Millions of pounds could be added to advisers’ FSCS bills to compensate non-UK investors in the failed fund distributor Catalyst Investment Group when the compensation scheme begins payouts in the new year.
Advisers already face a hefty interim levy of close to £30m, in part to cover the cost of compensating investors who have lost out through investments in life settlements fund ARM Asset-Backed Securities, for which Catalyst was the chief UK distributor.
But the FSCS is now considering whether overseas investors - including a number based in Malta - who bought ARM-backed investments through Catalyst can be compensated.
The FSCS posted on its website: “FSCS is currently investigating how the ARM bonds were sold and promoted outside the UK. In particular, FSCS is aware that a large number of investors invested in ARM bonds through firms based in Malta.
“Although the country of residence of a claimant does not prevent them from making a claim with the FSCS… [we] need to be satisfied that the activities of the non-UK based firms do not affect the liability of Catalyst for those investors.
“FSCS will provide further clarification about the extent to which it can cover investors who dealt with non-UK firms in due course.”
A media statement issued this week by the Maltese regulator, the MFSA, confirmed that Maltese investors had done business with Catalyst and that the MFSA was in contact with the FSCS.
Under compensation rules the FSCS can only compensate clients of UK firms, but it has no restrictions on the domicile of clients. This effectively means UK advisers could be forced to pay compensation for investments made by people living abroad who invested in the offshore fund via a UK-based intermediary.
Catalyst was the distributor of ARM bonds in the UK and sold £76m worth of bonds to UK investors, according to a 2010 regulatory notice from the Financial Services Authority (FSA) – although subsequent communications from the FCA have revised this figure to £54m.
In the 2010 notice the FSA said “bondholders worldwide” had invested roughly $182m (£110m) into ARM products, implying a substantial additional liability if the FSCS decides to compensate more investors.
