2
The risk-based levy calculation formula
2.1
As described in Depositor Protection 42.3, the FSCS is required to calculate firm levies using the following formula (equation 1):
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2.2
The risk-adjustment factor is composed of the member’s aggregate risk weight (ARW), multiplied by an adjustment factor (µ). The ARW for each member will be determined by the PRA (see Chapter 3) and provided to the FSCS. The FSCS will compute µ, which is the same for all DGS members in a given year (see Chapter 4), and calculate each member’s levy.
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2.3
The PRA will calculate the ARW for each DGS member using the following formula (equation 2):
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2.4
The ARW for each firm will range from 75% - 150%, which is the minimum range specified in the EBA guidelines. The PRA considers that this provides a sufficient degree of risk differentiation between firms. The ARW for each DGS member depends uniquely on the member’s aggregate risk score (ARS). The next chapter sets out the calculation methodology for the ARS.
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