Apfa hits out at FSCS over ‘unexceptional’ Keydata costs

Apfa policy director Chris Hannant

Apfa has challenged the Financial Services Compensation Scheme’s argument that it does not consider claims levels triggered by the collapse of Keydata as “exceptional” costs on advisers.

Yesterday the FSCS set out its approach for calculating industry levies based on expected claims over the next three years, which will come into effect in April 2014.

Under the proposed model levies will be raised based on either the compensation costs expected in the 12 months following the date of the levy; or one third of the compensation costs expected in the 36 months following the levy, whichever is higher.

The FSCS has not stripped out the cost of Keydata claims in its models showing average FSCS costs paid by each class over the last three years.

In yesterday’s paper the FSCS says: “The FSCS has included Keydata costs in the three year average as they are not considered exceptional for this purpose. Although the costs for the Keydata failure were high, the investment intermediation class continued to experience large failures in the following years, so the Keydata costs are not excessively beyond the usual level of costs.”

But Apfa director general Chris Hannant says: “We are concerned by the approach FSCS is taking to the ‘exceptional’ factors they would adjust for, and believe the calculations will be distorted as a result.

“The FSCS has said it does not consider events such as the Keydata collapse as exceptional, and would therefore not adjust for it when calculating average compensation costs. We would argue a breach of the class threshold, which has only happened once in the FSCS’s history, is exceptional, and the effect it has on the numbers could be significant.

“By taking its proposed approach, the FSCS is distorting the calculations and risks making levies more volatile and leaving firms out of pocket. We urge the FSCS to look again at its approach, and reconsider the criteria it will use to determine exceptional factors.”

In 2011 the industry was hit with a £326m FSCS interim levy, with Keydata accounting for £258.8m in claims. Of the total interim levy advisers had to pay £93m while fund managers paid £233m.