Overview
In this Consultation Paper (CP), we - the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) - set out proposals for the Management Expenses Levy Limit (MELL) for the Financial Services Compensation Scheme (FSCS) for 2025/26. The MELL covers the FSCS’s costs of operating the UK’s statutory compensation scheme. This CP is supported by the FSCS January 2025 Budget Update published alongside this CP.
The FSCS is a fund of last resort to provide timely compensation for consumers when financial services firms fail. Its other functions include:
- making recoveries from failed financial institutions
- promoting consumer awareness of FSCS protection
- verifying account information that firms provide to enable faster pay-out to depositors
Under sections 213(1), 213(3)(b), 213(5) and 223(1) of the Financial Services and Markets Act 2000 (FSMA), the FCA and the PRA are required to set a limit for the total management expenses that the FSCS can levy on financial services firms. The MELL is the maximum amount the FSCS may levy in a financial year for its operating costs, following consultation, without further rulemaking by the FCA and the PRA. Setting the right MELL makes sure the scheme has sufficient funding to exercise the functions conferred on the FSCS by Part XV of FSMA and by rules made by the FCA and the PRA.
Summary of the proposal
The proposed MELL for 2025/26 is £108.6m, made up of:
- the FSCS management expenses budget of £103.6m
- an unlevied reserve of £5m
The proposed MELL is £0.5m higher in nominal terms than the 2024/25 MELL of £108.1m. However, the FSCS is absorbing some inflation costs, so the MELL is lower in real terms.
The MELL will apply from 1 April 2025, the start of the FSCS’s financial year, until 31 March 2026.
More details about the MELL, how it is calculated and an explanation of the FSCS unlevied reserve are in Chapter 2 of this CP and in the FSCS January 2025 Budget Update Opens in a new window.
The FCA is required to consult when changing rules under FSMA section 138I. The PRA also has a statutory duty to consult when changing rules under FSMA section 138J.
None of the statutory panels were consulted about the proposals in this CP. This is because it is a matter for the FCA’s and the PRA’s statutory oversight of the FSCS, as explained in paragraph 1.3 above. The FCA and the PRA have not consulted their respective CBA panels for the reasons explained in Annex 2.
In carrying out their policy making functions, both the FCA and the PRA have had regard to all applicable legal obligations. This includes all matters that have informed the MELL proposals. We explain the ways in which having regard to these matters has affected the proposals in Annex 3.
Responses and next steps
This consultation closes on 7 February 2025. Please send any comments on the proposed MELL using the online form on the FCA’s website or in writing.
The FCA is accepting responses on behalf of both the FCA and the PRA. Both authorities will consider the responses received and resolve any issues raised.
Following this, the FCA will issue a Handbook Notice and the PRA will publish a Policy Statement so that their respective final rules can be in place for the start of the FSCS’s financial year on 1 April 2025. These communications will also summarise any consultation feedback.