FSCS projects another interim levy to plug £40m deficit

Intermediaries could face another multi-million pound interim levy after the Financial Services Compensation Scheme (FSCS) warned it may need an extra £40m to meet compensation costs this financial year.

Ongoing and higher-than-expected compensation costs linked to stockbroker Wills & Co and life settlement vehicle Keydata are to blame, the FSCS' stated in its half year review out today.

But the scheme warned the total investment intermediation costs could breach £100m if compensation claims relating to Arch Cru and MF Global materialise.

This would trigger cross-subsidy to the investment fund management sub-class.

The FSCS review document reported: "We may now incur higher compensation costs than we estimated in the investment intermediation sector as a result of the failures of Keydata, Wills and Co and other stock broking firms.

"It is possible that these higher costs may cause us to raise an interim levy on the investment intermediation sector this year, although we are not yet able to take a final decision on this.

"Our current projection is that we may face a deficit of at least £40m on investment intermediaries before the next levy becomes available."

In January the FSCS hit advisers with an interim levy of £93m. Including firms in the investment fund management sub-class, the total interim levy for 2010/11 was £326m.

That levy, which came on top of its annual levy, was also to cover the costs of claims against Keydata, Wills & Co and other investment intermediary firms.

About £247m of the costs are for the January interim levy were for claims against Keydata. The FSCS has said the company's collapse represents the biggest investment failure it has ever dealt with.