The Financial Services Compensation Scheme (FSCS) has declared that an interim levy of £80 million is to be placed on investment intermediation firms. This move has been criticised by the Association of Independent Financial Advisers (AIFA).
The FSCS has revised its assumptions following the publication of its Plan and Budget: 2010/11. The interim levy is for costs relating to Pacific Continental Securities (UK) Limited, Square Mile Securities Limited, Keydata Investment Services Limited, and other investment firms it has declared in default (totalling £58 million), and for structured product claims (accounting for £22 million).
At the same time, the FSCS has decided insurance intermediation firms will not receive an interim levy in 2009/10 for the costs of payment protection insurance (PPI) claims. After refining its assumptions and estimates for the current year, these costs will be levied in 2010/11. PPI claims are becoming a growing area of the FSCS’s work and will be one of the main drivers of costs in 2010/11, according to the FSCS.
The FSCS has set the 2010/11 general levy at £148 million. More than £61 million of this will go to firms in the General Insurance Intermediation sub-class, mainly to cover the costs of PPI claims. For the Investment Intermediation sub-class, the levy is £24 million, for the estimated costs of known defaults for 2010/11.
Together with investment and PPI claims, the other main area of claims costs for 2010/11 is general insurance. The General Insurance Provision sub-class will pay a levy of more than £41 million for 2010/11, mainly to cover the ongoing claims costs from the Builders Accident Insurance Limited (BAI), Chester Street, Drake Insurance Plc, and Independent Insurance estates.
In addition, firms taking deposits are currently estimated to pay just over £376 million to cover the interest cost to 31 March 2010 from the FSCS’s loans for the bank defaults of 2008. The FSCS will confirm the final 2009/10 interest levy to firms in the early summer, to enable it to pay loan interest to HM Treasury by 1 October 2010.
However, next year, the FSCS expects the volume of claims it receives in longer standing areas of its business, such as mortgage endowment and pensions review claims, to decrease.
Alex Kuczynski, Interim chief executive, said: “The costs of PPI
