Professional Adviser

Advisers face another FSCS interim levy after Catalyst/ARM failure

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The Financial Services Compensation Scheme (FSCS) has said it expects to raise a supplementary levy on investment advisers before the end of the current levy year, to make up for losses incurred by the failings of ARM bonds and their distributor Catalyst.

FSCS chief executive Mark Neale said the losses incurred by ARM investors would likely be in "the tens of millions of pounds".

Though the FSCS did not detail the amount of the latest levy, it will likely take investment advisers' total interim bill beyond £300m since the 2008-2009 levy year.

To date, advisers have paid £290.97m on top of their annual levies to fund compensation claims. Of this, almost £20m has gone on management expenses alone.

Neale said in a statement: "There is still a good deal of uncertainty about both [Keydata and Catalyst], so we cannot yet provide robust guidance on the total bill.

"But I do expect one consequence to be that FSCS will have to raise a supplementary levy on investment intermediaries before the end of levy year in June 2014.

"We know this will be difficult for firms and is unwelcome news, but we have a duty to compensate investors with a valid claim."

The FSCS is still recovering costs from Keydata, which Neale said would be refunded to the industry. He added the scheme will also "vigorously pursue recoveries from the ARM estate where it is cost-effective to do so".

Catalyst, the UK-based distributor of bonds packaged by the Luxembourg-based firm ARM, was declared in default by the Financial Conduct Authority (FCA) on 7 October, after it was censured for "recklessly misleading investors" when promoting the bonds between November 2009 and May 2010.

Catalyst offered bonds issued by ARM to investment intermediaries in the UK, despite knowing that ARM had applied for a licence in July 2009 and had been asked to stop issuing bonds by the Luxembourg regulator CSSF in November 2009 pending a decision.

Catalyst was censured by the regulator as it was unable to pay a fine due to it being in default - the FCA would otherwise have imposed a £450,000 penalty.

The FCA has also fined Catalyst chief executive Timothy Roberts £450,000 and former director Andrew Wilkins £100,000. However, they referred their cases to the Upper Tribunal, which will reconsider the case and may uphold, vary or cancel the FCA's decision.

UK investors invested £54m in ARM bonds, including £17.1m in un-issued ARM bonds.

ARM itself has now been placed into liquidation in the UK.

 

 

 

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