The Financial Services Compensation Scheme is set to increase its levy yet again as it faces a £92m shortfall, according to its half-year Outlook report published today.

The Outlook report gives an overview of the levy position at the half-way point through the body’s financial year.

The FSCS says that a number of factors are driving up the levy this year, including a surge in SIPP claims and the fallout from the £235m “complex” collapse of mini-bond firm London Capital & Finance (LCF).

The number of claims this year is 10,200 (38%) higher than expected, says the FSCS.

Because of the costs the FSCS estimates the Life Distribution and Investment Intermediation (LDII) class - the segment covering most financial advisers - will require additional funding of £92m in the form of a supplementary levy.

Because this amount is more than the annual maximum that FSCS can raise from this class the FSCS will source £8m from the LDII class and £33m from surpluses across other classes.

The body says it will also levy an additional £51m from other classes, including those in the retail pool.

The FSCS says over recent years it has seen a trend of more firms failing and this has contributed towards the rising levy.

Smaller failures have included Greyfriars Asset Management LLP and Pointon York and larger problems have included the “complex failure” of London Capital & Finance (LCF). There have also been an increase in pension advice claims and additional costs in relation to the transfer of cash and assets from investment firms, including Reyker Securities.

The FSCS has also warned that the shortfalls it has outlined today are only “best estimates” and could change. Any additional levies, along with its forecast 2021/22 annual levy figures, will be published in January 2021, with invoices being issued shortly afterwards.

The total management expenses budget is forecast to be £83.2m, an increase on the current budget. This is mainly because the number of claims is 38% higher than budgeted, with around 10,200 more claims than had been expected due to LCF pay-outs. The FSCS has also seen more complex claims, it says.

Despite rising volume-related costs, like-for-like claims handling costs were reduced by 8% in 2019/20.

Caroline Rainbird, FSCS chief executive, said: “I appreciate that the supplementary levy will be unwelcome news for firms against a challenging economic backdrop, and I genuinely understand the difficulty this will cause. We only raise a supplementary levy when we absolutely have to, when we estimate that we will not have sufficient funds to meet rising compensation costs or management expenses for the period until the next levy is due.

"Whilst we share the industry's concerns about rising compensation costs and increasing levies, we firmly believe there is no silver bullet and regulation alone will not solve this complex problem.

"It is still too soon to know the full effects of Covid-19 on the industry, but we must all be prepared for a challenging period in 2021. I want to reassure everyone that FSCS is ready to handle whatever difficulties next year will bring.”