UK FSCS says there is prospect of unforeseen investment firm failures

The events from January 15, 2015 keep plaguing the investment landscape, including actions and forecasts of regulatory bodies. The latest example in this respect is provided by the Financial Services Compensation Scheme (FSCS), the UK’s statutory compensation scheme for customers of authorised financial services firms.

The failure of several investment firms last year, following “Black Thursday”, has prompted the FSCS to issue a rather gloomy statement, forming a part of its Plan and Budget: 2016/17. In planning for the new fiscal year, the FSCS notes that “there is the prospect of unforeseen failures at any time in Investment Intermediation, as demonstrated by the failure of Alpari (UK) Limited, the spread-betting firm, in January 2015.”

The FSCS notes that it responded to three investment failures where firms have been placed into the Special Administration Regime: Alpari (UK) Limited, LQD Markets (UK) Ltd and Hume Capital Securities plc.

It is possible that similar firm failures could fall to FSCS during 2016/17 and although no specific provision has been made, we have applied the 36-month forecast approach to allow for such unforeseen defaults.

The prospect is taken into account when the FSCS makes its estimates for claims and levies.

The levy on investment intermediaries, based on the three-year average, is set at £108 million, slightly down on 2015/16. This is due to the continuing expectation of demands on FSCS for claims made on this sector.

The industry body expects to see a decline in overall claims volumes during 2016/17, partly because of a reduction in PPI and mortgage endowment claims being received. However, it expects to continue to receive high numbers of Investment and Life and Pension claims.


You can download the full FSCS Plan and Budget: 2016/17 by clicking here.

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