Compensation scheme brought to a standstill

NIC CICUTTI

The Investors Compensation Scheme, which helps victims of fraud and bad advice, was plunged into chaos yesterday after a High Court ruling allowing an insurer's legal challenge against it to go ahead.

The court's decision to grant Sun Life a judicial review over whether it should pay towards the pounds 15.8m ICS levy could mean thousands of investors not being offered compensation.

Members of the ICS board have already agreed that if the judicial review was granted, they would halt all future offers of compensation. An emergency board meeting will take place this afternoon to decide whether to press ahead with this policy.

It is believed ICS members are under heavy pressure from the Securities and Investments Board, the City's most senior financial regulator, to change their minds. But ICS sources said this was unlikely to happen.

More than 1,200 investors who were due to receive offers will be immediately affected, with hundreds more joining them every month until the review, due to be heard on 23 August, is concluded.

The compensation scheme's collapse would be the most serious blow yet faced by the already-battered system of financial services regulation.

The ICS is a central part of the lifebelt for investors who have been defrauded. It has paid out more than pounds 80m since 1988.

At stake in the legal case is Sun Life's claim that its share of the annual levy towards the compensation scheme, which is raised by the Personal Investment Authority, should be in relation to failed members of the PIA only. Last year, 49 out of the 53 firms whose investors qualified for compensation were not PIA members. Sun Life argues that if it were to pay towards compensating those investors, its own policyholders might mount a legal challenge against it.

The PIA decided two weeks ago not to raise money for the levy. Faced with that, the ICS board decided not to make further use of its pounds 10m overdraft facility with Royal Bank of Scotland unless it could be sure that more money was coming in.

David Cresswell, investor relations manager at the ICS, said: "We are not parties to this dispute but our lawyers were able to argue that the case should be expedited.

"Although it is to be heard in about six weeks, it will take some more time for the results to be known. Then there is the possibility for either party to appeal against the ruling, so it is not clear that this will be resolved quickly."

Mr Cresswell said the ICS board meeting today might decide to go ahead with processing all the work involved in investors' claims but stop short of making compensation offers.

The Treasury has been under pressure to intervene to resolve the problem, but a spokesman said yesterday that he had no comment to make.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Stockbroker

£Basic (OTE) + Uncapped Commission: Guru Careers: A Stockbroker (qualified / p...

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Guru Careers: Application Support Analyst / 1st Line Support

£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence