FSCS hits investment intermediaries with £60m interim levy

The Financial Services Compensation Scheme (FSCS) has announced investment intermediaries face a £60m interim levy.

Fund managers are not facing an interim levy, as the cost of claims will not go above the £100m cross-subsidy limit.

The total compensation costs of the interim levy for investment intermediaries is £82m.

The interim levy relates to the costs of claims for MF Global, Keydata, CF Arch Cru and Wills and Co among others. MF Global claims alone are expected to account for almost £27m this year.

The FSCS says it has made more decisions on Keydata claims than previously predicted with a higher average compensation payment than earlier claims. Keydata accounts for £15m out of the total £60m interim levy. (article continues below)

Stockbroker Wills & Co accounts for £9m, and other firm failures account for £2m. Recoveries from Norwich & Peterborough Building Society, which mis-sold Keydata products, reduced the interim levy by £2m. (see table below for investment intermediary levy breakdown)

Mark Neale, chief executive of the FSCS, says: “Unfortunately, the value and volume of claims coming to us is highly unpredictable and the costs, as a result, are higher than previously assumed. So, as we advised the industry earlier this year, we have to issue an interim levy to continue meeting our responsibilities.

“We know this will be unwelcome news and sympathise with firms about the unpredictability of compensation costs. We do everything we can to provide as much certainty as possible.”

In December the FSCS estimated investment intermediaries would face an interim levy of at least £40m. It had been concerned the £100m cross-subsidy limit would be breached due to the cost of claims relating to MF Global and Arch cru.

Last month the FSCS announced it would be levying £33m against investment intermediaries for 2012-13.