The Financial Services Compensation Scheme (FSCS) is to levy financial advisers for an extra £38m as it begins making part-payments to Arch Cru investors with eligible claims against failed IFAs.
The FSCS today outlined its long-awaited approach for compensating investors, but it said it now expects to pay more compensation than it initially anticipated, resulting in the extra levy.
It said it had sought external expert advice on the residual value of the CF Arch Cru funds but that, due to the nature of the underlying assets, there was uncertainty about how much investors would get back through the wind-down process.
As a result, it said it would begin making interim payments now based on the most recently published net asset value for the relevant sub-fund, plus a premium of 12%.
Following that, and if necessary, it will then make top-up payments once the wind-down is complete, which it said would likely happen in 2015.
It said these interim payments will also take into account compensation due to consumers from the £54m payment scheme administered by Capita Financial Managers.
The FSCS said its new approach means that, as soon as it has assessed an eligible claim, claimants will receive a significant part payment to compensate them for their losses. Claimants may then be paid a further amount in 2015 once their precise losses are confirmed.
It said this approach aims to maximise the immediate payout to investors while minimising the risk of FSCS paying too much compensation if the funds realise more than expected.
The FSCS said it expects the levy resulting from CF Arch Cru to fall to the life and pensions intermediation and investments intermediation sectors.
It said it will shortly publish its final levy decisions for 2012/13, but that compensating claimants in the way it plans to do is expected to add around £38.3m to the indicative numbers published in its plan and budget earlier this year.
In that budget, the FSCS set indicative levies of £18m in the life and pensions intermediation sub-class and £33m in the investment intermediation sub-class.
The FSCS is now finalising the claims process and expects to start processing claims this month. It said it will be contacting all claimants who have previously submitted claims with further details about the process during April.
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