PS8/26 – Financial Services Compensation Scheme – Management Expenses Levy Limit (MELL) 2026/27

1: Overview

1.1 This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses the PRA received to consultation paper (CP) 1/26 – Financial Services Compensation Scheme – Management Expenses Levy Limit 2026/27. It also contains the PRA’s final rule for the Financial Services Compensation Scheme (FSCS) Management Expenses Levy Limit (MELL) for 2026/27 (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 and to fulfil its wider responsibilities and functions. These functions are conferred on the FSCS by Part XV of the Financial Services and Markets Act (FSMA) 2000.

1.4 In CP1/26 the PRA and FCA consulted on the FSCS’ proposed MELL of £113 million for 2026/27. This included:

• the FSCS’ management expenses budget of £108 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 CP1/26 was published, the FSCS had projected that its management expenses for the current financial year will be £103.6 million, which was consistent with its budget for the year. FSCS has since revised its forecast and expects a £2.5 million underspend from the 2025/26 budget. If actual expenses are lower than the budget when reconciled at year end, then these funds will be used to offset the levy for the relevant classes in 2026/27.

Accountability framework

1.6 In determining its policy, the PRA considers representations received in response to 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’ contains a general account of the representations made in response to the CP and the ‘Feedback to responses’ chapter contains the PRA’s feedback.

1.7 In carrying out its policy making functions, the PRA is required to have regard to various matters and comply with several legal obligations. In CP1/26, 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 CP1/26 remains unchanged.

Summary of responses

1.8 The PRA received two responses to the CP. Both respondents to the CP consented to their names being published. These are set out in Appendix 1. Both respondents expressed broad support for the proposals and acknowledged the importance of ensuring the FSCS is appropriately funded. One respondent suggested the allocation of cost relating to the FSCS’ revolving credit facility (RCF) be amended to exclude credit unions from those costs. The other respondent emphasised the importance of a proportionate and transparent approach to funding the FSCS. The responses and the PRA’s considerations are set out in more detail in Chapter 2.

Implementation

1.9 The MELL will apply from Wednesday 1 April 2026, the start of the FSCS’ financial year, to Wednesday 31 March 2027.

1.10 The FCA Board has also made its respective rule for the 2026/27 MELL.

2: Feedback to responses

2.1 The PRA has considered the responses received to the CP. This chapter sets out the PRA’s feedback to the responses, and its final decisions.

2.2 Both respondents expressed support for the 2026/27 MELL proposals, recognising the importance of ensuring the FSCS is appropriately funded. The first respondent suggested it may be more equitable to exclude credit unions from contributing to the costs of expanding the FSCS’ revolving credit facility’, referencing the exclusion of credit unions from contributing to recapitalisation payments under the Bank Resolution (Recapitalisation) Act 2025.

2.3 The PRA considers it is important for industry to bear the cost of the RCF in a way that is proportionate both to the risks each firm poses to the financial system and to the benefits firms receive from an appropriately funded and effective FSCS. The RCF may be used in any scenario where the FSCS requires short term funding and is not limited to supporting recapitalisation payments. The PRA therefore considers it appropriate for all firms to contribute proportionately to the costs of maintaining the RCF, including credit unions.

2.4 While reiterating support for the proposals the second respondent emphasised the importance of maintaining a proportionate funding model, giving due regard to the impact on smaller firms, and ensuring transparency and stability in FSCS funding. The PRA supports these points and considers that the MELL proposals, as consulted on, appropriately address each of these factors. Ensuring that the FSCS is funded efficiently and transparently is central to the MELL process. In addition, the current funding model is designed to prioritise proportionality, with MELL contributions allocated based on firms’ relative size.

2.5 Having considered these responses, the PRA has decided to maintain the proposals as outlined in CP1/26.