In a note to members today, Aifa says legal opinion has advised that there is “no obvious flaw” in the FSCS’ decision to levy the intermediary sub class that would stand up in court and it is bound by its rules of operation so had no option.
Money Marketing recently revealed that Regulatory Legal had issued proceedings as a first step to launching a judicial review against the Financial Services Compensation Scheme’s £80m interim levy.
But an Aifa note to members, sent out today, says: “The fundamental problem of bringing a judicial review is that we must invite the judge to ignore the exact terms of the contract, which were given to consumers and advisers. That will be difficult. Judges, even admin court judges, tend not to like ignoring contractual terms.
“Our legal advice states that a case, at the point when it was subjected to analysis of any rigour, would start to look weak, if not positively ill conceived.”
Aifa says its lawyers highlight that the scale of impact on each adviser, although unfair and costly, is not likely to be deemed as of “ruinous proportions” by the judge and it would be an “uphill task” to win judicial sympathy as the FSCS will present the cost as £1,300 at most.
Aifa says: “Given the vigorous defence the FSCS will mount, the costs of the case could be very significant. It would be a poor outcome to see firms faced with legal bills in addition to the costs of this levy – deeply unpalatable though it is.
“The opinion we have received suggests a legal challenge to the FSCS levies would not yield the results we wish to see. We will keep the situation under review and will consider any new evidence that maychange this position.”
Aifa says it is meeting with the FSA to to get a commitment which ensures firms of a similar business model to Keydata are closely examined to prevent further failure.