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Aifa calls on FSCS to publish legal opinion on Keydata levy

Aifa is calling on the Financial Services Compensation Scheme to publish the legal advice it received in order to impose the costs of Keydata failings on the investment intermediation sub-class. 

Aifa says it has received confirmation from FSCS personnel that the £43m of the £70m levy was allocated to the sub-class following legal advice and therefore it is “imperative” that this advice is published. “We will be negotiating with FSCS to have their legal advice for public scrutiny,” says Aifa director general Chris Cummings.  

The trade body stresses members are being asked to pay too much towards this year’s compensation scheme and says it will continue to challenge the basis on which the FSCS decided to bill investment advisers for the failings of structured product provider Keydata. 

Aifa believes this is a “regulatory and supervisory failure” with Keydata inappropriately authorised by the FSA and says the legal precedent in which a challenge can be brought is on the grounds of evidence of ‘a mindet of reckless indifference’ within the FSA.   

Due to the size of the majority of IFA firms they will be hit with a levy far less than the average being paid by the 6,500 firms that fall in the investment intermediation category. The amount payable will also be dependent on the amount of investment business written.

Aifa calculations indicate the likely cost of the interim levy will be approximately £1,100 per full investment adviser.  However, for a typical member, where investment exposure constitutes 40 per cent of his/her business, the figure is likely to fall to £440 per adviser, it says.

Advisers can use the Premium Credit instalment arrangement set up to pay FSA fees, which charges an interest rate of between 7.5 per cent and 9 per cent dependent on trade body membership.

Director general Chris Cummings says: “This has been a failure of FSA supervision and as such adds further weight to our calls for FSA to review how it supervises firms, the risk models it uses and the allocation of costs.  IFAs are being asked to pay too much for the failure of others.” 

Aifa says the legal advice it has sought focused on both the architecture of the FSCS and the legal precedents in challenging any regulatory failings. The advice indicates that the legal precedent on which a challenge can be brought is on the grounds of evidence of “a mindset of reckless indifference” within the FSA. The action the liquidators of BCCI undertook, against the Bank of England, is a precedent, says Aifa. The liquidators lost the case, as they failed to prove ’reckless indifference’, and had to pay the BofE fees as well as their own costs.

Cummings says Aifa is also examining the competition implications of the levy. He says: “We have also discussed the matter with consumer groups – as the mounting costs of regulation risk driving good firms out of the market – and this will reduce access to advice.”

Cummings says: “More importantly, we still believe that this is a regulatory and supervisory failure, with Keydata inappropriately authorised by FSA. In similarity to other recent failures, such as Pacific Continental Securities and Square Mile, Aifa believes the regulator should have stepped in far sooner.”

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. For 2010/11, our assumption is that
    more Keydata Investment Services
    Limited claims are likely to come
    in along with the residual Pacific
    Continental Securities (UK) Limited and
    Square Mile Securities Limited claims.
    Together with other claims, this results
    in a total indicative levy of £19m for
    the Investment Intermediation (SD02)
    sub-class in 2010/11.

    Loretta Minghella
    Chief Executive FSCS in the FSCS Plan and Budget for 2010/11

    But how has the SDO2 sub-class been assembled? Why would firms which do not handle Client Money like IFA’s be classed together in risk terms with firms who are stockbrokers and which do handle client money and so are surely of a different and more risky character. Furthermore, what is the logic or the justification for IFA’s being included in the same sub-class as a product provider such as Key Data Services?
    Who was consulted in the FSCS decisions on which type of firm was to be in SDO2?
    When were these decisions made?
    By whom were they made?
    Is there any forum in which IFAs’ views can be heard and points addressed on the matter of which sub-class the FSCS decides to put IFA’s in?

    I understand from this Budget paper that the FSCS wishes to consult Stakeholders on these matters. I see that in order to do so the FSCS consults its own advisory panel which is said to include representatives from Trade Bodies. Can you tell me please whom the FSCS consulted as representative of IFA’s? I also understand from the Budget paper that the FSCS conducted interviews in order to gather external views. Clearly this statement does not reveal a great deal about the FSCS process, so I would like to see the protocol adopted in determining the scope, number and content of these interviews please, and the report made to the FSCS on these interviews which determined the outcomes set out in the Budget document.

  2. Incompetent Regulators Awards Team 23rd February 2010 at 12:59 pm

    Chris you should be doing more.

    If IFAs represent less than 1% of UPHELD complaints at FOS and banks in the region of 59% (FOS figures). We should only be paying less than 1% or regulatory fees, less than 1% of regulatory requirements, less than 1% paperwork etc etc

    Less than 1% is negligible e.g. no regulations at all for IFAs.

    This work out to advsier only paying about £225 per head for gneral regulations and nothing for things we’re not involved in.

    Come on Chris start thinking smart and start being pro-active!!!!

  3. Yes come on Chris, you are supposed to represent us. You must be able to find out who represented IFAs during the consultation process. Also, with whom did FSCS conduct interviews in order to garner external views? Please post here if you were approached by FSCS re any consultation over this matter.
    I doubt very much whether any IFA was consulted.In which case we really should mount a legal challenge.

  4. Yes, let’s see all the legal advice that everyone obtained.

    Good point about the FSCS ‘panel’, who is on that?

  5. Well said Chris Cummings: This is a “regulatory and supervisory failure” …. with Keydata inappropriately authorised by the ‘a mindet of reckless indifference’ within the FSA.

    When I brought this matter to the attention of a Conservative PPC he was astonished. The FSA is in its death throws and I for one would be happy to kick it to death!

  6. I feel angry and naive in equal measure.Yes I should have found out how all this works before becoming directly regulated. However, I didnt then but am trying to now. It is not an easy investigation to undergo.
    How can one fee block comprise firms who DO take client money and those who dont? Worlds apart in terms of risk.
    Also, if we recommend life cover to clients, (who doesnt?!?) it now looks like we’ll be getting clobbered for £20million of PPI claims too, even though weve never touched them; who put those two things in the same category?!?…totally different things in the real world.
    IFAs appear to be an open cheque book to pay for the failure of the regulator to regulate effectively. So we have no say in the method of regulation, yet the people who regulate have no financial incentive to do it well. Surely those who have to pay should have the power?! or vice versa? I wonder if the regulation would have been better if the salaries of the regulators were at stake?
    What a total debacle from start to finish. Again. Who dreamed this structure up?

  7. Surely the Investment Banks such as Barcap,BNP,Merrills,Rabobank etc etc
    who are the main backers of structured products and notes and acting as counterparty
    risk takers should be asked to cough up
    some cash instead of paying it all as bonuses?
    Why when Keydata was evidently promoting innapropriate investments and cornering the market do we all have to pick up the Tab?
    The FSA where blatently asleep at the wheel yet again

  8. If I have to pay this totally unfair and disproportionate charge, that`s it. I`m rolling up my rug and heading for the hills.This industry is “barking”! I have clients in all the major indusrtries and when I tell them what is going on they laugh Hysterically. Forty years I`ve been in the trade, I`ve seen criminals and fraudsters come and go but this nameless gang of self serving beuraucrats are the worst thing to happen to our industry in 200 years. Can`t stand it any more. Will write when I get to hills. Take care everybody. Bye.

  9. All,

    The FSCS are not going to reveal their legally privileged advice – period.

    The only way is a challenge. Not endless talk and debate.

    Gareth Fatchett
    Regulatory Legal LLP

  10. Are all the people who keep having a go at Chris Cummings actually members of AIFA, or of any other group?

    I see so many firms both large and small who expect the proverbial blood from a stone yet contribute nothing, not a penny nor any positive suggestions as to how these monstrous rules and regulations can be put right, all in ‘anonymity’. Please put up or shut up.

    Come on Hector, sort this shambles out before you go, I cannot for one minute believe you can simply walk away from this, I may not be very bright but I am a fair judge of character.

  11. I’m with Gareth on this one. Now is the time to stand up for ourselves. Support Gareth and send him the tiny amount of money he wants to defend us. It may be the best investment you ever make!

  12. I would like to commend Evan’s comments above at 4.22pm.
    It is put up or shut up. I pay my due’s to AIFA which as a one IFA firm is quite disproprtionate to what a two or more man firm pays, but it is still good value. As Evan knows, I no longer pay towards IFADU’s coffers (for several reasonswhich I will not go in to here), but I have at least paid something in the past and may do again in the future.
    If you don’t pay the entry fee, don’t ask the body you want to represent you to fight your battles and don’t criticise it, pay up, get involved, do your bit.

  13. I must be missing something here. At what point should we have known that these rogues who have gone down, were incorrectly ascribed to what is clearly the wrong category?
    Why would they have been lumped in with IFAs? Is this something they would have sought or did the FSA determine the category off their own back?
    This seems so clearly wrong that I cannot imagine how the FSCS could argue that its right or fair.

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