RegulationMay 22 2013

Advisers to benefit as FSCS predicts 15% Lifemark recoveries

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ByMichael Trudeau

Investment advisers could be set to receive an unexpected credit from the Financial Services Compensation Scheme, after it revealed in a public statement that it expects to see recoveries of up to 15 per cent from Lifemark, the life settlements vehicle that brought down Keydata.

In a public statement the FSCS said will first allocate recoveries to consumers where the amount recovered exceeds the £48,000 cap on the scheme’s initial compensation offer, with the remainder being allocated to the levy-paying sub-classes that funded the payout.

Investors will receive the difference between their proportional share of the total recovery and the capped payout already accepted, minus costs of recovery. Initial payouts saw investors offered full redress up to £30,000, plus 90 per cent of the remainder up to the £48,000 limit.

Recovered funds that are classified as costs of recovery will be allocated to the investment adviser sub-class that they were charged to.

The rest will be allocated first to the investment management sub-class, which was required to fund an amount of the initial compensation payout as the threshold on the advisory grouping was breached, and then to the investment intermediary sub-class.

Funds will be distributed to levy-payers including investment intermediaries by October 2013 and will likely come in the form of a credit to the intermediaries’ future levies.

The FSCS also said it expects the Lifemark SA vehicle to pay out an initial distribution of 7.5p on the pound shortly, with further payouts due through 2014 which could bring the amount investors recoup up to 12 to 15 per cent of their investments.

The FSCS initially levied more than £110m from advisers and fund managers to meet compensation costs during the 2010/11 financial year, which included claims against Lifemark and Keydata.

After some data were resubmitted by firms and a £33m refund was awarded to some groups, FSCS announced in March of this year that it would be forced to make up the shortfall with an additional levy of £31m on 400 advisers and more than 500 fund management companies.

This year, the total levy on advisers was set at £78m, £2m more than the initial estimate.