FSCS adds Lehman structured product claims to adviser Keydata levy
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The Financial Services Compensation Scheme has announced investment intermediaries will have to pay an additional £22m to cover claims relating to failed Lehman-backed structured product providers on top of the levy for Keydata and two failed stockbrokers, creating an £80m interim levy.
The FSCS originally proposed £20m to cover the cost of claims against NDF Administration, Defined Returns and Arc Capital and Income and had yet to decide whether claims would fall entirely on investment intermediaries.
The bill from the FSCS is in addition to its interim levy for costs relating to failed stockbrokers Pacific Continental Securities and Square Mile Securities and Keydata Investment Services Limited which has been revised down to £58m from £70m. The FSCS says its projections show that it will need less money before the annual levy is collected.
The interim levy to be paid by investment intermediaries will now be a total of £80m, £58m for Keydata and the stockbrokers and £22m for the structured product providers.
FSCS says the funding does not trip the £100m maximum threshold that can be levied on the investment intermediation sub-class as £12m of the full £110m levy for the year were management expenses and as such no extra money will have to be paid by the fund management community. An FSCS spokeswoman says: “Only amounts going over the £100m threshold for compensation are allocated to the next class.”
Advisers had been lobbying for fund management groups to pay for a proportion of the Keydata levy but the FSCS has rejected these calls. Law firm Regulatory Legal had threatened to launch a legal challenge if the FSCS did not give way.
The FSCS has also announced the levy for 2010/2011 for investment intermediaries will be £24m and £11.5m for life and pensions intermediation.
Aifa says it will be exploring other avenues to overturn the decision.
Director general Chris Cummings says: “We are extremely disappointed that the FSCS has failed to listen to the industry and the strong feeling on this particular issue. This is despite the reasoned argument we delivered to the FSCS Board, on behalf of the Aifa Council. This decision will further alienate those who have to pay this levy; intermediary firms. As we have consistently argued Keydata presented itself as an investment manager and not an intermediary.”
Aifa says it will seek further legal advice before considering its next steps. It reiterates that Keydata, Square Mile Securities and Pacific Continental were inappropriately authorised and supervised by the FSA and says the regulator should have stepped in “far sooner”.
Cummings continues: “On a wider point we need to ensure that the basis of FSCS funding is fairer and reflects the shared responsibility between providers and distributors when funding redress. The current FSCS review provides us with a major opportunity to address these issues during this year.”
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Readers' comments (23)
Peter Emery | 29 Mar 2010 4:08 pm
This is both appalling and unjust. Why are advisers being asked to pay for a problem that is essentially a manufacturing fault? The answer is simple the manufacturers (product providers) are strong and lobby cohesively from a properly funded base. Advisers are sitting divided with no central funding. I have long believed that we should agree to appoint a single body, then fund it at a rate of circa 1% of turnover from all advisers.
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John Blackmore | 29 Mar 2010 4:13 pm
Those in control at The FSA and FSCS are either corrupt of negligent. They know full well that what they are doing here is plain wrong and should be ashamed of themselves. How any of them can sleep at night is beyond me.
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Mr Smug | 29 Mar 2010 4:22 pm
Shameful
Mr Fatchett - over to you...
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Peter Herd | 29 Mar 2010 4:38 pm
So let me get this right, we have a shrinking number of IFA's in the industry and IFA's have one of the lowest levels of complaints out of the financial services categories. It just seems a little bit unfair that we are being asked to pick up the bill for large banks and insurance companies and now greedy stockbrokers.
I thought that the government was trying to encourage the IFA industry to become more professional and indeed to have more numbers in the trade. Why would anybody want to become an IFA if this is the way that we are treated on a daily basis. I agree that some form of association is required and I'm not sure that 1% of turnover is a fair way of going about it.
I'm not worried about more regulation but I am very concerned that the rules seem to be favour large organisations that seem to have the money to be able to lobby for rule changes that favour them. Why on earth were structured products allowed in the first place and why were banks allowed to sell them within their banking system so freely? We should also be looking at the management systems that are used within banks to put pressure on employees to sell products that trained advisers had worries about. Give it 5 or 10 years then the banks will be back at selling dodgy products and giving bad advice and no doubt we will pick up the bill from that one as well!!!.
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Kim Lee | 29 Mar 2010 4:42 pm
"...£12m of the full £110m levy for the year were management expenses..." Does that really mean an expense ration of 10.9%? And providers are criticised for TERs in excess of 2%! Words fail me. (Apart from the ones about NEST's 2% p.a. being paid to TATA. That's the conglomerate that has just closed the steel works in Redcar because it wasn't making a profit. What will they do when NEST doesn't work?)
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Anonymous | 29 Mar 2010 5:12 pm
Everyone refuse to pay it. See what happens. If you refuse to ecognise the authority of a Tyrant/Bully generally that will help to defeat that Tyrant/Bully
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Mike Fenwick | 29 Mar 2010 5:15 pm
In the report I sent to the FSCS, I used two possibilities
- one that they would decide that their proposed allocation to the "Intermediary" class was to be maintained (wrongly in my opinion).
- and two, if that proved to be the case then, again in my opinion, they were re-defining what was meant by an "Intermediary".
Elsewhere in this paper Nicole Blackmore reports on the Government's intention to allocate money to expand the Post Office's offerings in the financial services market.
Setting aside the questions of State Aid, which arose with Northern Rock, RBS and Lloyds, I have some questions - to which I do not know the answer, namely:
Is the Post Office an Intermediary or not?
Are they included in the list to whom the FSCS will issue a levy request?
Can anyone enlighten me, please?
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derekt | 29 Mar 2010 5:35 pm
its a serious questions, but what can we do collectivley as IFAs?? it seems that we have no power or rights! and at the mercy of the FSA. Ive written to my m.p.and aifa.
it seem never ending .
regs
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Evan Owen | 29 Mar 2010 6:03 pm
I feel for you people but can't see how legal action is going to work against entities which are immune from prosecution and even if there is the slightest chance of getting to the High Court the judge is invariably going to side with 'waht Parliament indended'. Then ofcourse there are the costs, you pay to challenge it and you pay to defend your challenge, little justice in that is there?
I have obtained legal advice on a challenge to whatever the boards of the FSA, FOS and FSCS determine is 'right', even if it does contravene Article 6. This Barrister operates in the UK, Austria and Germany, he was instrumental in winning a landmark case which embarrassed the regulators (if that is possible) and he proposes that these entities are NOT immune from prosecution in the right court.
So far this hasn't cost a bean because I often exchange information with willing participants that I trust implicitly, unfortunately that trust is sometimes misplaced but I have learned my lesson.
This particular issue may be the undoing of the regulators and those who assisted them in your name in the designing of such a flawed compensation scheme, and the RDR, and lots of other things.
It is a terrible thing, a bit like watching people drown because the boat was deliberately holed.
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Frank D | 29 Mar 2010 6:11 pm
The FSA were negligent in their duty - they did not regulate Keydata or NDFA as they should have done - then having been negligent forced them into administration. Those of us who have had no problem because we were careful about having Blue chip UK backing for the products have to pay whilst FSA Directors walk away from any responsibility. But why are we surprised - they don't even recognise what responsibility means and can walk away after being exhausted by a three year stint. Any jobs going ?
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