Financial services see compensation bill rocket again
Financial services firms will have to stump up an extra £28 million next year to cover the cost of compensating customers of companies that go bust.
Meanwhile, investment intermediaries face a more immediate cash demand: the FSCS warned they will be asked to hand over an extra £30m before the end of the current 2013/14 year.
The figures were published this morning by the Financial Services Compensation Scheme which published its 2014/15 budget notifying finance firms of the 17 per cent increase in the annual levy from £285m to £313m.
The extra £30m investment advisers will be asked for will mainly cover the cost of the Catalyst Investment group failure, which was declared in default in October.
That collapse - and expected claims against Catalyst - has also contributed to an increased demand of 34 per cent on investment advisers for 2014/15, with the sector's share of the levy climbing from £78m to £105m.
Catalyst promoted life settlement bonds backed by Arm Asset Backed Securities. The FSCS expects to be able to start inviting claims against Catalyst in February or March.
The levy for life and pensions advisers will triple from £13m to £40m as pension claims - particularly with Sipps - are expected to rise.
Meanwhile general insurers will be asked to pay £62m towards the scheme next year mainly to cover the cost of payment protection insurance claims. The continuing high numbers of missold PPI claims will lead to a 20 per cent increase in compensation payouts next year, the FSCS predicted.
However it said it expects an increase in compensation costs in the general insurance provision sector because of noise-induced hearing loss and mesothelioma claims against Chester Street, Builders Accident Insurance and Independent Insurance.
Last week the British Insurance Broker's Association warned that FSCS are negatively impacting brokers, with more than half delaying or cutting investment as a result.
Steve White, BIBA's chief executive, said: “Having the most expensive fees and levies in the world puts UK brokers at a disadvantage and is disproportionate to the low risks that they pose to the regulator’s objective.”
FSCS chief executive Mark Neale said: "Our mission is to provide a responsive, well-understood and efficient compensation scheme for customers of financial services, which raises public confidence in the industry. We invite stakeholders' responses to this consultation."
The organisation’s plan and budget will remain open for consultation until 21 February.
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