FSCS £40m interim levy: What you are paying for

The extra payments have gone to clients who lost out when a handful of investment companies collapsed, causing a deficit in the FSCS’s investment intermediation sub-class.

Investment Adviser digs deeper into what your January interim levy will pay for, and looks at other failed firms that could cause the levy to surge higher than £40m if compensation claims are made in time.

• Keydata

Although the volume of Keydata-related compensation claims is now falling, the value and volume of claims have been higher than the FSCS expected this year. This means the amount of money being paid out by the FSCS has remained relatively high, although far below the £326m levied from the fund management and adviser industries in January of this year.

In its statement yesterday the FSCS confirmed that any recoveries it makes from Keydata portfolios [Lifemark] will be refunded first to fund managers and then to advisers and intermediaries. It is currently pursuing a number of adviser firms through the courts in an attempt to claw back the costs of compensating Keydata investors, and has already raised £30m from a settlement with Norwich & Peterborough Building Society in April.

FSCS chief executive Mark Neale added: “Following the Keydata failure, FSCS is therefore considering options to maximise the value of the Lifemark estate [which backed most of Keydata’s products].”

• Wills & Co

Stockbroker Wills & Co had its permissions to sell stocks to retail investors removed by the FSA in February 2010 because of poor sales practices. In July 2010 the FSCS declared the firm in default, meaning it was unlikely to be able pay any claims against it.

The FSCS has not disclosed the value of the claims received against Wills & Co but, along with other stockbrokers, it has attracted significant claims from investors.

• Arch Cru

The FSCS has not paid out any Arch Cru claims yet, and is waiting for guidance from the FSA as to how it should factor in payments from the £54m compensation scheme agreed in June between the regulator and Capita, HSBC and BNY Mellon. There is also significant uncertainty about the value of the Arch Cru cells currently being wound up by Guernsey-based Spearpoint.

The FSCS has received 600 Arch Cru-related claims against advisers no longer trading, but until clarity is received on where compensation payments will be paid from, the FSCS will not be making payments. The scheme said some payments may be made which will fall within the interim levy time period - before June 30 2012 - but a spokesman said if the amounts were particularly small the FSCS may pay them out of its existing reserves.

• MF Global

The US stockbroker collapsed in October, and its 10,000 UK customers are covered by the FSCS. As yet the FSCS’s case is at an early stage but it hinted that it was likely to begin paying compensation before June 2012, meaning it may fall on to the interim levy bill. However, as with Arch Cru, if claims are minimal the FSCS may attempt to pay them from its own reserves first.