4
Calculating the risk-based levy
4.1
The PRA will attribute all DGS members with an ARS, as per the methodology in Chapter 3. The ARS for each firm will be translated into an ARW ranging between 75% – 150%, as specified by the formula in paragraph 2.3. The PRA will provide this data to the FSCS.
- 01/07/2023
4.2
The adjustment factor µ will be calibrated in each levy cycle to ensure the exact levy target is reached. For example, for a levy target of £80 million:
| DGS member | Class A tariff base share |
ARW | Unadjusted risk-based lever (share*ARW*£80 million) |
Risk-based levy post-adjustment factor (µ=0.8) |
|---|---|---|---|---|
| Firm A | 10% | 100% | £8 million | £6.4 million |
| Firm B | 50% | 110% | £44 million | £35.2 million |
| Firm C | 40% | 150% | £48 million | £38.4 million |
| Total | £100 million | £80 million |
- 01/07/2023
4.3
Were there to be no further adjustment, the total industry levy would exceed the levy target. The adjustment factor µ would then be set here as 80/100(=0.8), and each DGS member’s levy reduced proportionately by this factor to ensure the levy target (and only this amount) is levied.
- 01/07/2023
4.4
In each levy cycle, the PRA will provide the FSCS with the ARW for each DGS member. The FSCS will use this information and the class A tariff base data to determine the adjustment factor µ, and then calculate the risk adjustment factor (paragraph 2.2). The FSCS will then apply this factor to calculate each member’s risk-based levy, in accordance with Depositor Protection 42.3 (for compensation cost levies).
- 01/07/2023