The Financial Services Compensation Scheme (FSCS) levy for investment advisers will increase by almost 400% in the 2009/10 financial year due to an expected increase in mis-selling and property claims.
However, those firms active in the life and pensions advice business will see their levies fall by around 40% as mortgage endowment claims continue to fall.
Overall levies for non-deposit taking financial services firms will rise by more than a third to pay for the effects of a number of predicted costs for the FSCS.
Total costs will increase by almost 2,000%, though the FSA says 75% of the increased costs will be paid for by deposit-taking firms such as banks and building societies.
Following the collapse of Bradford & Bingley, Kaupthing Singer & Friedlander, Icesave, London Scottish Bank and Heritable Bank, the FSCS was forced to take on hefty Government loans to compensate depositors.
As a result, the FSCS's total budget will climb from £31.5m to £641.5m in the coming financial year.
However, other firms will suffer an increased financial burden, with general levies rising by 42% from £130.8m to £186m.
Investment advisers will face a total levy of £44m, up from just £9m in 2008/09, excluding around £40m in costs developing from the collapse of Pacific Continental Securities Ltd. Life and pensions firms will benefit, with levies falling from £32m to £19m.
To pay the vast Government loans, the FSCS is introducing a special levy for deposit-taking firms, estimated at £435m, to cover the interest costs.
Other costs in the coming year will include reducing claims on mortgage endowments, pensions reviews and other investments, and PPI claims are expected to feature heavily, though there is uncertainty over the final costs of PPI mis-selling.
The FSCS levy increases come on top of a substantial proposed rise in FSA fees for the coming financial year. Yesterday the regulator said it was upping its annual fees by £117m to £437.7m but pledged only those firms requiring the most regulatory attention would notice a substantial difference.
But the Association of IFAs (AIFA) disagrees. It argues that, while thousands of small firms will see their fees decrease, medium-sized and large businesses face substantial hikes. A number of firms face a 90% fee increase, it says, adding that, in the worst case scenarios, some advisers will see their fees rise 170%.
FSCS chief executive, Loretta Minghella, says the FSCS will do all it can to recover compensations costs from the firms involved, but says increased levies are inevitable.
"2009/10 is again likely to be a very difficult year for consumers and firms alike. In such a context, we recognise the levy will not be welcome news for firms," she says.
"Whilst our primary obligation is to deliver compensation to those entitled to our protection, we will be vigorously pursuing recoveries from the failed firms to help offset the costs of compensation for the levy payer."
Contact: John Bakie, Tel: 020 7484 9805, e-mail: [email protected]
"Great, screwed by the incompetent regulator again!
FSA & FSCS fees to rocket when FSA staff get monster bonuses.
Talk about the regulator being out of touch and not fit for purpose.
What made financial headlines over the weekend?
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch