Compensation scheme levy can only get better: Apfa

The Financial Services Compensation Scheme’s levy increase for investment intermediaries is likely to work in favour of advisers as it will remove the need for an interim levy next year, the Association of Professional Advisers said.

Yesterday, the FSCS revealed in its 2014 to 2015 plan and budge that advisers in the investment intermediation sub-sector will be hit with a bill of £105m in FSCS levies, an increase of 38 per cent, which the scheme said is due to paying redress over collapsed firm Catalyst Investment Group.

The FSCS’s 2014 to 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.

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However Chris Hannant, director general of Apfa, said that although the trade body is concerned by the increase this may actually benefit advisers in the long-term as they will not be hit by an interim levy as they have in previous years.

Mr Hannant said: “Under the new 36 month funding approach, the levy comes out at £105m, whereas under the original calculation looking at the coming 12 months it would have been £76m.

“However, we hope that the long-term situation for advisers might not be as bad as this headline number suggests.

“Under this new approach, the FSCS is more likely to ‘over-levy’, removing the need for an interim levy next year and should mean some of the following year’s levy is paid in advance. All of which should, in the long term, smooth payments.”

Catalyst was declared in default by the Financial Conduct Authority in October, opening the door for investors to be compensated through the FSCS.

In November 2013, the FSCS hinted that investment advisers could face an interim levy bill of £29.5m in the first quarter of this year, following a shortfall in the investment intermediary sub-sector.

The shortfall comes after the compensation scheme last month began compensating clients of Catalyst Investment Group, which sold more than £50m worth of bonds backed by the collapsed Arm Asset Backed Securities life settlements fund.

The FSCS said the total costs of compensating Catalyst clients could run into “tens of millions of pounds” and have a significant impact on the 2014-15 FSCS levy as well as requiring an interim levy to raised in the coming months.

Mr Hannant also added that Apfa will be “liaising closely” with the FSCS as they start to review Catalyst investor claims.

He said: “We’re concerned at the size of this, another big levy for advisers, especially at a time when other costs for advisers are also increasing. We also question whether the activities Catalyst undertook which led to investor losses should be allocated to the investment intermediation class.”