Hargreaves Lansdown is readying itself for a £13m bill to pay its Financial Services Compensation Scheme levy this year, amid analyst warnings the company could begin to feel the pinch of rising regulatory costs.
In an update to the market this morning (May 14) the investment giant warned of a "notified increase" in its regulatory budget for the coming year, with the company likely to face a bill double that of the £6.8m paid to the industry lifeboat fund last year.
It comes as analysts warned investors in the likes of Hargreaves Lansdown and St James's Place that a flurry of mis-selling claims could see these companies face increasing cost pressure from the FSCS coffers.
In a recent research note private bank Berenberg said coronavirus-related market weakness — with UK equity markets having fallen about 23 per cent from their peak — could create significant losses for investors and ultimately trigger an increase in mis-selling claims over the next few years.
The bank predicted SJP and Hargreaves would be exposed to 20 per cent increases in their FSCS expense over this year and next, although the figures shared by Hargreaves today implied a jump of 91 per cent between £6.8m and £13m.
Alongside this forecast of growing costs Hargreaves today confirmed the first four months of 2020 had seen clients flock to its service during the global coronavirus pandemic, with the company gaining 94,000 new clients in the period.
Across the same four months Hargreaves saw new business of £4bn, compared with £2.9bn in the same period last year, and hailed a "strong rebound" from the challenging environment for retail investment before Christmas.
The company said: "Net new business growth was driven by the usual factors of existing clients using their tax allowances during the Isa season, ongoing wealth consolidation onto our platform from existing clients and flows into our cash management service, where AUA is now over £2bn.
"This growth was further accelerated following the significant market falls in early March, as existing clients added money to their accounts and new clients joined Hargreaves Lansdown to take advantage of the opportunity to invest at lower prices."
Chris Hill, chief executive at Hargreaves, said the company was not seeking any government assistance during the coronavirus lockdown and had no intention to furlough any employees, or make redundancies.
rachel.mortimer@ft.com
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