Compensation costs reaching £80m

The Financial Services Compensation Scheme confirmed earlier this week that it would impose an interim levy of 80m on investment intermediaries, on top of the annual levy they also have to pay the scheme.

The first 58m of the interim levy will go towards covering the costs of compensating consumers who lost money when Pacific Continental Securities (UK), Square Mile Securities and Keydata Investment Services, as well as other investment firms, were declared to be in default.

The remaining 22m will cover compensation claims for people who claim they were mis-sold structured products by firms which have previously gone under. But the compensation scheme has decided not to impose an interim levy on insurance intermediaries to cover the cost of compensation for the mis-selling of controversial payment protection insurance by firms that have been declared in default.

These costs will instead be met through the general levy on the sector for 2010/2011. The compensation scheme said payment protection insurance claims were a growing area of its work and would be one of the main drivers of costs during the coming financial year.

Alex Kuczynski, interim chief executive, said: "The costs of PPI, investment and insurance claims are among the main drivers of FSCS costs this year and into 2010/11. After further refining our assumptions, we have set the levy for the coming year at 148m.

"Our duty is to help consumers of authorised financial services firms who are entitled to our protection. This is good for consumer confidence and benefits the industry."

Within the total levy of 148m, the general insurance sector will pay 41.5m to cover the continuing claims costs relating to Builders Accident Insurance, Chester Street, Drake Insurance and Independent Insurance.

On top of the general levy, companies which take deposits also have to pay 376m to cover the interest on a Government loan which was taken out to pay for compensation to consumers who were affected following the collapse of the banking sector in Iceland and of the Bradford & Bingley.