Regulation  

Investment advisers warned of FSCS interim levy risk

Investment advisers could face a further interim levy from the Financial Services Compensation Scheme in 2013/14, as the investment advice sub-class is currently carrying £1.2m shortfall due to increased payouts for Arch Cru and failed stockbroker Fyshe Horton Finney.

The FSCS’s outlook, published today (16 August), revealed there is a “medium risk” that investment advisers will have to pay a further interim levy.

The FSCS said that since 1 April 2013, it has been calculating compensation due to Arch Cru investors with eligible claims in accordance with the consumer redress scheme announced in December 2012 by the then Financial Services Authority.

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Under the consumer redress scheme, the FSCS follows the approach set by the Financial Conduct Authority to compare the value of an eligible claimant’s Arch Cru investment with the value of a suitable alternative investment.

The FSCS ceased paying claims under the “interim payment” approach announced in April 2012. It said it has already paid compensation to over 1,000 Arch Cru investors on that basis, and those customers will be unaffected by the changed payment approach.

Their claims will still be reassessed once the Arch Cru funds’ losses are known, which is expected in 2015, to determine if they are entitled to any further compensation.

The FSCS said it continues to receive claims in respect of Arch Cru funds arising from new defaults which it has to consider.

In March, the FSA confirmed that Fyshe Horton Finney entered the ‘special administration regime’, meaning the firm is either unable to pay its debts or likely to be unable to do so in the near future. Earlier this month, the FSCS started paying out compensation payments of below £50,000 to known clients of the failed stockbroker.

Mark Neale, chief executive of the FSCS, said: “It was a year in which FSCS received 62,030 new claims and dealt with 359,617 enquiries.

“We paid out a total of £326m in compensation and recovered £777m from the estates of failed firms.

“We are aware of the impact our costs have on firms and do not take our levy decisions lightly. That’s why we try to provide as much certainty as we can in an uncertain environment by updating you on developments.

“At the moment an interim levy is not imminent but, as always, I should remind you that these are indications, and the picture could change as we move through the year.”