The Financial Services Compensation Scheme (FSCS) estimates a 5% increase in running costs for its 2022/23 budget.
In an update released today the lifeboat fund said it predicts needing an annual budget of £95.5m.
According to the FSCS one of the key drivers behind this increase is an ongoing trend of more complex claims with higher processing costs.
For the next financial year, it expects complex claims to account for approximately 43% of all claims decisions, an increase of 26% on 2021/22.
Of particular note is the rising number of claims coming through from customers who were given poor advice to move their pensions into unsuitable investments.
In a statement, FSCS chief executive Caroline Rainbird says: “These claims cost us more to process as they have longer handling times and require specialist staff to assess them and calculate the necessary compensation.
“To help illustrate this complexity, in the year to date, we have made over 9,000 requests to firms as part of gathering the supporting evidence needed for these claims. This is an 80% increase on the same time last year and a four-fold increase on 2018/19.”
As well as more pension-related claims the lifeboat fund is seeing more individual firm failures that are associated with multiple financial products, she adds.
These types of claims are also time-consuming to investigate and the failure of SVS Securities plc was given as an example.
This wealth management firm had offered a range of services to its clients, including advisory stockbroking, foreign exchange trading and discretionary fund management services.
Rainbird says: “Consequently, a number of their former clients are making claims against a range of their products. Preparing these claims means tracking down multiple sources of information and carrying out a number of associated processes.”
Regarding the future direction of the FSCS’s funding model, Rainbird addresses the Financial Conduct Authority’s Compensation Framework Review discussion paper published last year.
She says: “This outlines several questions about the current compensation framework and we welcome the debate it opens up around developing a fair and balanced compensation model.
“We understand the difficulties within this and getting the balance between consumer and industry responsibility will be an important and critical challenge to face into collectively.
“We want to see a compensation framework in place that is fair for the industry but allows us to put as many people back on track as possible when this is needed. We are thinking hard about how to tackle these matters and will continue to focus our intelligence and analysis capabilities to that end.
“I encourage all of our stakeholders to join the debate to find solutions that support the health of the whole of the financial services sector and customers, and the wider economy they serve.”
