Financial Services Compensation Scheme  

Advisers face FSCS costs of £270m

Advisers face FSCS costs of £270m

Advisers face paying £270m to the Financial Services Compensation Scheme as claims continue to rise across the industry.

The FSCS has predicted the total number of claims will fall next year following a recent spike, but it warned that the trend of rising numbers of complex life and pensions cases will probably continue, resulting in "materially higher" costs.

The £270m figure is the total amount the FSCS has today announced it will be asking for from life and pensions, mortgage, and investment advisers combined for this year and next.

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The indicative levy for 2017/18 for life and pensions advisers alone will be £171m - a £45m increase on the current year.

Claims from the life and pensions class are expected to be so high that they will exceed the class's annual threshold, meaning the FSCS will have to call on spare funds from the retail pool which all levypayers contribute to.

The increase in life and pension claims is due to the number of cases relating to self-invested personal pensions, and advice given to invest funds in high-risk, non-standard assets through the pension wrapper.

Because of the high volume of Sipp complaints, the FSCS said it would have to trigger a supplementary levy in the life and pensions class for 2016/17 of £36m.

FSCS chief executive Mark Neale said: "The FSCS is there for people with nowhere else to turn when firms fail. So the [total] £378m indicative levy represents the costs of protecting people. That protection generates consumer confidence and contributes to financial stability.

"We recognise the costs impact on firms, particularly in the light of the supplementary levies announced today, of which we seek to give as much advance warning as possible.

"That's why we're concentrating on reducing our overheads and constantly seeking value for money in our work. We'll continue that drive in the coming year and will also realise benefits from our online claims system."

The total levy for 2017/18 for advisers and providers will be £378m - for advisers alone this will be £269m.

The total levy is a reduction on the current year, when it is £401m, and potentially the last year before the Financial Conduct Authority reforms the way the scheme is funded.

The FSCS said it has received a number of claims against Sipp providers for due diligence failings and it said that if it is satisfied that a legal liability arises and these claims are eligible, the cost of these claims would be levied against investment providers.

The investment intermediation class will be levied £40m more in 2017/18 taking the total amount to £84m but this will be offset for advisers due to a £50m refund for 2016/17 because of lower claims volumes than forecast.

Mortgage brokers will be told to pay £14m for 2017/18 which will be a reduction of £7m on the current year because the FSCS will levy a supplementary £15m more than the £6m it had already announced.