In its latest industry newsletter, the FSCS said its current estimate of claims against the firm could cost in the region of £25m to £50m which will be paid for by the investment intermediation category.
It said compensation payments would be spread across 2009/10 and 2010/11 but warned there is a strong likelihood that it will need to raise a further levy to fund these claims before the end of the financial year.
It also warns that other failures in the structured product space, such as NDFA and Arc Capital, are also likely to add to the costs faced by the industry, although it says it is too early to say which sub-classes will be hit with the costs and how much these will be.
The FSCS expects Keydata to generate a large number of new claims for the second part of the year. The £50m estimate relates to 5,000 claimants whose money appears to have been misappropriated through Keydata investments with SLS Capital, a special purpose investment vehicle registered in Luxembourg.
However the FSCS is unable to give an indication of potential compensation for investments where the underlying funds are still in existence but are in ineligible Isa wrappers. An FSCS spokeswoman says: “The number of claims we may receive in this category is still uncertain. We are considering the best approach for dealing with this second category of claims and it is too early to provide an indication of the potential costs.”
Investment advisers are already facing a total Financial Services Compensation Scheme levy of up to £96m, following the collapse of stockbrokers Pacific Continental Securities and Square Mile Securities.
The FSCS newsletter reveals the investment intermediation sub-category paid out a total of £47.9m for the half year ended September 2009, only slightly less than the FSCS full year assumption for the sub-category of £52.1m . Of this money, £26.6m of compensation has so far been paid out to former Pacific Continental Securities clients, £16.9m to former Square Mile Securities clients and £4.4m in other claims.