Clarification for investment managers on how to report income for Financial Services Compensation Scheme (FSCS) levy calculations.
In 2018 asset managers began reporting ‘look-through’ income for the FSCS levy. Income relating to beneficiaries who are FSCS eligible claimants must be reported (see FEES 6).
From dialogue with industry representatives, we understand some firms may be reporting income for the FSCS levy that they do not need to report.
The definition of annual eligible income provides these options:
- Only include such annual income if it is attributable to business in respect of which the FSCS may pay compensation, or
- Include all such annual income.
Therefore, firms must include income which they know relates to eligible claimants, and income which may relate to eligible claimants. If the firm cannot identify whether the underlying beneficiary is an eligible claimant, income derived from that business must be included, because the FSCS may pay compensation in relation to it.
However, if the firm can identify income that relates to beneficiaries who are not eligible claimants, that income can be excluded.
In any case, a firm can report all income if it chooses to do so.
Example
A firm can identify whether the underlying beneficiaries are eligible claimants in respect of 40% of its income. Of that 40% the firm knows that half is attributable to eligible claimant beneficiaries and the other half is attributable to non-eligible claimant beneficiaries. The firm cannot identify whether the underlying beneficiaries are eligible claimants in respect of the remaining 60% of its income.
In this scenario, when calculating its annual eligible income, the firm can exclude the 20% of its income which is attributable to non-eligible claimant beneficiaries. However, it must include the 20% of its income attributable to known eligible claimants, and the 60% of its income attributable to beneficiaries who may or may not be eligible claimants.
Therefore, in calculating annual eligible income, our rules would require the firm to report 80% of its income: the 20% plus the 60%.
If you have any questions or believe your firm may have over-reported or under-reported income, please email [email protected].