Advisers in the investment intermediation sub-sector will be hit with a bill of £105m in Financial Services Compensation Scheme levies for the 2014/2015 financial year, a rise of 38 per cent which the scheme says is due to paying redress over collapsed firm Catalyst Investment Group.
The FSCS’s 2014/2015 plan and budget revealed that financial services firms are likely to pay a total levy bill of £313m to cover compensation and base costs, if this is approved.
This excludes the continuing costs of the major bank defaults of 2008 and compares with total levies so far in 2013/14 of £285m.
However, the FSCS has already said it expects to raise an additional levy of £30m on investment intermediation firms before the end of 2013/14 to cover a potential deficit on this class. It had initially projected a figure of £311m at the time of last year's plan and budget.
Of the estimated £313m required, the FSCS expects to levy the investment intermediation sector for £105m. This is in part because FSCS is preparing to deal with claims against Catalyst, for its role in promoting life settlement bonds backed by Arm Asset Backed Securities SA.
In December’s update to investors, the FSCS warned that Catalyst investors are encountering a delay in the claims process due to complications in gathering data from various sources.
In a recent update to investors, the FSCS said it is continuing to work with the provisional liquidators of Arm Asset Backed Securities SA, which was declared in default on 4 December, to gather the information it needs to finalise its claims’ process.
Compared to the 2013/14 annual levy, levies for two sectors will reduce and costs will increase in five sectors.
The 2014/15 levy is the first to be calculated under the new 36-month funding approach. The aim of this new approach is to reduce the volatility of annual levies and the likelihood of interim levies.
Furthermore, the Financial Conduct Authority has published its consultation paper on the FCSC, management expenses levy limit 2014/2015.
The FCA and PRA have proposed to set the MELL for 2014/15 at £80m. This consists of two components: a FSCS management expenses (or budget) of £74.7m, which is the minimum amount that will be levied for 2014/15 and a contingency reserve of £5.3m which allows the FSCS to levy additional funds for management expenses up to this limit, to meet contingencies that were not expected when the annual levy was raised.
The total MELL is down by £14.4m from the previous financial year.
Separately today (21 January) the FSCS also published its ‘five-year vision’, in which it confirmed it will be halving the time it takes to complete the majority of non-deposit claims.
The FSCS said it will reduce it to three months from six months by March 2017. At the same time, the FSCS says it will aim to enhance its its accountability to the industry and its cost effectiveness. These are among a series of commitments to achieve in the next five years.
Mark Neale, FSCS chief executive, previously said that assessing whether losses incurred by advised investors were the result of “bad advice” or factors such as fraud that an intermediary could not have foreseen are a key cause of claim delays.
He said redress paid out in 90 per cent of cases within the three and six-month periods allowed for payment protection insurance and other claims respectively.
Mr Neale said that the 10 per cent of cases where it fails to meet its targets were typically those relating to complex and illiquid investment schemes where it is faced with legal complications and difficulties in quantifying losses.
Mr Neale said: “Published for the first time alongside our longer-term vision, our Plan and Budget 2014/15 outlines how we will achieve our aims and demonstrates our accountability to our stakeholders. We invite stakeholders’ responses to this consultation.”
Responses to the plan and budget are invited by 21 February 2014.
