London Capital & Finance compensation costs lead to increase in FSCS levy for 2020/21
The levy includes £44 million to cover estimated compensation costs for London Capital and Finance.
The UK Financial Services Compensation Scheme (FSCS) today confirmed its levy for 2020/21. The Scheme will levy firms £649 million this year, up £14 million from what was forecast in its Plan and Budget 2020/21 that was published in mid-January.
The main change in the compensation forecast since the indicative levy was announced in the Plan and Budget, is the inclusion of £44 million to cover estimated compensation costs for London Capital and Finance (LCF). This will be attributed to the Life Distribution and Investment Intermediation Class. However, savings in other classes (mainly Deposits and General Insurance Distribution) mean that the overall increase from the January indicative levy is £14 million.
Caroline Rainbird, FSCS CEO, said:
“The overall increase in the FSCS levy since the January forecast partly reflects the ongoing progress we are making in relation to the LCF failure. As we announced earlier this month, we have now started the process of reviewing individual LCF claims relating to misleading advice. Whilst it is too early to say how many LCF customers will be eligible for compensation, for the purpose of the levy we have estimated an amount of £44m”.
As FinanceFeeds reported earlier in May, FSCS intends to start issuing decisions on LCF claims relating to misleading advice given to its customers before the end of May. The Scheme expects to complete the process of reviewing claims by the end of September.
FSCS explains that it has simplified the process by ensuring LCF customers do not need to submit a claim or provide any further information at this stage.
While FSCS is aware there are some customers who were given misleading advice, and will, therefore, be entitled to compensation, the Scheme still expects that a large proportion of LCF customers will not be eligible for compensation on this basis.
FSCS said in February that it paid just under £2.7 million to 135 LCF customers in relation to 151 bonds. These bonds were invested following transfers out of stocks and shares ISAs.
The Scheme made these payments automatically, without these customers needing to make a claim themselves. FSCS explains that has been able to compensate this group of customers because arranging a transfer out of a stocks and shares ISA is a regulated activity.
LCF entered administration on January 30, 2019, and since then FSCS has investigated many alternative possible bases for claims. Around 11,600 bondholders purchased 16,700 bonds from LCF worth £237 million.
