FSCS Hikes Levy amid Growing Claims of London Capital and Finance

Around 12,000 investors suffered major losses following the £236 million collapse of the mini-bond issuer in 2019

The Financial Services Compensation Scheme (FSCS) has announced a levy increase of £14 million for failed brokers in its Plan and Budget for 2020/21, which brings up the total amount to £649 million for this financial year. The top-up on its original forecast earlier this year came amid an “uplift” in the number of claims expected against London Capital and Finance (LCF).

Around 12,000 investors suffered major losses following the £236 million collapse of mini-bond issuer London Capital & Finance (LCF) in 2019. However, a small number of LCF who received compensations so far while the vast majority of the bondholders are still waiting to hear if they have any chance of getting their money back.

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According to the FSCS’s forecast, it expects to pay up to £44 million to cover estimated compensation costs for investors who bought the unregulated investment products in the hope of high returns.

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“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,” Caroline Rainbird, FSCS CEO, said.

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But the final levy to be shouldered by life distribution, pensions and investment intermediaries has decreased by £7 million compared to the figure it initially predicted in January’s plan. This was due to a revision in the anticipated timing and cost of some recent and expected operator failures.

Most recently, FSCS has passed all claims against failed discretionary fund manager Strand Capital Limited to its claims processing teams for assessment. In an update on its website, the lifeboat scheme said it was aware that some Strand customers were advised by independent financial advisers to transfer existing assets to the firm that was put into special administration in May 2017.

The FSCS also says it continues to work with the joint special administrators of SVS Securities so that customers get back their assets as soon as possible. Since the reconciliation of client cash has not yet been completed, and shortfalls have yet to be finalized, the FSCS will step in to compensate clients, up to the £50,000 limit.

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