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Aifa demands FSCS answers over "perverse" Keydata recoveries

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Aifa has written to the Financial Services Compensation Scheme demanding answers over the “perverse” way it is pursuing recoveries from advisers who recommended Keydata products.

Law firm Herbert Smith has written to over 500 firms on behalf of the FSCS to start the legal process of recovering compensation paid to Keydata investors relating to SLS products.

The FSCS has accepted 5,200 claims from Keydata SLS investors and paid out £67m. Money Marketing understands the FSCS will also look to pursue a much larger amount from advisers who sold Keydata Lifemark products. An industry levy of £326m was raised to pay Lifemark claims.

Aifa director Robert Sinclair (pictured) says: “Either there was a systemic failure of advice or there was not. If there was a systemic advice failure, then the FSA should have been dealing with that in an appropriate way at that point, not using the compensation scheme as a proxy for it not doing its regulatory duty properly.”

It has written to the FSCS demanding to know what regulatory powers it is acting under. It has been unable to identify where in the Financial Services and Markets Act or within the FSA’s rules the FSCS is allowed to pursue adviser firms in such a way.

Particulars of claims sent to Keydata advisers last month by Herbert Smith include a list of firms being pursued for recoveries, personal details of investors and total amounts invested.

Sinclair says: “That seems a very strange thing for the FSCS to do because whenever we have asked the scheme for any details of firms it is taking action against, we have always had a strong refusal because it believes to disclose that information would breach confidentiality. I find the FSCS’s conduct on this occasion perverse in the extreme. Overall, we have deep concerns about how this has been conducted.”

Sinclair says he is concerned about the impact the FSCS’s recoveries could have on firms’ solvency and the reputation damage caused, particularly where firms have no case to answer.

An FSCS spokesman says: “We have an obligation under our rules to pursue recoveries where possible. Throughout this process, we have behaved in accordance with legal principles.”

Last week, Money Marketing revealed Target Financial Management was entering administration after the FSCS pursued it for £1m in claims, with an estimated £6m total Keydata claims’ exposure. It has now been bought out of administration by Million Plus Financial Planning which did not take on any of TFM’s liabilities.

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Readers' comments (14)

  • From February this year:

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  • Shambles.

    At least AIFA actually seem to be doing something positive which is good news.
    I am interested in the last paragraph where it states that Million Plus Financial Planning did not take on any of TFM's liabilities. I have been led to believe that you cannot pass on your liabilities when you sell your business, so you will always be responsible, in retirement, if a client complains about a product you sold. Has anybody got any information in this regard? Not that IO am expecting a flood of complaint but you never know in this industry.

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  • I think there is a double edged sword here.

    1. Obviously the IFA,s involved relied on information supplied and also the fact that Key Data was authorised by the FSA.
    2. I am assuming from the list(whilst figures are not available generally) that these claims could bankrupt quite a number of IFA,s .
    3. I have never sold a Key Data product or other types on investments on which I have been levied, so why should I pay these extra costs? when the perpetrators(ie the providers walk away free as a bird.

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  • And there's also the issue of why the FSA failed to act on the information it discovered on its 2007 arrow visit to KeyData, which strongly suggests regulatory negligence. Yet, as always, it's the IFA sector that gets landed with the bill. When will these people ever be held to account?

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  • Can someone please advise me where it says in the FSCS rules they can act as judge, jury and executioner (as FOS does) I cannot find anything that gives them such powers to decide whether an adviser is liable to repay the FSCS for alleged mis selling, especially when the clients have not instigated any complaints against the adviser.

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  • Sad to say, just another ploy by the FSCS to coin in some cash. It is the FSA that should be taken to task for the mis-selling of products. After all, they are the "Regulator" (some joke!) and surely their job was(is) to check any and all products BEFORE they hit the market. It strikes me that this is just another way of depleting the amount of IFA's in business, which is, after all, exactly what the FSA intends to do.

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  • Well at last it sounds like AIFA are growing dangly bits - but will it just become rhetoric??

    Talk as they say is cheap so perhaps AIFA could commence legal action against the FSA for it's corporate failure to regulate both the product and the provider in this case. We as an industry pay for them to carry out there role and thus is it not time they were accountable to their paymaster?

    Come on AIFA, less talk and more positive action please!!

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  • #Becoming a headcase ifa

    The point is that the owners of Target Financial Management had the good sense to trade as a limited company.

    Creditors can make a claim against any assets Target Financial Manangement Limited may have but that is it.

    Because they were directly authorised, there is no network to take the claim to which would then invoke personal guarantees.

    It is not now possible to trade as an IFA with any safety unless you are directly authorised as a limited company or an LLP.

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  • They could also recover cash from the reliquified and restructured Lifemark, no? Isn't there a facility there to help with this?
    Does this mean that the intention is to throw Lifemark under a bus ( with the subsequent loss of hundreds of millions in value ) for the sake of a political cover-up?

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  • This whole thing postiviely reeks of regulatory politics.

    I think the FSCS are looking to recover money under pressure from the IMA (who I note had one of their number appointed to the FSCS board last week - strange that!), and the FSA is doing whatever it can to support the FSCS in their claim, including proposing a ban on life settlements which will undoubtedly lead to illiquidty and losses in other funds.

    Why isn't the FSCS or the FSA supporting action already being taken by investors to pursue recovery of losses from the counterparties that allowed Keydata SIB monies to be STOLEN.

    It is all an absolute disgrace.

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