Discretionaries could face FSCS shortfall after funds exempted

Pure discretionary managers could face a huge hit from the Financial Services Compensation Scheme (FSCS) as well higher future levies after it clarified income from funds could be exempt from tariff data.

The move could result in a raft of fund management groups and wealth management companies that offer in-house funds within the investment fund management sub-class resubmitting tariff data for the 2010/11 period, the year of the massive £326 million interim levy.

Discretionary managers that do not offer funds would be expected to have to make up the shortfall.

The FSCS said firms can resubmit their tariff data, potentially lowering their FSCS liabilities, if there had been a ‘mistake of law attributable to an error on the part of the FSA or the FSCS’. It follows instances where firms were advised that income derived from funds with underlying retail investors should go towards their annual eligible income, which forms the basis of their FSCS liability. The FSCS has now confirmed that any income derived from a collective investment scheme, regardless of the underlying investor, is exempt.

Firms have until the end of August to complete their resubmissions and if they are successful it could result in a redistribution of the total £233.7 million levied on the sub-class in 2010/11. A number of fund management groups were hit with substantial sums during the year, including Henderson which paid around £7.6 million, while Liontrust paid out around £415,000.

An FSCS spokesperson said: ‘As with the existing exercise whereby firms resubmitted tariff data which was originally submitted to the FSA before 31 March 2010, we will determine firms’ revised share of the levy once the final outcome of the whole review process is known. At that point, invoices or refunds will need to be issued as necessary to the relevant firms.’

Gregg Beechey, a partner in financial markets at SJ Berwin, said the firm was working with six companies that are resubmitting or considering resubmitting their tariff data. He expects a ‘flood of resubmissions’ on the back of the FSCS’s clarification and said the potential upshot for the rest of the sub-class should not be underestimated.

‘If you only run funds, you won’t have to provide any fee data,’ he said.

He advised groups that run funds to ‘review and reconsider’ their historic tariff data and also said firms should consider the implications for data submitted this year.

Susan Wright, regulation adviser at the Investment Management Association, added a number of the IMA’s members were also ‘seriously looking’ at resubmitting their data.