But any increase in the FSCS levy will not hit for three years

The IIB warned this week that brokers could face a bill for potentially thousands of pounds each from the Financial Services Compensation Scheme to cover for the failure of B&B.

For brokers this is a worrying prospect, particularly in these difficult economic times. How likely is it that brokers will be landed with a large FSCS levy? At this stage it is difficult to say, although it brokers are unlikely to be faced with a higher levy for at least three years.

The Bank of England lent the FSCS £14bn to secure B&B depositors’ savings and that money will need to be repaid, at least in part, through a levy on regulated financial services businesses.

For the first three years, only the interest on the loan will be recovered, with the first payment estimated at £450m and due in September 2009. The annual interest payment will amount to £900m.

During this period the interest payments will be recovered solely through a levy on deposit-taking firms, such as retail banks. This is because the amount falls below the maximum amount that the FSCS can recover from the deposit-taking firms a year – currently £1.84bn.

After the first three years, the principle loan amount will need to be repaid, at which point a repayment schedule will be implemented.

The matter is also complicated by the fact that the some of the loan will be repaid through recoveries from B&B, such as repayments on its mortgages and the sale of assets. How much this will achieve remains to be seen, particularly given the make-up of B&B’s mortgage book.

At this stage, is not clear what the repayment schedule will be, and which firms will be required to pay. The FSCS says that the amount that will need to be repaid will be “substantially less” than the $14bn originally borrowed.

Brokers are therefore at risk of an increased FSCS levy once the repayment schedule is determined.

Initially, the FSCS will look to the deposit-taking firms, but if the annual repayments under the schedule exceed the levy cap for deposit taking firms then the FSCS will need to impose a levy on other retail financial services firms, such as insurers and brokers.

The maximum amount which could be levied from all general insurance intermediaries is £195 million for the current year. The amount each broker will pay depends on the company’s turnover, with a maximum amount that can be levied.

A broker with an income of £500,000 would, for instance, be liable for a maximum payment for this year of £8,817.