The UK Financial Services Compensation Scheme (FSCS) has decided to increase the interim levy of investment advisers in order to cover the compensation to be paid to ARM bonds investors.
FSCS CEO Mark Neale said that the costs of the failure of the bonds are likely to be tens of millions of pounds, necessitating a hike in the levy.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
Earlier in October, FSCS said that the customers of Catalyst Investment Group, who have invested in ARM bonds, can make claims for compensation, as the firm was wrongly involved in the promotion of the bonds.
FSCS then said in a statement, "This follows an investigation by FSCS and the FCA to establish the extent to which Catalyst may be liable for investors’ claims.
"Following an analysis of the financial promotions which Catalyst was responsible for, we have reached the view that Catalyst may be liable for losses in many cases."
Catalyst, which sold £54m worth ARM bonds in the UK, was declared to be in default by Financial Conduct Authority.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataThe bonds, which were issued by Luxembourg-based ARM Asset Backed Securities, have been suspended since 2011.
Neale said, "I do expect one consequence to be that FSCS will have to raise a supplementary levy on investment intermediaries before the end of levy year in June 2014.
He added that the decision will be difficult for firms and is unwelcome news, but they have a duty to compensate investors with a valid claim.
The annual claims limit of advisers rose from £100 million to £150 million in January this year, and the current annual claim for 2013-14 is £78 million.
