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Investment advisers face £29.5m FSCS interim levy


The Financial Services Compensation Scheme says it expects to raise an interim levy of £29.5m on investment intermediaries before June 2014.

Last month, the FSCS said the compensation costs resulting from the default of life settlement firm Catalyst meant an interim levy would be triggered for investment advisers before the end of the levy year.

In its monthly newsletter published today, the FSCS says it expects to face a deficit of £29.5m on investment intermediation for 2013/14. 

It also warns it may incur higher compensation costs in the life and pension intermediation class following the liquidation of TailorMade Independent, which entered voluntary liquidation last month, but says costs are uncertain at this stage.

It currently expects to have a surplus of £1.9m for the life and pensions intermediation class for 2013/14.

FSCS chief executive Mark Neale says: “I appreciate the interim levy will not be welcome news for our levy payers but it does reflect the need to safeguard consumers against the risk of misselling by often poorly capitalised intermediaries.”

The FSCS says compensation costs relating to Catalyst are expected to run into the tens of millions of pounds, and will span both the 2013/14 and 2014/15 levy years.

Also within the investment intermediation class, the FSCS says it has processed over 2,000 claims to date relating to Fyshe Horton, and has started to pay compensation to eligible claimants.

It says it continues to receive claims relating to Pritchard Stockbrokers and MF Global, although in low volumes.

In addition, the FSCS says it continues to process claims relating to advice given to invest in Arch Cru funds by defaulted advisers, while the default of WorldSpreads appears to be nearing its end, with decisions yet to be issued on just a few claims.

In April the FSCS set the annual levy for investment advisers for 2013/14 at £78m. Investment advisers have to meet the cost of FSCS claims up to £150m in one financial year, after the annual claims limit rose from £100m to £150m in January.


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Yes there will be howls of anguish – justifiably.

    However what this really demonstrates is the continuing lamentable failure of regulation. We pay hefty fees to the regulator who is supposed to be on top of all this – but demonstrably is not.

    Is it therefore fair to ask – just scrap the regulator and just pay the FSCS levy. or scrap the FSCS and ensure the regulator does a proper job and failures come out of their stipend – not our pockets. (Let the taxpayer pay!)

  2. @ Harry, I think that the current regime would actually be the most cost effective (if not perfect).

    Take away the regulator and see what happens to dodgy firms and investments – the FSCS bill would be through the roof.

    Take away FSCS and the regulator would need to actively monitor every firm and every investment and the costs of doing so would be astronomical.

    A middle ground where the regulator regulates firms and the odd dodgy adviser or investment gets through the (inveribly wide) net the FSCS can mop up.

    The key is getting the regulation as effective as possible, reducing the holes in the net and therefore reducing the burden on the FSCS.

    There will never be a perfect method – it would be far too expensive and therefore ineffective.

  3. @ Matthew

    How depressing! If only it were the ‘odd’ dodgy firm or adviser. There are too many and some of the firms such as Pritchard, MF and Catalyst were big enough to have been seen on any half-awake radar – but obviously were not.

    In the interest of transparency it might be a good idea if the regulator were to offer an intelligible explanation why large firms imposing millions on the scheme were missed by regulatory scrutiny.

    It would also be helpful if they didn’t play fast and loose with definitions. Presumably Catalyst is classified as a provider – then why was Key Data classified as an adviser? How is ARM off the hook and how come Herbert Smith is not pursuing advisers who sold the product? It all looks like regulation on the hoof to me.

  4. Worse – Catalyst never had anything to do with retail clients nor was authorised to do so – that’s the biggest clue to being a “provider” I can see – and why I fail to understand why costs arising from their failure should fall to advisers …
    And yes Harry, FSCS comments when challenged by me on this subject indicate that it is far too “on the hoof” for any of us (or should I say YOU As YOU pay the bills) to be happy about.
    KeyData was included, somewhat spuriously as I understand they did at least have intermediary / advice permissions – Catalyst didn’t … go figure. On this basis everything that eventually end up in the hand of a retail investor regardless of their permissions will fall to advisers when it falls off a cliff.

  5. Hey Gill –

    Stop trying to cheer me up!

  6. @Harry : just trying to assist advisers understand that the problem of the FSCS levy is about something much bigger than whether you sold it or not. The system is increasingly structurally biased towards the conclusion that anything which could have ended up in the hands of intermediaries and retail customers being charged to intermediaries when it goes wrong.
    If there are poor advisers out there who advised clients badly then this is a separate conduct issue to be addressed by the regulator – but it is not dealt with by just making all the rest of you pay the costs for every damned thing that goes wrong.
    At least I’m still trying to argue the point …

  7. @Gill

    That’s exactly why I am happy to pay my subscription and very much hope other IFAS will do likewise!

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