In its half-year review, the compensation fund of last resort revealed that its investment intermediaries sub-class – which include financial advisers – could face more than £25m in additional levies to cover the deficit on payouts.
Compensation costs in the area are higher than expected because of the collapse of Pritchard Stockbrokers and spreadbetting outfit Worldspreads. This means a supplementary levy “is likely” in 2012/13.
Pritchard Stockbrokers was placed into special administration in March 2012 and 1,540 applications for compensation have since been received by the FSCS. Some £16m is expected to be paid out in the 2012/13 levy year, although the recent nature of the default meant it was not included when the last levy was raised.
Worldspreads also became subject to the special administration regime in March 2012. The FSCS has received about 3,477 applications and expects to pay out £17m in compensation that has not been levied for.
Costs have also been pushed higher by ongoing claims linked to the failure of MF Global UK, CF Arch Cru Funds and Rockingham Independent.
FSCS chief executive Mark Neale said: “As always, it is important to point out that these are not set in stone and the unpredictability of our business means the outlook could change.”
The investment intermediation shortfall is not expected to trigger a cross subsidy on fund managers, which kicks in when adviser levies pass the £100m annual limit.
Around £66m has been levied from investment intermediaries so far this year, leaving another £34m before the cross subsidy is triggered.
