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.