Financial Services Compensation Scheme – Outlook November 2023

The Financial Services Compensation Scheme (FSCS) has published its annual Outlook November industry newsletter, to provide an update on the current levy year and the first indication for next year’s levy. Credit unions are required to pay their share of the deposits-class levy each year, that covers the cost of the FSCS’s compensation payout and management expenses. This briefing reports on the newsletter’s announcements relevant to credit unions.

Update on 2023/24 Levy

The latest levy update for 2023/24 within the Deposits Class largely remains as published in May 2023, with a £3m surplus expected to be taken forward and used to offset the levy in 2024/25. The surplus is made up of interest earned on cash balances during the 2023/24 year and from recoveries. The retail pool contribution is still not expected as detailed in May’s document.

Compensation paid out in this class so far includes £1.4m paid out for the failure of two credit unions in the current financial year.

Indicative Levy for 2024/25

The indicative levy is the first look at the expected funding requirements from firms for the upcoming financial year. The indicative levy for 2024/25 has been announced in November’s Outlook publication, to help financial firms with a December year end to better prepare for next year’s levy. It must be noted that the indicative levy is based on a prediction of firm failure for the subsequent year, so is highly uncertain and subject to change.

The indicative levy for deposits class in 2024/25 is £25.9m. This indicative levy anticipates the funding requirements from deposit-takers to increase by roughly £20m compared to the 2023/24 currently expected to be invoiced, as shown in the table below. The expected increase for next years levy is due to a lower opening balance in 2024/25 in comparison to the prior financial year, which was a result of higher surpluses carried over from 2022/23. As has been the case in recent years they also expect a small number of credit union failures in the next financial year.

It is also predicted the deposit acceptors class will not contribute towards the retail pool for 2024/25.

Levy Payments and Invoices

Contributions to the 2024/25 are due to be invoiced in summer 2024, with the exact amount to be invoiced subject to change at this stage.