In our latest Bulletin (336), we set out a reminder in relation to tailoring the income figures for FOS and FSCS in section J of your year-end RMAR (RMA-J). This is something that we are asked about regularly, particularly at this time of year when many firms’ year-end is approaching.
Recently, we talked to a client about their year-end RMAR, and the Fees reporting in Section J. This client is a relatively small business (regulated income around £620k) and all of its customers are commercial clients. That being the case, it legitimately need not report FOS data (data item I017 in RMA-J). Looking at the FCA Fees calculator 2021-22 it would save them nearly £400 if they report ‘£0’ and they might be able to save some money on FSCS too.
What do we look at? The rules and principles which apply
The FOS General Levy
The FCA’s FEES Sourcebook confirms (FEES 5.3.8) that a firm’s contribution to the FOS General Levy is based on the amount of business a firm conducts with consumers (as opposed to businesses) who are eligible to complain to the FOS, described by the FCA as ‘relevant business’. FEES 5.4.1(3) says: ‘If a firm cannot provide a statement of the total amount of relevant business (as required by FEES 5.4.1) it must provide the best estimate of the amount of relevant business that it conducted.’
Firms do not have to provide FOS tariff data if they do not deal with consumers that are eligible complainants (FEES 5.4.4). In these circumstances, the firm may not be subject to the FOS scheme and can apply for an exemption from contributing towards its funding (see FEES 5.1.4).
FSCS Levy costs
Firms may take advantage of the option to report its annual income attributable to business in respect of which the FSCS may pay compensation (FEES 6.2.3). In essence, this means that the FCA Handbook makes a provision for firms to ‘tailor’ their regulated income in relation to FSCS funding.
Similarly, if a firm does not conduct business that could result in a claim against the FSCS, it may be able to claim an exemption from some of the FSCS Levy costs (FEES 6.2.1).
What did this mean for the firm, and what does this mean for you?
Reporting FOS tailored income
A firm must provide its FOS tariff data in Section J of its year-end RMAR; this is the figure for annual income received from ‘relevant business’ (see above). Although some organisations, such as small businesses, are eligible to complain to the FOS, they do not come within the Regulator’s definition of ‘relevant business’ and therefore the income a firm receives from business with these small businesses / SMEs should not be included in the FOS tariff data. For this reason, FOS income data should only include income from consumers. Where firms have categorised a policy as ‘mixed use’ effectively the customer is regarded as a commercial customer and therefore any related income should also not be included in the FOS tariff data.
Not providing a figure in the FOS field of Section J will result in the RMAR automatically carrying across the Regulator’s income tariff figure already entered.
Reporting tailored FSCS income figures
As with FOS income data, firms must enter its FSCS income tariff data in Section J of the year-end RMAR. In simple terms, this is the amount of income received from business protected by the FSCS. For general insurance providers and intermediaries, this is income received from regulated activities conducted with individuals, small businesses or policies involving compulsory insurances.
Where not all of the business conducted by a firm is protected by the FSCS, the firm may wish to report a ‘tailored income’ figure in the FSCS field; i.e., the firm may choose to enter a figure only covering the amount of income received from customers protected by the FSCS.
The FCA rules confirming which customers are not eligible for FSCS compensation are complex. Therefore, when coupled with the practical difficulties in obtaining reliable information on which to determine FSCS eligibility, most firms will use a simplified approach in identifying income that needs to be included in the FSCS tariff data.
- Identify transactions with customers that are captured by any of the following (because the following represent transactions that are captured in the FSCS figure):
- Private individuals (acting in that capacity)
- Sole Traders
- Businesses with an annual turnover of less than £1m
- Compulsory insurances (motor third party liability or employers liability)*
Calculate the income from these transactions as this will form the basis of your FSCS tailored income figure.
- In addition, income from some categories of cover don’t need to be included (e.g. property insurance arranged for a large company) Check whether any transactions that you might otherwise think would be included come within one of the categories set out in COMP 4.2.2 (Persons not eligible to claim FSCS compensation); the Technical Helpline can assist firms with interpreting the Regulator’s rules.
- If you can verify any transactions that did not provide the client with FSCS protection, you don’t need to include the income earned from these transactions in the FSCS income tariff data figure; the resulting figure can then be reported in RMAR Section J as ‘Tailored FSCS income’.
* Compulsory insurances – Where the policy includes an element of compulsory insurance (i.e., third party motor or employers’ liability cover) the FCA has confirmed that firms should include the income received from the compulsory element of the insurance cover. To ensure that any calculations used to make such inclusions are credible, we recommend that firms seek information from the relevant insurers involved to support the calculations. Firms may choose to use ‘average’ figures based on written confirmation of the premium breakdown received from three or four of the main insurers accepting such business; where this approach is used, figures should be reviewed periodically.
As with the FOS income figure, not providing a figure in the FSCS field of Section J will result in the RMAR automatically carrying across the regulated income figure already entered.
Note: In all circumstances, it is essential that firms can provide reliable evidence to support any tailored tariff data figures as this may be requested by the FCA at any time.
Tailored income figures provided will only affect the firm’s contribution to the FOS General Levy and the FSCS Specific Costs and Compensation Costs levies for the budget year in the following calendar year. Therefore, for example, FOS and FSCS tariff data for a reporting period ending anytime during 2021 will be used to calculate the 2022/23 levies.
UKGI Support available
If you have any questions regarding how to tailor your FOS and FSCS income, or if you have any other compliance-related issues to raise, please be assured that we are here as always to offer advice and assistance. Please contact the Compliance helpline on 01925 767888 or by e-mail to email@example.com.