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Mortgage brokers hit with £2m FSCS levy

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  • 25/11/2020
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Mortgage brokers hit with £2m FSCS levy
Mortgage advisers are on the hook for an additional £2m as part of a £92m supplementary levy from the Financial Services Compensation Scheme (FSCS), despite better than expected performance.

 

The levy is being used to fund firm failures and other compensation payments for the life distribution and investment intermediation (LDII) category, which can only fund a further £8m this year.

Those advisers in the general insurance distribution category could be stumping up for a share in £29m attributed to that group.

Mortgage lenders will also have to contribute £1m towards the FSCS levy.

However, the mortgage advice sector itself has performed well this year according to the FSCS.

It noted there has been a 22 per cent reduction in the number of claims upheld and a 19 per cent fall in the average value of compensation paid out.

This has resulted in a class surplus of £2m. This class will be required to pay £4m towards the retail pool, although that will be partly funded by the £2m class surplus.

 

More than 10,000 additional LCF claims

The FSCS has been hit by a significant unexpected increase in claims this year – 38 per cent higher than expected.

These have mostly originated from the collapsed London Capital & Finance (LCF), pension advice claims and costs in relation to transferring cash and assets from failed investment firms, including Reyker Securities.

There were around 10,200 more claims than expected due to LCF payouts in the first six months of the financial year and the FSCS said it was also seeing more complex claims which are costlier to process.

As a result the FSCS estimates the LDII class requires £92m of additional funding in the form of a supplementary levy.

This amount is more than the annual maximum that FSCS can raise from this class and therefore, £8m will be from the LDII class and £33m from surpluses across other classes.

It will also call for an additional £51m from the other classes, including those in the retail pool.

 

 

‘Understand the difficulty’

FSCS chief executive Caroline Rainbird said: “I genuinely understand the difficulty a supplementary levy may cause, especially against a challenging economic backdrop.

“We only raise this when we absolutely have to, when we estimate that we will not have sufficient funds to meet rising compensation costs or management expenses for the period until the next levy is due.

“Given the current high levels of uncertainty, the figures we are announcing today are our best estimates and are subject to change.”

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