Advisers could foot the bill if Treasury recalls FSCS loan
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Advisers could face an increase to their Financial Services Compensation Scheme levies if the Treasury calls in an £18bn loan paid to the scheme to cover the cost of the banking crisis.
The Treasury extended the £18.6bn loan to cover the cost of winding down failed banks including Bradford & Bingley, Heritable Bank and Kaupthing Singer & Friedlander in 2008.
The terms of the loan facility state that payments are to be met by the deposit-taking class on an interest-only basis for the first three years. The cost of interest payments for the 2011/12 financial year is estimated to be £344.2m.
The principal amount of the loan is due to be repaid to the Treasury from April 2012 and the FSCS is currently working with the Treasury on a repayment plan.
The FSCS can levy deposit-taking firms up to a maximum of £1.84bn, after which point, claims are passed to the general retail pool, including the investment intermediation sub-class, which can be levied up to £4.03bn.
Speaking at an FSCS evidence session at the Houses of Parliament last week, held by the All Party Parliamentary Group on insurance and financial services, Aifa policy director Andrew Strange said advisers could have to foot some of the bill.
Strange said: “In theory it could be that the loan will fall on all firms, so a small IFA could be paying for the banking crisis directly if the Treasury decides not to replace the loan arrangement come 2012.”
A spokesman for the FSCS says: “We are working to come up with a repayment schedule which will have to take account of market conditions at that time.”
Informed Choice managing director Martin Bamford says: “This is a scary prospect. We hope that well ahead of the loan becoming due the issue of fairness within the FSCS funding arrangements has been dealt with.”
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Readers' comments (5)
Nick | 18 Mar 2011 9:10 am
well....if they do that will be us done for!
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Mike Fenwick | 18 Mar 2011 9:42 am
In my second article related to the FSCS I asked why neither IFAs nor Investment Managers sought to determine and then potentially exercise their subrogation rights over the losses being processed by the FSCS - and not simply sit back waiting for the next bill.
In my first article on the many questions that surround the FSCS, I suggested that its reform into a more acceptable form for advisers, managers but most importantly for consumers may be achieved by learning from other markets, particularly, but not exclusively, the insurance market
Having read the above article, let's contrast and compare the UK situation with that in the USA.
In the latest development the FDIC (Federal Deposit Insurance Corporation)has issued a civil suit against the former chief executive of Washington Mutual and two of his top lieutenants, accusing them of reckless lending before the 2008 collapse of what was the nation’s largest savings bank. That is the latest move by the FDIC where to date the FDIC is seeking a total of more than $2.6 billion in damages involving claims against 158 individuals at about 20 small banks that failed during the recent crisis.
All of which is based on the FDIC's - legal obligation - to bring lawsuits against former directors and officers when it finds evidence of wrongdoing.
Here in the UK?
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...
The blank space was intentional.
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Norm d'Plume | 18 Mar 2011 11:04 am
My views cuncur with this. If we are expected to pay, why shouldn't we institute a class action against the banks?
And why the hell should I pay for the bank's screwing up the nation's and the World's economies?
I shall not be paying the FSCS levy if the Treasury won't renew.
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CONFFA | 18 Mar 2011 12:27 pm
Well, that'll be all IFAs well and truly b.gg.r.d, absolute curtains - bet Mr Hector Smug is feeling good about this prospect. All his fault for keeping his eye off the ball and he gets a bonus (and then some) too; no comeback on him, thank you very much.
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Anonymous | 19 Mar 2011 9:36 am
Only in this industry could effectively a corner shop newsagent foot the bill if a business the size of Tesco or larger failed.
This shows the complete and utter stupidity which resides in control of this industry.
Clear the whole lot of them out and get some people in who know what they are doing and have some basic business sense, or even sense at all.
A compensation scheme is worthless if those with the greatest liabilities have no hope in hell of meeting their liabilities without the tax payer, or other firms in other sections of the industry paying their bills for them.
To top the lot the muppets have increased the compensation scheme sum for the banks who couldnt meet their bills when they were lower.
I dont see the treasury rushing in to pay our section of the bills for us.
Just shows how little Brown understood about finance or our industry, shocking.
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