Financial Services Compensation Scheme  

Mini-bond scandal drives £16m FSCS levy hike

Mini-bond scandal drives £16m FSCS levy hike

The Financial Services Compensation Scheme has set aside an extra £44m to meet claims for misleading advice against the collapsed London Capital & Finance, with advisers set to shoulder the majority of the bill. 

The mini-bond case was the predominate driver behind the increased levy announced by the lifeboat today (May 21), with the overall industry bill increasing from initial predictions of £635m to £649m for the 2020/21 year. 

The estimated compensation costs of £44m for London Capital & Finance investors has been attributed to the life distribution and investment intermediation class, which includes advisers.

But cost savings have been made elsewhere, meaning advisers have seen their levy increase by £16m to £229m. 

Investment providers, life insurers and deposit acceptors have contributed £51m to the intermediation class, as stipulated by the new rules.

Before it entered administration in January last year LCF raised in excess of £237m from more than 11,500 investors over the course of two years, and it has been embroiled in a scandal since.

The FSCS said it is in the process of reviewing which customers were given misleading advice by the collapsed mini-bond provider, and first payments were made this month.

It has already paid £3.3m to 169 investors in relation to bond investments following transfers out of stocks and shares Isas.

Caroline Rainbird, chief executive at the FSCS, said: "The overall increase in the FSCS levy since the January forecast partly reflects the ongoing progress we are making in relation to the LCF failure.

"As we announced earlier this month, we have now started the process of reviewing individual LCF claims relating to misleading advice and whilst it is too early to say how many LCF customers will be eligible for compensation, for the purpose of the levy we have estimated an amount of £44m."

Meanwhile the FSCS said whilst it was continuing to see the impact of pension mis-selling and an increase in pension related claims, it had reduced its initial forecast for self-invested personal pension operator claims by £7m.

The lifeboat body said this was due to a revision in the anticipated timing and cost of some recent and expected future Sipp operator failures.

Ms Rainbird: "We know that the industry has expressed concerns about the rising trends in compensation costs and increased levy amounts.

"I would like to reassure our levy payers that we are working with the industry and regulators to do as much as we can to address these concerns and will keep our levy payers updated on our progress.

"We publish this Outlook during what is an extremely challenging time for everyone, and we appreciate that the impact of Covid-19 is likely to be felt for a considerable period of time."

rachel.mortimer@ft.com

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