The Financial Services Compensation Scheme has paid out nearly £100m in relation to advice to invest in troubled overseas property company Harlequin.
Six thousand mainly British pension investors ploughed around £400m into the unregulated overseas property scheme via UK financial advisers, hoping for ‘guaranteed returns’ of 10 per cent a year from luxury villas, which never came.
More than 2,170 investors have received payouts totalling £98m from the lifeboat scheme, the FSCS told FTAdviser, taking over investors’ rights in the process to make it one of the company’s biggest creditors.
The industry paid-for compensation scheme passes the cost of compensating investors whose financial advisers have gone bust under the weight of claims onto trading advisers.
Many of the investors in Harlequin took advice from a pension adviser and invested via their self-invested personal pension.
FSCS levies – used to pay the compensation bill – are split so the part of the industry generating claims pay for them.
Life and pensions, mortgage, and investment advisers combined face paying £270m to the FSCS for 2017 to 2018.
The indicative levy for 2017 to 2018 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 exceed the class's annual threshold, meaning the FSCS may 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 to 2017 of £36m.
In February, the Serious Fraud Office charged Harlequin chairman David Ames with three counts of fraud by abuse of position.
The alleged activity occurred between January 2010 and June 2015.
The SFO, together with Essex Police, announced it was investigating the Harlequin Group of companies on 5 March 2013.
In a statement the SFO pointed out that this investigation still continues.
laura.miller@ft.com
