THE FOUNDER of fund manager Hargreaves Lansdown has warned a controversial compensation scheme could put firms out of business, resulting in spiralling costs for the financial services industry.
Peter Hargreaves said the Financial Services Compensations Scheme (FSCS) levy, which hit his firm for £3m last year, said some companies would be unable to pay the charge.
“There are firms that might not be as profitable as mine that might have to pay this amount of money and they can’t,” he told City A.M..
“They could go out of business, not pay the levy and then not pay compensation to clients.
“There could be a domino effect and we could get loaded with bigger and bigger bills.”
The FSCS levy demands investment firms pay into a £450m pot used to compensate investors in funds that have gone bust.
Yet some City firms have spoken out against the levy, which they say is unrelated to their area of business.
The Association of Private Client Investment Managers and Stockbrokers, along with several of its members, will next week meet with the FSCS to voice concerns over the current system.
The firms could lobby for several options, including an extended payment period or staggered instalments.
The Investment Management Association is also considering a judicial review of the FSCS levy on behalf of its members.
Hargreaves Lansdown yesterday posted a 41 per cent increase in half-year pre-tax profits to £56.3m, despite being hit by the FSCS levy.
Hargreaves said: “We’re footing the bill for liabilities of which we know nothing about and we have no say in whether we should foot the bill or not.
“We’re being asked to pay taxes without any vote.”