1This chapter applies to:

1. (1)

   every participant firm;7

   4
2. (2)

   the FSCS; and

3. (3)

   the Society.

1. (1)

   3Except as set out in (3), a participant firm which does not conduct business in respect of which the FSCS may pay compensation4 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 6.2.1AR 4 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 6.2.1AR4 must notify the FSCS in writing as soon as reasonably practicable if the conditions in FEES 6.2.1AR4 no longer apply.

1For the purposes of FEES 6.2.1AR4 a participant firm will only be exempt from a specific costs levy or compensation costs levy for any given financial year4 if it met the conditions in FEES 6.2.1AR4 on 31 March of the immediately preceding financial year4.

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:

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 year9 of the compensation scheme in relation to which the levy is imposed; and9

   88
2. (2)

   [deleted]9

   88888
3. (3)

   8in the case of a compensation costs levy:9

   1. (a)

      the FSCS's expenditure in respect of compensation costs expected in the 12 months of the financial year of the compensation scheme in relation to which the levy is imposed9; or, if greater

   2. (b)

      one third of the FSCS's expenditure in respect of compensation costs expected in the 36 months following the 1 April in the financial year of the compensation scheme in relation to which the levy is imposed9.

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 financial year of the compensation scheme in relation to which the levy is imposed9.

The maximum aggregate amount of compensation costs and specific costs for which the FSCS can levy each8class (not including the FCA provider contribution classes)9 in any one financial year9 of the compensation scheme is limited to the amounts set out in the table in FEES 6 Annex 2 R.2

9[Note: the levy limits for the FCA provider contribution classes are set out in FEES 6 Annex 5R]

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 in accordance with the allocation established under FEES 6.4.6AR and FEES 6.5.2-AR9.

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 class must be credited to that class8, and must be set off against the management expenses or compensation costs2allocated to that class.82

The FSCS must keep accounts which include:8

1. (1)

   the funds held to the credit of each class; and

   228
2. (2)

   the liabilities of that class.8

   22

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

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

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

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.

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 1R9 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 years9 of the compensation scheme9 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.

9The FSCS may impose a levy on the Society to be calculated as the aggregate of the levies that would be imposed on each member if this chapter applied to members, as follows:

1. (1)

   a share of the base costs levy for each financial year; and

2. (2)

   a share of a specific costs levy or a compensation costs levy allocated to the insurers – life contribution class or insurers – general contribution class in the retail pool in accordance with this chapter.

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

The total of all management expenses levies (taken together with the management expenses levies under the PRA Rulebook)5 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 .

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

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

   5335
2. (2)

   for other participant firms:6

   5533
   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

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 5R5), to the retail pool, in accordance with and subject to FEES 6.5A.

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 year5 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 3AR5) as a proportion of the total tariff base of all participant firms in the class5;

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.

A firm or a recognised investment exchange6 which becomes a participant firm part way through a financial year5 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 year5 of the compensation scheme5 following the financial year of the compensation scheme5 in which it became a participant firm; or

   2. (b)

      a participant firm'sspecific costs levy in the financial year5 of the compensation scheme5 in which it had its permission extended, and the following financial year of the compensation scheme5; 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 year5 following the financial year of the compensation scheme in which5 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 financial year of the compensation scheme5.

   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 financial year of the compensation scheme5; 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 rule,5FEES 6 Annex 3AR5 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.

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

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.

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

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 5R13), to the retail pool, in accordance with, and subject to, FEES 6.5A.

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

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

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

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 6.3.1R13 allocated, in accordance with FEES 6.5.2-AR13, 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 3AR13) as a proportion of the total tariff base of all participant firms in the class13;

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.

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 under13FEES 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 year13, by the date requested by the FCA13) 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 3AR13 (Financial Services Compensation Scheme - classes)) ending before the relevant year in relation to each of those classes except the FCA provider contribution classes.

      101055
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
4. (4)

   13The Society must provide the statement in (1) in relation to the insurers – general contribution class and the insurers – life contribution class.

If the information in FEES 6.5.13 R has been provided to the FCA13 under other rule obligations, a participant firm will be deemed to have complied with FEES 6.5.13 R.

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 year13); 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 year13, on the basis of the information provided to the FCA13 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.

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-AR(2) or FEES 6.4.6AR(2)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 up to those levy limits2; and

3. (3)

   in accordance with the table in FEES 6 Annex 5R2.

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 levies2:

   1. (a)

      2that correspond to the FCA’scompensation costs levies or specific costs levies; and

   2. (b)

      2which have previously in the same financial year been imposed on the PRA funding class2 which corresponds to that FCAprovider contribution class (as set out in FEES 6.5A.7R),

   2the combined figure would be greater than any 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) in a financial year2; and

   2. (b)

      if the amount of that previous contribution by the class in (a) were added to a levy that corresponds to the FCA’s2compensation costs levy or specific costs levy and2 which is being imposed on the PRA funding class2 which corresponds to the class in (a) (and any previous such levies in the same financial year2), the combined figure would be greater than any levy limit2 of the corresponding PRA funding class2;

   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 any levy limit2 of the corresponding PRA funding class2, 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.

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.

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.

If an incoming EEA firm, which is4 an , an MCD mortgage credit intermediary3 or a4MiFID 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.

6Where a participant firm must pay its periodic fees for a fee year in accordance with FEES 4.3.6R(1C) to (1E), it must pay its share of any annual levy imposed 7 by the 7FSCS for the financial year of the compensation scheme as follows:

1. (1)

   by 1 April an amount equal to 50%, or such lower percentage as the FSCS may determine, of the participant firm’s share of the annual levy7payable for the previous financial year of the compensation scheme; and

2. (2)

   by 1 September the balance of the annual levy7due from the participant firm for the current financial year of the compensation scheme.

A participant firm that is not within FEES 6.7.-1R,6 must pay its share of any levy made by the FSCS in one payment.6

A participant firm's share of a levy to which FEES 6.7.1R6 applies is due on, and payable within 30 days of, the date when the invoice is issued.

6A participant firm’s share of any interim levy7 is due on, and payable within 30 days of, the date when the invoice is issued.

A participant firm liable to pay its share of the levy under FEES 6.7.-1R, 6.7.1R and 6.7.3R6 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 or carry out activities within one or more classes54 part way through a financial year6 of the compensation scheme:

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 year6 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