Firms that manage investments will see their Financial Services Compensation Scheme (FSCS) levy rise next year after the lifeboat fund declared three Sipp providers in default.
For the first time the FSCS will pay out to clients of collapsed Sipp providers if they have an eligible case that the company failed on due diligence.
As a result of the change the FSCS has more that doubled its provisional levy for firms that fall into the investment provision class from £10 million in the 2017/18 financial year to £34 million in 2018/19.
In its 2018/19 business plan the lifeboat fund cautioned that this figure could rise when the final levy is annouced in April as it expects more claims to arrive against Sipp providers.
So far the FSCS has declared three Sipp providers in default. These are:
- Stadia Trustees Limited;
- Brooklands Trustees Limited;
- Montpelier Pension Administration Limited
In its business plan the FSCS said it has received 150 claims against these companies over due diligence failings 'but we expect to receive many more claims in 2018/19'.
Although the FSCS did not set out exactly how many claims it expects to recieve, it said that whereas in 2017/18 it estimated it completed 54 claims in the investment provision class, in 2018/19 it estimates it will complete 1,500 claims.
The lifeboat added the Financial Conduct Authority (FCA) has recently given warnings about Sipp firms accepting business from unregulated introducers
According to the FCA the investment provision class includes any firm that manages investments. In a consultation paper published last year the regulator said that 1,062 businesses were in this class in the 2016/17 financial year but 464 did not make any contributions to the FSCS as they did not make any money from products that are covered by the lifeboat fund.