Advisers have been dealt another blow by the Financial Services Compensation Scheme as it forecasts a further £38.3m will be needed to cover the cost of compensating CF Arch cru investors.
The FSCS published its plan and budget last month, which included indicative figures on the FSCS levies to be collected from advisers for 2012/13.
It estimated the investment intermediation sub-class faced an annual FSCS levy of £33m out of a total annual levy of £221m.
The estimated levy had factored in compensation claims for Keydata, Wills and Co, and Arch cru.
But in an announcement today, the FSCS says the annual levy for 2012/13 for advisers across both the life and pensions intermediation and investment intermediation sub-classes is likely to be pushed up by a total of £38.3m in relation to Arch cru claims.
This follows a £60m interim FSCS levy on investment intermediaries for 2011/12 announced last month, on top of an annual £34m levy for this period.
The FSCS says it has now decided how it will compensate eligible claims against advisers who recommended CF Arch cru funds that are no longer trading.
It says it will be paying out more compensation and more claims than it initially expected in relation to Arch cru.
The FSCS says it has sought external expert advice on the residual value of the funds.
It says while the FSCS is satisfied the funds have been valued on a reasonable basis, the nature of the underlying assets means there is uncertainty about the amounts investors will eventually get back through the wind-down process of the funds.
The FSCS does not believe that investors should have to wait until that wind-down is complete to receive compensation. It will make interim payments now and then, if necessary, make top-up payments once the CF Arch cru wind-down process is completed. This is expected to be in 2015.
Interim payments will also take into account compensation due to consumers from the £54m payment scheme agreed by the FSA with Capita, BNY Mellon and HSBC in last June, regardless of whether an investor has actually claimed or received this sum.
Based on the advice the FSCS has received, interim payments assume the value of a claimant’s investment in a CF Arch cru sub-fund on the basis of the most recently published net asset value for that sub-fund, plus a premium of 12 per cent. This approach aims to maximise the immediate payout to investors while minimising the risk of FSCS paying too much compensation if the funds realise more than expected.
The FSCS says: “We expect the levy resulting from CF Arch cru to fall to the life and pensions intermediation and investments intermediation sectors. The FSCS will be publishing shortly its final levy decisions for 2012/13. Compensating CF Arch cru claimants on the basis described in this update is expected to add around £38.3m to the indicative numbers published in the FSCS plan and budget 2012/13.”