FSCS bases Keydata quiz for investors on effects of misleading literature

9 April 2010 8:00 am | By Hannah Stodell

The Financial Services Comp- ensation Scheme is quizzing Keydata investors seeking compensation for their losses about the firm’s representations of third parties in its market- ing literature.

Deloitte last week wrote on behalf of the FSCS to Keydata investors who are claiming compensation for their non-Isa secure income bonds 1-3, asking them to clarify how influ- ential marketing literature representations about KPMG were in their investment decision.

In the letter sent to investors on March 29, Deloitte says it is investigating claims against Keydata and requires further inf- ormation before it is able to complete its investigation and issue a decision.

In a 2005 brochure for financial advisers for its secure income bond 1, Keydata stated that KPMG generated the actuarial models used to produce the investment criteria for the life settlement bond.

Keydata described KPMG as “one of the ’big four’ accountancy firms” and stated that it “constructed the financial models used to structure the bond. It also checks the credit ratings of the insurance companies issuing the contracts and monitors the credit rating of the port- folio of investments.”

A letter sent by KPMG UK chairman John Griffiths-Jones to a member of the Keydata victims action group says KPMG bec- ame aware of the matter when the same wording was used in issue two of the plan and objec-ted “most strongly” to Keydata about the use of its name and the “inaccurate and mislead- ing description”.

Griffiths-Jones says the firm referred the matter to the FSA after failing to get an adequate response from Keydata.

In the same brochure, Key-data also stated that the trading of the insurance contracts was overseen by HSBC, which ensured that contracts carried sufficient credit ratings. Again, HSBC described this reference as “misleading and inaccurate” in another letter to the Keydata action group member.

The same brochure refers to MeesPierson Investment as custodians of the SLS Capital bonds, payment agents and registrars responsible for holding SIB fund assets.

Several Keydata investors have complained that the FSCS rejec-ted compensation claims for their non-Isa secure investment bond 1-3 investments as it cannot establish that the app- arent misappropriation of underlying assets results in a liability on Keydata’s part.

The FSCS says Keydata would only be liable for the loss if it had made a fraudulent misrepresentation which had been relied on by investors.

This could be the case if the loss suffered is directly due to investors relying on Keydata’s flawed literature. More discussion about the regulatory oversight of the firm is also expec-ted to follow.

Lowes Financial Management steered its clients clear of the secure income bonds because of concerns over the products.

Managing director Ian Lowes says: “We were aware that KPMG had raised concerns with Keydata after the first brochures were issued but I was not aware that they had no involvement or that they had reported it to the regulator.

“I am surprised that Keydata were not required at the very least to write to all of their investors in those plans to point out the inaccuracy of the bro-chure if that was the case.”

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