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Huge hike is set in compensation levy

Investment advisers face up to a 930 per cent increase in Financial Services Compensation Scheme levies for the next year.

The FSCS plan and budget 2009/10 reveals an increase in levy requirements from 9m to 44m next year but an extra levy of 40m is also likely because of defaulting stockbrokers Pacific Continental Securities.

It says the huge increase in investment claims is down to misselling and property claims.

The investment advice sub-class could also be hit by the potential default of Square Mile Securities. The FSCS says potential compensation costs range from 5m to 15m.

The levy for life and pension advisers is to fall from 32m to 19m in 2009/10 due due to a fewer claims on mortgage endowments and pensions.

The FSCS expects to raise 186m in levies across all financial services firms, up from 130.8m in 2008/09. It says banks and other deposit-taking firms will pay 435m in interest costs on loans to fund the five bank defaults in 2008/09. These loans are being used to fund compensation on Bradford & Bingley, Heritable Bank, Kaupthing Singer & Friedlander, Landsbanki Islands and London Scottish Bank.

It anticipates it will face increasing numbers of claims from bank defaults and payment protection insurance this year.

Chief executive Loretta Minghella says: “2009/10 is again likely to be a very difficult year for consumers and firms alike. In such a context, we recognise that the levy will not be wel- come news for firms.

“Our primary obligation is to deliver compensation to those entitled to our protection but we will be vigorously pursuing recoveries from the failed firms to help offset the costs of compensation for the levy payer.”

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