received from an insurer; and

(b) if the firm is an insurer, in relation to class B2 activities, the amount of premiums receivable on its contracts of insurance multiplied by 0.07, excluding those contracts of insurance which result from class B2 activities carried out by another firm, where a payment has been made by the insurer to that other firm and that payment is of a type that falls under (a).

Notes relating to the calculation of the tariff base for class B2:

(1) Exclude annual income for pure protection contracts. Only include general insurance contracts

(2) The calculation is adjusted in accordance with the definition of annual eligible income.

(3) Net amount retained means all the commission, fees, etc. in respect of class B2 activities that the firm has not rebated to customers or passed on to other firms (for example, where there is a commission chain). Items such as general business expenses (for example, employees' salaries and overheads) must not be deducted.

(4) Class B2 activities mean activities that fall within class B2. They also include activities that now fall within class B2 but that were not regulated activities when they were carried out.

(5) A reference to a firm also includes a reference to any person who carried out activities that would now fall into class B2 but which were not at the time regulated activities.

Life and Pensions

Class C1

Life and Pensions Provision

Firms with permission for:

effecting contracts of insurance; and/or

carrying out contracts of insurance;

that are long-term insurance contracts (including pure protection contracts).

Class C2

Life and Pensions Intermediation

Firms with permission for:

Any of the following:

dealing in investments as agent;

arranging (bringing about) deals in investments;

making arrangements with a view to transactions in investments;

assisting in the administration and performance of a contract of insurance;

advising on investments;

advising on pension transfers and pension opt-outs;

basic advice;6

agreeing to carry on a regulated activity which is within any of the above;

in relation to any of the following:

long-term insurance contracts (including pure protection contracts);

rights under a stakeholder pension scheme or a personal pension scheme.

Tariff base

Class C1: Relevant net premium income and eligible mathematical reserves. The levy is split into two in the ratio 75:25. The tariff base for the first portion (75%) is calculated by reference to relevant net premium income. The tariff base for the second portion (25%) is based on mathematical reserves.

Eligible mathematical reserves are calculated in accordance with the method for calculating mathematical reserves in fee block A4 in part 34 of FEES 4 Annex 1B R with the following adjustments.

(1) Eligible mathematical reserves are calculated by reference to protected contracts of insurance with eligible claimants.

(2) A firm may choose not to apply paragraph (1) and instead include all mathematical reserves that it would be obliged to take into account for fee block A4 as long as the amount that it would include under (1) is lower.

(3) If an incoming EEA firm does not report mathematical reserves in the way contemplated by this table, the firm's mathematical reserves are calculated in the same way as they would be for a UK firm.

(4) None of the notes for the calculation of fees in fee block A4 in part 34 of FEES 4 Annex 1B R apply except for the purposes of (2).

(5) A directive friendly society must also calculate eligible mathematical reserves in accordance with this table.

(6) A non-directive friendly society must calculate mathematical reserves as the amount that it is required to show in FSC 2 - Form 9 line 23 in Appendix 10 of IPRU(FSOC) (total mathematical reserves after distribution of surplus) in relation to the most recent financial year of the firm (as at the applicable reporting date under FEES 6.5.13 R) for which the firm is required to have reported that information to the PRA under IPRU(FSOC). A non-directive friendly society must disregard for this purpose such amounts as are not required to be included by reason of a waiver or a written concession carried forward as an amendment to the rule to which it relates under SUP TP.

(7) The provisions relating to pension fund management business in Part 2 of FEES 4 Annex 1B R do not apply. A firm undertaking such business that does not carry out any other activities within class C1 (ignoring any activities that would have a wholly insignificant effect on the calculation of its tariff base for class C1) must use its Long-term insurance capital requirement instead of gross technical liabilities. The Long-term insurance capital requirement means the amount that it is required to show as its Long-term insurance capital requirement in Form 2 Line 31 (Statement of solvency - Long-term insurance business) in relation to the most recent financial year of the firm (as at the applicable reporting date under FEES 6.5.13 R) for which the firm is required to have reported that information to the PRA.

(8) The split in the levy between relevant net premium income and eligible mathematical reserves does not apply to a partnership pension society (as defined in Chapter 7 of IPRU(FSOC) (Definitions)). Instead the levy is only calculated by reference to relevant net premium income.

4 4

Class C2: annual eligible income where annual eligible income means annual income adjusted in accordance with this table. Annual income is calculated as the sum of (a) and (b):

(a) the net amount retained by the firm of all brokerages, fees, commissions and other related income (for example, administration charges, overriders and profit shares) due to the firm in respect of or in relation to class C2 activities including any income received from an insurer; and

(b) if the firm is a life and pensions firm, in relation to class C2 activities, the amount of premiums or commission receivable on its life and pensions contracts multiplied by 0.07, excluding those life and pensions contracts which result from class C2 activities carried out by another firm, where a payment has been made by the life and pensions firm to that other firm and that payment is of a type that falls under (a).

Notes relating to the calculation of the tariff base for class C2:

(1) Life and pensions contracts mean long-term insurance contracts (including pure protection contracts) and rights under a stakeholder pension scheme or a personal pension scheme.

(2) Life and pensions firm means an insurer. It also means a firm that provides stakeholder pension schemes or personal pension schemes if those activities fall into class D1.

(3) The calculation is adjusted in accordance with the definition of annual eligible income.

(4) Net amount retained means all the commission, fees, etc. in respect of class C2 activities that the firm has not rebated to customers or passed on to other firms (for example, where there is a commission chain). Items such as general business expenses (for example, employees' salaries and overheads) must not be deducted.

(5) Class C2 activities mean activities that fall within class C2. They also include activities that now fall within class C2 but that were not regulated activities when they were carried out.

(6) A reference to a firm also includes a reference to any person who carried out activities that would now fall into class C2 but which were not at the time regulated activities.

Investment

Class D1

Investment provision

Firms with permission for:

Any of the following:

managing investments;3

3 managing an AIF;

3 managing a UCITS;

3 acting as trustee or depositary of an AIF;

3 acting as trustee or depositary of a UCITS;5

establishing, operating or winding up a collective investment scheme;5
5
5
5
5
5

establishing, operating or winding up a stakeholder pension scheme;

establishing, operating or winding up a personal pension scheme;

agreeing to carry on a regulated activity which is within any of the above.

Class D2

Investment Intermediation

Firms with permission for:

Any of the following activities in relation to designated investment business:

dealing in investments as principal;

dealing in investments as agent;

MiFID business bidding;

arranging (bringing about) deals in investments;

making arrangements with a view to transactions in investments;

advising on investments;

basic advice;6

safeguarding and administering investments;

arranging safeguarding and administering of assets;

operating a multilateral trading facility;

operating an organised trading facility;7

agreeing to carry on a regulated activity which is within any of the above;

BUT excluding activities that relate to long-term insurance contracts or rights under a stakeholder pension scheme or a personal pension scheme.

7 Recognised investment exchanges

recognised investment exchanges that are operating a multilateral trading facility or operating an organised trading facility

Tariff base

Class D1: annual eligible income where annual eligible income means annual income adjusted in accordance with this table. Annual income is equal to the net amount retained by the firm of all income due to the firm in respect of or in relation to activities falling within class D1.

Class D2: annual eligible income where annual eligible income means annual income adjusted in accordance with this table. Annual income is equal to the net amount retained by the firm of all income due to the firm in respect of or in relation to activities falling within class D2.

Notes on annual eligible income for classes D1 and D2:

(1) For the purposes of calculating annual income, net amount retained means all the commission, fees, etc. in respect of activities falling within class D1 or D2, as the case may be, that the firm has not rebated to customers or passed on to other firms (for example, where there is a commission chain). Items such as general business expenses (for example employees' salaries and overheads) must not be deducted.

(2) The calculation is adjusted in accordance with the definition of annual eligible income.

(3) Box management profits are excluded from the calculation of annual income.

Home Finance

Class E2

Home Finance Intermediation

Firms with permission for:

Any of the following activities:

arranging (bringing about) a home finance transaction;

making arrangements with a view to a home finance transaction;

advising on home finance transaction;

the activities of a home finance provider which would be arranging but for article 28A of the Regulated Activities Order (Arranging contracts or plans to which the arranger is party);

agreeing to carry on a regulated activity which is within any of the above.

Tariff base

Class: E2: annual eligible income where the annual income is calculated in accordance with fee-block A18 in part 2 of FEES 4 Annex 1A R.

Class F

Deposit acceptor's contribution

Firms with permission for:

accepting deposits and/or operating a dormant account fund. BUT does not include any fee payer who either effects or carries out contracts of insurance.

Class G

Insurers - life contribution

Firms with permission for:

effecting contracts of insurance; and/or

carrying out contracts of insurance;

in respect of specified investments including life policies; entering as provider into a funeral plan contract.

-

Class H

Insurers - general contribution

Firms with permission for:

effecting contracts of insurance; and/or

carrying out contracts of insurance;

in respect of specified investments that are:

- general insurance contracts; or

- long-term insurance contracts other than life policies.

Class I

Home finance provision

Firms with permission for:

Any of the activities below:

entering into a home finance transaction;

administering a home finance transaction;

agreeing to carry on a regulated activity which is within any of the above.

Notes

(1) Any reference in this annex to a specified investment includes a reference to rights to or interests in investments in that specified investment.

(2) In calculating annual eligible income a firm must apportion income between different classes and between income that falls within the definition of annual eligible income and income that does not in a reasonable and consistent way and on the basis of clear policies.

(3) The question of whether a person is an eligible claimant or not or whether a contract of insurance is a protected contract or not or whether business is compensatable business or not must be judged at whichever of the following dates the firm chooses:

(a) (for a person who has become a new client during the period by reference to which the firm's tariff base is being calculated) the date on which the person becomes a client;

(b) (for a person who has ceased to be a client during that period) the date on which the person ceases to be a client; or

(c) (in any other case) the date to which the most recent information supplied by the firm under FEES 6.5.13 R is prepared.

However this does not apply for the purpose of calculating the tariff base for class A (Deposits) so far as it relates to protected deposits.

(4) For classes G to I (inclusive) the tariff base is not set out in this Annex: see FEES 6.4.7 R (3), FEES 6.5.6 R (3)) and FEES 6.5A.6 R

FEES 6 Annex 4 Guidance on the calculation of tariff bases

G

1This table belongs to FEES 6.5.8 G

Calculation of annual eligible income2 for firms in class D1 2who carry out discretionary fund management and are in FCA fee block A72

2 2 3

2-1.1

[FCA]

G

The tariff base for class3 D1 is calculated by taking gross income falling into class3 D1 and then deducting commission, fees and similar amounts rebated to customers or passed on to other firms (for example, where there is a commission chain). Items such as general business expenses (for example employees' salaries and overheads) should not be deducted. The calculation should be further adjusted so as to exclude income that is not attributable to business conducted with or for the benefit of eligible claimants, unless the firm chooses to include such income.2

3 3

1.1

[FCA]

G

Gross income for the activity of managing investments is the sum of the following:

2

(1)

the amount of the annual charge on all assets in portfolios which the firm manages on a discretionary basis received or receivable in the latest accounting period (this is calculated as a percentage of funds invested, typically 1% p.a.); plus

(2)

the front-end or exit charge levied on sales or redemptions of assets in portfolios which the firm manages on a discretionary basis (typically 4-5% of sales/redemptions) in that same accounting period; plus

(3)

the amount of performance management fees from the management of assets in portfolios which the firm manages on a discretionary basis received or receivable in that same accounting period; plus

(4)

any other income directly attributable to the management of assets in portfolios which the firm manages on a discretionary basis in that same accounting period, including commission and interest received.

1.2

[FCA]

G

Annual eligible income 2 should exclude

2 2 2
2

income received or receivable from assets managed on a non-discretionary basis, being assets that the firm has a contractual duty to keep under continuous review but in respect of which prior specific consent of the client must be obtained for proposed transactions, as this activity is covered in class3 D2 (the investment intermediation class3).22

3 3 2

1.3

[FCA]

G

A firm should make appropriate arrangements to ensure that income is not double counted in relation to the activities it undertakes (for example, where it operates and manages a personal pension scheme or collective investment scheme).

Calculation of annual eligible income for firms in sub-class D1 and who carry out activities within FCA3 fee block A92

2 3

2.1

[FCA]

G

The calculation of income in respect of activities falling into class3 D1 and FCA fee block A9 should be based on the tariff base provisions for that fee block (in Part 3 of FEES 4 Annex 1A R).6 It should be adjusted so as to exclude income that is not attributable to business conducted with or for the benefit of eligible claimants, unless the firm chooses to include such income.2

2 3 6

22.2

[FCA]

G

Although the calculation should be based on the one for fee block A9, the calculation is not the same. FCA fee block A9 is based on gross income. Class3 D1 is based on net income retained.

3

2Calculation of annual eligible income for a firm in class3 B2 or class3 C2

3 3

23.1

[FCA]

G

The amount of annual eligible income should include the amount of any trail or renewable commission due to the firm. Trail commission is received as a small percentage of the value of a policy on an ongoing basis. Renewable commission is received from a very small percentage of the value of a policy from ongoing premiums often received once the initial commission period is over.

2Difficulties in calculating annual eligible income

24.1

[FCA]

G

The purpose of Note 2 in the section of notes at the end of FEES 6 Annex 3 R (Financial Services Compensation Scheme - classes) is to deal with the practical difficulties of allocating income correctly between different classes3 and in deciding whether income falls outside FEES 6 Annex 3 R altogether. Note 2 requires a firm to carry out the necessary apportionment on a reasonable and consistent basis.

3 3

24.2

[FCA]

G

The following provides some guidance as to how firms may approach the allocation of annual eligible income.

24.3

[FCA]

G

Where a firm cannot separate its income on the basis of activities, such as a fund manager which acts on a discretionary and non-discretionary basis for the same client and who only sends out a single invoice, the firm may apportion the income in another way. For instance, a firm may calculate that the business it undertook for a client was split 90% on a discretionary basis and 10% on a non-discretionary basis calculated by reference to funds under management. The firm may split the income accordingly.

24.4

[FCA]

G

A firm may allocate trail or renewable commission on the basis of the type of firm it receives it from. For instance, if it comes from a life provider the firm may consider it as life and pensions mediation income. If it comes from a fund manager the firm may treat it as investment mediation income.

24.5

[FCA]

G

If a firm receives annual eligible income from a platform based business it may report annual eligible income in line with the proportionate split of business that the firm otherwise undertakes. For instance, if a firm receives 70% of its other commission from life and pensions mediation business and 30% from investment mediation business, then it may divide what it receives in relation to the platform business on the same basis.

24.6

[FCA]

G

Unless a firm chooses to include all relevant annual income, annual eligible income excludes business that is not compensatable under the compensation scheme. This can create difficulties because, for example, a person may move between being and not being an eligible claimant over time. The purpose of Note 3 in the section of notes at the end of FEES 6 Annex 3 R is to deal with that difficulty by fixing a date for deciding this.

2Gross technical liabilities and mathematical reserves for non-directive friendly societies

25.1

[PRA]

G

The tariff base for a non-directive friendly society carrying out general insurance business is based in part on gross technical liabilities and the tariff base for a non-directive friendly society carrying out life insurance business is based in part on mathematical reserves. These concepts do not directly apply to non-directive friendly societies and so the tariff base calculation uses a corresponding concept.

25.2

[PRA]

G

The figures for gross technical liabilities and mathematical reserves of a non-directive friendly society for the purpose of calculating its tariff base in class3 B1 (General Insurance Provision) and C1 (Life and Pensions Provision) are based on a valuation. This valuation only has to be made every three years. FEES 6 does not require a non-directive friendly society to update that information every year. Instead the figures from a non-directive friendly society's valuation will be used on a rolling three year basis for the purposes of the levy calculations in FEES 6. The effect of this calculation is therefore to modify the normal basis on which information is supplied under FEES 6.5.13 R.

3

FEES 6 Annex 5 1Classes participating in the retail pool and applicable limits

R

This table belongs to FEES 6.5A.1 R.

Class

Attributable costs for this class in excess of levy limit allocated to the retail pool?

Retail pool levy limit (£ million)

Retail pool compensation costs levy or specific costs levy allocated to this class?

FCA provider contribution classes

[Note: The FCA provider contribution classes contribute to a compensation costs levy or specific costs levy allocated to the retail pool, unless the compensation costs or specific costs are attributable to the investment provision class. Compensation costs or specific costs attributable to the corresponding PRA funding classes are never allocated to the retail pool]

Deposit acceptors contribution

No

110

Yes (except for costs attributable to the investment provision class)

Insurance - life contribution

70

Insurance - general contribution

35

Home finance providers and administrators' contribution

45

Classes that both contribute to and are funded by the retail pool

[Note:

A compensation costs levy or specific costs levy, in respect of costs attributable to these classes in excess of their levy limits, must be allocated to the retail pool. A compensation costs levy or specific costs levy allocated to the retail pool is then allocated to all other classes contributing to the retail pool (up to each class'sretail pool contribution limit), except as specified below for the investment provision class.]

Investment provision

Yes, under FEES 6.5.2A R (2) (but costs attributable to the investment provision class cannot be allocated to the FCA provider contribution classes)

Class levy limits

Yes

Life and pensions intermediation

Home finance intermediation

Investment intermediation

General insurance intermediation