Lifemark to pay just 15% as FSCS Arch cru costs grow

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Advisers face a “medium risk” of an interim Financial Services Compensation Scheme levy this financial year due to potential 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.