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Law360, London (November 25, 2020, 1:16 PM GMT) -- Britain's financial lifeboat scheme said on Wednesday that it has had to raise an extra £92 million ($122 million) in supplementary levies in 2020 to meet the demands of a finance sector hit hard by the COVID-19 crisis and a rise in claims about poor pensions advice.
Economic difficulties caused by the pandemic and a rise in the number of failing companies has forced the compensation program to exceed its annual maximum in levies. (iStock)
"I appreciate that the supplementary levy will be unwelcome news for firms against a challenging economic backdrop, and I genuinely understand the difficulty this will cause," Caroline Rainbird, FSCS chief executive, said. "We only raise a supplementary levy when we absolutely have to."
Rainbird added that the government scheme resorts to raising supplementary levies only 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."
The sector has seen a surge in the number of claims over pensions advice in recent years, the FSCS said. It has also had to raise fees to cover an increasing number of payouts to customers of failed companies such as the high-profile London Capital & Finance, which fell into administration in January 2019, Greyfriars Asset Management LLP and Pointon York Ltd.
The total management expenses budget is forecast to be £83.2 million, the FSCS said, up from £79.6 million in 2019. This is partly down to a rise in claims volumes, with around 10,200 more claims than had been expected due to LC&F payouts.
The fund also highlighted the economic damage caused by COVID-19 and the need to make sure its coffers can continue to support consumers who lost out during the chaos.
"It is still too soon to know the full effects of COVID-19 on the industry, but we must all be prepared for a challenging period in 2021," Rainbird said.
The fund added that its estimated levies published on Wednesday are subject to change given the high degree of uncertainty in the financial system in 2020.
The sector has criticized the fund's rising fees in recent years, but the Financial Conduct Authority said in July it does not plan to revisit how the national bankruptcy compensation program is funded, despite these concerns being raised.
The compensation scheme raised its levy by £14 million to £649 million for the 2020/21 financial year from its estimate of £635 million, which it said was needed to meet claims by almost 12,000 investors caught in the LCF collapse. That is an increase of £101 million from the previous year.
--Additional reporting by Joanne Faulkner. Editing by Ed Harris.
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