The FSA has approved a £25m industry levy increase to allow the Financial Ombudsman Service to boost its reserves to deal with an expected surge in payment protection insurance complaints.
The levy will apply to firms under the FOS’ “compulsory jurisdiction” which the FSA defines as firms authorised and registered by the FSA, including those who have not had cases referred to the FOS.
An FSA spokeswoman says no decision has been made about how the levy will be allocated. It is expected to be allocated to different fee blocks in May.
In the FSA’s consultation paper on regulatory fees and levies, published in February, the regulator calculated the impact of a £47.7m compulsory jurisdiction levy on firms, including an additional £30m to boost FOS’ reserves.
The regulator proposed 39 per cent of the levy would be paid by banks, building societies and mortgage lenders, 37 per cent would be paid by general insurance intermediaries, and 12 per cent by general insurers. The advisory arrangers, dealers and brokers fee block, which includes the majority of IFAs, would pay 4 per cent of the levy.
This would mean an indicative bill of £18.7m for banks, building societies and lender, £17.6m for GI intermediaries, £5.9m for GI providers, and £2m for advice firms.
In January as part of its annual plan and budget consultation for 2011/12, the FOS revealed it was seeking a levy increase of up to £30m.
The ombudsman said at the time that the loss of income from case fees as a result of a judicial review launched by the British Bankers Association in October could lead to an operating monthly deficit of up to £4m, which would exhaust its reserves within six weeks.
A FOS spokeswoman told Money Marketing in January that the FOS would recommend to the FSA that the additional levy be attributed to the fee block that generates most of the FOS’ workload. For PPI, this would be banks and other PPI providers.
The FOS has announced today that the FSA has approved an operational budget for the FOS of £102.9m for 2011/12.
The budget allows the FOS to freeze the £500 case fee, paid after three cases, for the second year running.
The £25m levy to boost the FOS’ financial reserves is on top of the £102.9m FOS budget.
The FOS says: “We believe that increasing our reserves is prudent and necessary in order to manage our financial risks in 2011/12.
“It is important to ensure that these additional reserves are used to deal with volatility and are not used to address ‘business as usual’ issues or any shortfalls in efficiency.”