FSCS raises management expenses levy limit

The Financial Services Compensation Scheme (FSCS) will need to raise its management expenses levy limit for 2004/05 to handle the rising number of investment claims.

But it said any increase in management expenses would not be levied until 2005/06.

Compensation costs awerere also likely to rise, it warned. The FSCS said it did not intend raising further levies for increased compensation costs during 2004/05, although this would have to be kept under review.

It said it was seeing further increases in the number of claims referred to it, particularly relating to endowment mortgages.

Interim chief executive Ron Devlin, said: “Despite allowing for a substantial increase in endowment claims when we did our budget planning in October 2003, at double the rate then being received, the number of inquiries and claims coming to the scheme has exceeded all expectations.

“Claim volumes increased dramatically in the last six months of 2003/04 and current trends suggest that these increases will continue for the foreseeable future.

“We are also having to take into account claims that might come to the scheme which relate to “precipice” bonds, following the failures of investment firms that sold these products.”

The FSA will be consulting on increasing FSCS' levy limit from £12.5m, set in March 2004, to £17.6m during July 2004.