Investment intermediaries face a £60m Financial Services Compensation Scheme interim levy, with MF Global claims alone expected to account for almost £27m.
The total compensation costs of the annual levy and the interim levy for 2011/12 are £82m. Fund firms will not have to pay an interim levy as the cost of claims will not go above the £100m cross-subsidy limit.
The FSCS has begun invoicing advisers for their share of the levy. Advisers will have 30 days to pay or can use existing credit facilities to spread the cost.
In addition to MF Global, the interim levy will cover claims relating to Keydata, CF Arch cru and stockbroker Wills & Co. Keydata accounts for £15m of the interim levy. Wills & Co £9m while other firms, including Arch cru, account for £2m. Recoveries from Norwich & Peterborough Building Society, which missold Keydata products, reduced the interim levy by £2m.
FSCS chief executive Mark Neale says: “We know this will be unwelcome news and sympathise with firms about the unpredictability of compensation costs. We do everything we can to provide as much certainty as possible.”
Bloomsbury Financial Planning partner Jason Butler says he is glad to see the interim levy has fallen from the £326m paid by the industry last year.
But he says: “The good guys and girls always have to pay for the idiots. I just hope the regulator is being vigilant in trying to stop the firms that are causing mayhem. It is a lot easier to stop trouble than pay the price of failure.”
Radcliffe & Newlands chartered financial planner Mel Kenny says: “The FSCS levy system suffers from the moral hazard of risky firms playing risky games in the knowledge that any negative repercussions are shared among the whole investment and adviser community.
“The system needs to move to one where some degree of upfront payment is taken from those taking greater risks.”