June 25, 2020 / 3:40 PM / 17 days ago

UPDATE 1-UK financial compensation body has insurers in its sights

(Updates with LCF misleading advice compensation)

By Huw Jones

LONDON, June 25 (Reuters) - Britain's financial services compensation body is "keeping an eye" on insurers facing claims from companies whose business has been interrupted by the COVID-19 pandemic, its chief executive told Reuters.

Some insurers have balked at paying out on business interruption claims, and the Financial Conduct Authority (FCA) is asking the courts to clarify the wording in policies, which could lead to more claims being valid.

The Financial Services Compensation Scheme (FSCS) is braced for a rise in claims as some financial firms go under during the pandemic, and is working with the FCA, Bank of England and finance ministry to quantify that, its Chief Executive Caroline Rainbird said.

"We will look at scenarios, work with regulators and do desk-top exercises to make sure we are prepared," Rainbird, a banking industry veteran who took up the reins last year, said.

Credit unions and smaller financial advisers "could be an issue", along with more complex pension vehicles, she said.

Rainbird said the body could if needs be raise additional levies through the financial year. An FSCS running out of money would harm public confidence in financial services, she added.

The FSCS had already bumped up its levy by 44 million pounds to 649 million for the 2020/21 financial year to meet claims from 11,600 investors caught in the collapse last year of London Capital & Finance investment firm.

It has compensated just 159 investors who had switched from shares to holding "mini-bonds" sold by the now defunct LCF. This narrow base for compensation is being challenged in the courts.

Separately on Thursday, the FSCS said it has so far issued 281 decisions on claims and paid 5.1 million pounds ($6.3 million) to investors who received misleading advice from LCF.

The FSCS said it received an extra 100,000 emails from LCF's email server in June, which will mean a likely increase in how many investors will be eligible for compensation.

LCF left investors facing losses of up to 237 million pounds.

$1 = 0.8057 pounds Reporting by Huw Jones; Editing by Jan Harvey

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