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Aifa demands FSCS answers over “perverse” Keydata recoveries

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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Comments

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

  1. Becoming a headcase IFA 8th December 2011 at 9:30 am

    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.

  2. 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.

  3. 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?

  4. 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.

  5. 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.

  6. 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!!

  7. #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.

  8. 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?

  9. 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.

  10. When the FSCS pays a claim all rights to recover monies is vested in the Scheme, it therefore follows that it can pursue a recovery if it believes it is worthwhile.

    Why don’t people read Mike Fenwicks article?

  11. The long term answer to this may be to look carefully at the FSA business model. Provide generic advice to clients for which you charge a fee – technically this is outside the terms of the FSMA 2000, and therefore may not need to carry the level of cost currently necessary. You can then either refuse to provide any advice to clients on the products used to implement the advice or charge an additional fee that is more than sufficient to cover all these unexpected costs over, say, the next 20 years. For those who are ethically inclined you could put this product charge, or a portion of it, in a separate fund with the purpose of repaying part of it to clients on a running basis at the end of 20 year period. Such a fund would have to be outside the company and probably under some sort of business trust – but it is one solution to a problem this is likely to make it difficult for the retail sector to exist in its present form. If the financial consequences of the present system and regulation continue to escalate I would expect the emergence of an “underground” industry – a little like Prohibition in the US. Clients may find this even more expensive.The contingency fee described may be eye watering large to clients who may then gain some idea of the growing problems of providing advice. At least they then have a choice – do it yourself, pay for the “privilege” of full advice or make the regulator answerable for its effectiveness in maintaining a viable environment.
    If clear reasoning is provided to clients for this charging arrangement there may be some pressure from voters to sort out the present mess. Merely bellyaching about it will have no effect – consumers do not normally read these blogs.

  12. Let’s look at what really happened with KIS Ltd

    1. From 2005 throught to 2007 their literature was deemed incorrectly worded and the thematic review (which was kept secret from the IFA community and consumers) expressed concerns about misrepresentations of the risk factors of this type of plan.
    2. After the thematic review our flawed and inadequate regulator failed to get KIS Ltd to correct their literature and allowed the firm to continue trading and promoting their products to consumers through intermediaries.
    3. KIS Ltd did not get their ISA products structure approved by HMRC prior to their launch. That was maladministration of the worst kind and a degree of arrogance concerning the management of the firm I have difficulty accepting.
    4. KIS Ltd did not ensure that clients money deposited with SLS Capital was overseen and secure, allowing a thief to misappropriate £100million and then allegedly die ????
    5. UP to this time, KIS Ltd was solvent, had excellent pre tax profits and was able to meet its liabilities.
    6. The we have HMRC declaring ISA plans non compliant and asking for a tax bill of £5million to be paid in 2009.
    7. KIS Ltd was at that stage in negotiations with HMRC as to how to resolve the issue, pay the back tax out of their profits and move on.
    8. Step in the FSA with its great big clod hopping boots on and declare KIAS Ltd insolvent and have administrators appointed.
    9.. Firms with cash look to purchase KIS Ltd
    but none accepted.
    10. Adminstrators start their processses and end up charging millions in fees against the firms assets.
    11. FSCS accept firm is in default and start to pay claims for loss.
    12. FSCS make a special levy to cover payments to consumers, which appears to be far in excess of monies paid out.
    13. Current situation no plans for the sale of the business of KIS Ltd
    14 The final screw up and nail in the coffin of the Life Settlement industry with an ill informed choice of words branding the Life Settlement plans as toxic and high risk.

    All this under the eyes of a regulatory body, headed by incompetent and ill informed management and staffed by unqualified (in our industry that is) individuals whose sole purpose now they have the RDR to beat the IFA sector with, is to destroy the sector and place the distribution of nearly all financial products in the hands of banks and direct providers.

    The FSA is the biggest threat to a healthy financial services industry that could ever be conceived of, it has done nothing to protect consumers and done even less to get rid of the crooks, cheats and liars in our industry.

    Every IFA who feels like I do, should write to their MP and the Chancellor in no uncertain terms stating this and wake up Parliament before it is all too late and we lose a healthy, wealth creating industry to the apparachiks of the EU.

    Good on Cameron last week, Great Britain needs to reestablish its identity, we are an Island race, proud and industrious, let’s get back to work and get rid of the shackles of the EU, the flawed FSA, close down the FSCS by instigating a product levy and set up an ombudsmans service which is not under the control of the FSA.

  13. Just had clarification from FOS as to clients rights on this issue by phone.

    Once the clients claim has been paid out by FSCS to the maximum allowed, all rights for further recoveries against any other party are assigned to the FSCS by the claimant.

    The investor does not have the right to then go against the advising firm for so called mis selling if initially the FSCS claim was paid out, especially if the FSCS claimant did not spell out that they believe the product was mis sold.

    The FSCS does not have the power to make a claim for mis selling against the advising firm under their rules, the ability to recover payments back lie with the firm KIS Ltd and its assets, until those assets are disposed of, no claim against an IFA or IFA firm can be processed in any shape or form. THe FSCS do not enjoy powers sufficient to make regulatory adjudications.

    These guys are not even following their own rules,

    Their mandate only goes so far as assets of the provider firm which went into adminstration.

    Had PWC disposed of the assets quickly instead of racking up millions in fees unnecessarily, then Stewart Ford and his backers would have been able to pay out investors.

    In other words a right royal cock up.

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