Mortgage brokers will pay £22m this year, up from £14m in 2017/18, largely as a result of an increase in claims against former broker and wealth firm Fuel Investments.
The FSCS forecast in January was that brokers’ levy would be £17m – but this has subsequently increased by £5m, as the scheme continues to receive expensive claims against the now bust Fuel Investments.
More compensation payouts, as well as higher uphold rates against the firm, have pushed the levy up by more than previously thought.
The broker was declared in default by the FSCS in 2015, after advising many clients to remortgage for risky investments.
Following proposed changes to FSCS funding, also announced today by the Financial Conduct Authority (FCA), mortgage brokers will no longer have to pay for the mis-selling of personal pensions and investment business from next year in April 2019.
But it is included in the levy for 2018/19 – which only runs for nine months, from July 2018 to April 2019, to bring the levy in line with the financial year, rather than the calendar year.
Robert Sinclair, chief executive of AMI said: “The senior management of the FCA listened to our logical arguments and agreed that these changes were sensible.
“We believe that these amendments to the funding of the FSCS should deliver a more balanced industry in the future.
“In resisting strong lobbying from the provider community, the FCA has stood up in support of smaller advice firms”
Retirement savings increase FSCS claims
Overall, the FSCS levy will rise to £407m this year, which is £71m more than forecast in its 2018/19 budget in January.
The sum includes management expenses of £72.7m.
The increase is largely down to the increase in claims for retirement saving.
Life and pensions advisers have overall seen a £52m jump in the levy, thanks to the rise in defined benefit pension transfer claims.
The compensation scheme has set aside £10m of the life and pension adviser levy to pay for claims against a number of independent financial advisers in the retirement sector, such as Active Wealth which advised British Steel workers to transfer their defined benefit pension schemes into Self-Invested Personal Pensions (SIPP).
It means the maximum levy of £75m is be raised on life and pension advisers and the balance – currently forecast as £64m – will fall on other industry sectors.
The amount and timing of any supplementary levy is be confirmed during the year.
The FSCS has also increased the levy on the investment provision class by £18m, which again arises almost entirely from claims against SIPP operators.
However, the investment intermediation sector will see a fall in its indicative levy announced earlier this year of £4m, mainly because of recoveries, which offset an increase in compensation payments for claims expected against Beaufort Securities.
Mark Neale, chief executive of the FSCS, said: “The levies announced today provide for the steady increase in claims and compensation costs related to retirement saving.
“Risks rise as people make increasingly complex choices about the investment of their pension pots, even where investors take the sensible step of taking independent professional advice.
“Many claims reflect bad advice to transfer pension savings from occupational schemes into Self-Invested Personal Pensions, usually with a view to invest in illiquid and risky unregulated products.
“Claims for such advice fall on life and pension advisers.
“However, as last year, we expect that compensation costs falling to this sector in 2018/19 will exceed the class limit and result in a call on other industry sectors in the retail pool.”