The Financial Services Compensation Scheme has offered Keydata distributors with claims against them of less than £50,000 a 50 per cent early settlement discount.
Law firm Herbert Smith, acting on behalf of the FSCS, has written to firms with the offer, which gives them 21 days to accept the settlement from the date they were written to.
In the letter, seen by Money Marketing, Herbert Smith notes the FSCS has brought proceedings against over 400 advisers to recoup some of the compensation paid to Keydata investors. The law firm says there is a “huge disparity” in the amounts being claimed against each adviser firm.
Herbert Smith says: “Our client has therefore decided to take a pragmatic, commercial approach at this early stage of the proceedings, before substantial costs are incurred on both sides, and to make an offer across the board to all defendants against whom the principal amount is less than £50,000.”
An FSCS spokeswoman says: “The FSCS must pursue recoveries wherever reasonably possible and cost effective to do so. We are pursuing recoveries from firms in connection with the Keydata products and are confident that a court will find in our favour if the matter proceeds to trial.
“However, the FSCS also recognises that the parties to this litigation are likely to incur substantial costs if these claims are pursued to trial. As a result, we have proposed a settlement offer to those firms against whom we have lower value claims as a result of the compensation we have paid to consumers arising from the Keydata failure.
“The offer is being made now at an early stage in the litigation, for a limited period of time, for pragmatic, commercial and case management reasons, and does not reflect or undermine FSCS’s views on the merit of this category of claims.”
Law firm Regulatory Legal director Dexter Perrott says: “If you have got over 400 firms all facing a claim, and a large number of claims are less than £50,000, for them all to get lumbered with a huge amount of legal costs would be disproportionate, and the courts would look askance at that.
“For the remaining firms it means the FSCS has a duty to recover some funds cost-effectively. This weeds out the firms with the lower liability.”
He adds that if more firms had ended up in court defending the claims, they could mount a defence in arguing that advisers could not have known that £100m would be “misappropriated” from the Luxemburg-based SLS vehicle that backed Keydata products.