Aifa has warned members of the costs associated with Regulatory Legal’s challenge of the Financial Services Compensation Scheme’s £80m interim levy.
This week, Money Marketing revealed that Regulatory Legal had been given the go-ahead to launch its judicial review against the FSCS levy after the High Court ruled it had an arguable case. A High Court hearing is likely this autumn if the law firm can raise the necessary funds.
Regulatory Legal partner Gareth Fatchett (pictured) estimates that the firm will need to raise £200,000 to pay legal costs and possible FSCS costs should the judicial review fail.
In a note to members, published today, Aifa warns members over the costs of the review even if it is successful.
It says: “The additional cost to the sector, next year, in FSCS’ management time, will also have to be considered. I do not recall any of the coverage so far mentioning this financial downside: which could be serious to those who are asked to pay the FSCS’ legal bill.
“It is worth considering the scenario that the judicial review is successful. It is customary that bodies such as the FSCS immediately appeal the verdict and continue to pursue their case through the legal system. This is both time consuming and increasingly costly. Thus, those who support the challenge should be prepared both for the time the legal process could take (several years) and the mounting liabilities they could incur.”
Aifa says it is in discussions with FSA, FSCS and other interested parties about how the scheme works and how it is funded, with a consultation paper due out in November.
In the meantime, it is lobbying the FSA to undertake a review of its actions regarding Keydata and is due to meet them shortly to review the situation.
It says: “This has been an obvious regulatory failure. The FSCS carries out its functions according to its rules. The rules are set by FSA – hence our focus on FSA. We believe that members are right to feel angry at, and let down by, the FSCS and FSA. Fundamental change is needed to both and that is the action we are pursuing urgently.”