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Risk of interim FSCS levy/Lifemark to pay out just 12-15%

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Advisers face a “medium risk” of an interim Financial Services Compensation Scheme levy this financial year due to possible additional costs associated with Arch cru and failed stockbroker Fyshe Horton Finney.

The FSCS’s August newsletter also reveals that bondholders of Keydata subsidiary Lifemark, including the FSCS, will only receive 12 per cent to 15 per cent of capital before costs. 

In April, the FSCS set the final levy for investment advisers for 2013/14 at £78m, up from an earlier estimate of £76m. The August newsletter says the investment intermediation subclass is £1.2m short due to increased costs of compensating Arch cru and the collapsed stockbrokers Fyshe Horton Finney and suggests a further interim levy may be required.

The FSCS is a principal bondholder of Lifemark bonds, after taking over investors’ rights when it paid out compensation to Lifemark investors. The FSCS was involved in rescue attempts to try and preserve more assets to return to investors and levypayers. However, bondholders voted to put Life mark into liquidation in February 2012

A Lifemark FSCS levy cost the industry £326m in 2011, with advisers paying £93m and fund managers paying £233m. Any money returned is likely to be rebated to the fund management sub-class.

The FSCS adds that over 1,000 Arch cru investors have already been compensated under the “interim payment” approach announced by the FSCS in April 2012. The FSCS has also started compensating Fyshe Horton Finney clients after the stockbroker placed itself into special administration in March. Payments will be made to clients holding one account with an agreed total balance of £50,000.

This week, Money Marketing reported that Positive Solutions and Chase de Vere would be among lead case defendants in the FSCS legal challenge to recoup compensation paid to Keydata investors.

The newsletter says there will be six lead case defendants. It says: “The lead case defendants defences are expected in the coming months. Proceedings are stayed against all defendants not selected to be a LCD and a further case management conference is scheduled for February 2014.”

It also says that there are fewer than 50 claims against MF Global remaining where a decision has to be issued. “We appear to be coming to the end of this default,” it says.

The investment intermediation sub class previously had a maximum levy of £100m but that was raised to £150m FSA earlier this year.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. “…the FSCS, will only receive 12 per cent to 15 per cent of capital before costs”.

    Yeah. And PWC and Herbert Smith will fill their pockets first and IF there is anything left the FSCS might just get about 2%. What brilliant management. Just shows the commercial nous of these Civil Servants.

  2. So having produced the budget for our business for the next year it would seem that the FSCS Tax is about to go up again.
    If I or any of us made such fundimental errors in planning for our clients we would no doubt be working at B&Q or McDonnalds by now.
    How do these civil servants manage to make so many errors and get someone else to pay for them?
    It seems to me there should be some accountability.

  3. “How do these civil servants manage to make so many errors and get someone else to pay for them?”
    Because we, as an electorate, let them and their political & professional class cronies get away with it, year after year, thats how.
    The true numpties in all this are joe public (ie us!) for letting it go on happening, while that lot are secretly laughing at how easy it is for them to carry on getting away with it.

  4. ArchCru ~ provider. LifeMark ~ provider. Fyshe Horton Finney ~ stockbroker (entirely different area of advice from those provided by FS intermediaries).

    So, by what logic has the FSA/FSCS decided that the costs of compensating investors are the responsibility of FS intermediaries? None that I can see. We just seem to be a handy and largely defenceless default source of funds when compensation can’t be obtained from any other, even when the investors’ losses have come about as a result of events that are nothing directly to do with us and certainly not our fault. The FSA itself simply washes its hands of any responsibility for having inadequately supervised and monitored these organisations before they came apart at the seams and went down in flames. Intermediaries, meanwhile, are accused by the regulator of not having had 20:20 vision and of having failed to undertake adequate due diligence.

    So much for Hector Sants’ tepid denial before the TSC in March 2011 of the suggestion that the FSA has a prejudicial agenda against small IFA’s. I didn’t believe his denial at the time and the FSA’s treatment of us since then seems only to have become worse.

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