PS4/25 – Financial Services Compensation Scheme (FSCS) Management Expenses Levy Limit (MELL) 2025/26

Published on 28 March 2025

1: Overview

1.1 This Prudential Regulation Authority’s (PRA) policy statement (PS) provides feedback to responses to consultation paper (CP)1/25 – Financial Services Compensation Scheme – Management Expenses Levy Limit 2025/26. It also contains the PRA’s final rules for the Financial Services Compensation Scheme (FSCS) Management Expenses Levy Limit (MELL) for 2025/26 (Appendix 2).

1.2 This PS is relevant to all FSCS levy-paying PRA and Financial Conduct Authority (FCA) authorised firms. It contains no material of direct relevance to retail financial services consumers or consumer groups, upon which they might need to act.

Background

1.3 The FSCS is the compensation fund of last resort for customers of failed authorised financial services firms across the PRA’s and the FCA’s regulatory remit. The MELL is the maximum amount that the FSCS may levy for management expenses in a year without further consultation. It provides the FSCS with the resources to process compensation claims resulting from the failure of financial services firms. These functions are conferred on the FSCS by Part XV of the Financial Services and Markets Act 2000 (FSMA).

1.4 In CP1/25 the PRA and FCA consulted on the FSCS’ proposed MELL of £108.6 million for 2025/26. This included:

the FSCS’ management expenses budget of £103.6 million for ongoing operating costs, including, staff, outsourcing, IT, legal and costs incurred in improving its operations; and
an unlevied reserve of £5 million, allowing the FSCS to raise additional funds at short notice for unforeseen costs, without the need for further consultation and rulemaking by the PRA and FCA.

1.5 When CP1/25 was published, the FSCS had projected an underspend of approximately £1.7 million for 2024/25, compared to the management expenses budget of £103.1 million. Since publication of CP1/25, the FSCS has confirmed that the projected underspend is now £2.8 million. If this underspend materialises, then these funds will be used to offset the levy for the relevant classes in 2025/26.

1.6 In determining its policy, the PRA considers representations received in response to the consultation, publishing an account of them and the PRA’s response (feedback). Details of any significant changes are also published. In this PS, the ‘Summary of responses’ section contains a general account of the representations made in response to the CP.

1.7 In carrying out its policy making functions, the PRA is required to have regard to various matters. In CP1/25 the PRA explained how it had regard to the most relevant of these matters in relation to the proposed policy. The ‘Changes to draft policy’ section of this chapter outlines that there are no changes to the draft policy, so the analysis set out in CP1/25 remains unchanged.

Summary of responses and other additional information

1.8 The PRA received two responses to the consultation paper. One response, from the Building Societies Association (BSA), provided support for the proposals. The other respondent requested that their identity and response remain confidential.

1.9 During the consultation period, FSCS received notice to vacate its current premises by the end of December 2025. FSCS is actively exploring future workspace options and remains committed to operating within the budget outlined in CP1/25. In the event that the premises relocation has a cost impact, some budget reprioritisation by the FSCS may be required.

1.10 Given the responses, the PRA does not consider that any changes to the proposal as consulted are warranted.

Changes to draft policy

1.11 This PS takes account of how the policy advances the PRA’s objectives and of significant matters that the decision maker had regard to. These are as set out in CP1/25, and there are no changes to the draft policy.

1.12 When making rules, the PRA is required to comply with several legal obligations. In CP1/25, the PRA published its explanation of why the rules proposed by the CP were compatible with its objectives and with its duty to have regard to the regulatory principles.^{footnote [1]} The PRA has not made changes to the rule instrument consulted on, and the explanation provided in CP1/25 remains unchanged.