FSCS defends legal action against Keydata advisers
The Financial Services Compensation Scheme has defended its decision to take legal action against advisers who recommended Keydata products, saying it only pursues recoveries where it is “reasonably possible and cost effective” to do so.
The comments follow a letter from Aifa, which called for answers over the way the scheme is pursuing Keydata advisers, particularly smaller firms.
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.
In its response letter to Aifa, the FSCS says: “Once FSCS has had investors’ rights assigned to it on the payment of compensation - as is the case in the context of Keydata to a value in excess of £300m - FSCS is under a duty to ‘pursue all and only such recoveries as it considers are likely to be both reasonably possible and cost effective to pursue’.
“By doing so, FSCS seeks to mitigate the costs of compensation for the benefit of its levypayers.”
The FSCS says once it is assigned investors’ rights it is allowed to take over rights and claims to ‘any other party’ and bring third party claims relating to an investor’s claim.
The FSCS letter says: “On the basis of the legal advice we have received, we have formed a view that there are legal claims against a large number of firms that recommended Keydata products and, as a result, we consider that, consistent with our statutory function, FSCS should pursue reasonable avenues of recovery against those firms.”
Aifa has also questioned the disclosure of the list of firms being pursued for recoveries, together with personal details of investors and total amounts invested. These details were included within the letters sent by Herbert Smith last month.
The FSCS says it shares Aifa’s concerns over the disclosure of personal information about Keydata investors. But it points out the Herbert Smith letters highlighted the information was sensitive and confidential. The FSCS says it also made sure members of the public could not access confidential information from the court file.
The FSCS letter adds: “The fact that one or more of the defendant firms has taken the decision to disclose some or all of the above information is regrettable, but is not something that is within the power of FSCS to control. We believe we have taken reasonable steps to protect the investor information.
In response to the letter, Aifa director Robert Sinclair (pictured) says: “Whilst acknowledging the FSCS considers this meets their statutory objectives, Aifa feels further discussions are necessary around ensuring any actions taken are reasonable and cost effective.
“Whilst not challenging the FSCS’ duties we remain concerned that adviser firms appear to bearing the brunt of the issues here, both in relation to the interim levy and now in terms of recoveries, against a backdrop of something that remains a complicated case.”