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Aifa seeking legal advice following news of Keydata IFA burden

The Association of Independent Financial Advisers is seeking legal advice following the Financial Services Compensation’s decision to recover Keydata compensation costs from the investment intermediation sub-class.

In its latest industry newsletter, the FSCS estimated claims against collapsed firm Keydata Investment Services could cost between £25m and £50m which would be footed by the investment intermediation category.

Aifa is calling on the FSA to instigate a full review of its authorisations procedure as it was widely assumed that Keydata was a manufacturer. If this was the case claims would have fallen on fund managers rather than IFAs. It says the FSCS’s estimate of up to £50m in compensation claims risks breeching the cap placed on the investment intermediation sub-class for the first time since the introduction of the scheme.

Aifa director general Chris Cummings (pictured) says: “Keydata portrayed itself to be a product manufacturer yet the cost of its collapse is being picked up by the IFA profession.  This is clearly an issue for the regulator as it has allowed a firm to position itself as one thing and yet be authorised as another.  If this was known by FSA, which has to review each business plan of every firm seeking authorisation, then the firm should have been refused authorisation.  If the firm’s plans changed post-authorisation, then this is another supervisory failing by FSA.

“FSA has recently stated that it is now scrutinising the firms it allows into regulation more carefully.  We welcome this but feel a deeper, root and branch review is needed.  For Keydata to fail so spectacularly must raise questions about how FSA was supervising this firm.

“We are now in discussion with our legal advisers over the decision to recover the compensation costs of Keydata from the investment intermediation sub class.”


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. The FSA is a law unto itself – it will do everything it can to pass the buck.

    If that doesn’t work it will simply use smoke and mirrors to disprove its own negligence and incompetence.

  2. Jason Stather-Lodge 15th December 2009 at 6:00 pm

    I recently made a complaint about a product provider to the FSA and they have advised me that the review of my serious breach of COB rules will depend upon the risks posed to the FSA’s objectives, the quality of the evidence and the seriousness of the accusations. They do not give you any feedback either on how they have followed up the information because the Financial Services and Markets Act 2000 apparently imposes restrictions on how they can deal with confidential information. They also advised that they cannot advise us at any point what has been done on the basis that “if we were to tell you about an ongoing investigation it might prejudice the investigation itself”.

    As an IFA we have prescribed rules in relation to the way we have to treat all complaints and it is shame the FSA do not practice what they preach.

    What exactly is the FSA for if not to punish the product providers for marketing and promoting products that have been either promtoted incorrectly or run incorrectly. As a synic though going after teh real perpetrators is too hard when they can constantly punish the hardworking and honest (in the majority) IFA community.

  3. Perhaps AIFA could assist IFAs in their research and not throw money at expensive, and fruitless, legal advice, it should have been immediately apparent that Keydata was to be avoided at all costs.

    There are quite a few out there that I wouldn’t touch with the proverbial bargepole.

    What I would love to find out is how many IFAs actually used the products ‘manufactured’ by this firm, or NDF, or Arch Cru, or any otherw hich have, or may soon, fall between the regulatory gaps.

    One day there will only be one firm left to pick up the FSCS tab, all this was predicted in 1987.

    There is another way.

    Nobody listens?

  4. The Keydata mess just rumbles on and on – with the only winner so far seemingly PwC, who are clocking up in the region of a cool £1m per month, for what is now half a year, without actually solving anything for investors, advisers, employees, creditors … or the FSA, so far. Of course, the circumstances of the administration have proved to be anything but what they expected to find – they expected a business with a pile of assets, blue chip clients and an easy sale process that would net them their fees within 2 weeks – but, regardless of the mess they have encountered, where is the action and progress needed to actually solve anything? The Life Settlement mess of non eligible ISAs and missing money is well known – yet no teeth have been shown in dealing with Keydata and its directors, etc, for the mess it created in Luxembourg that has led to this FSCS compensation requirement. And the FSCS claims will escalate dramatically if PwC don’t sort Keydata out soon/asap – as so far it is ‘only’ the Life Settlement’ products that are leading to claims to the FSCS for compensation BUT the structured product side of the business will be jeopardised eventually, if they don’t sort the business out and find proper solutions. If they don’t, however, it will be no skin off their accountancy noses – they will bank their fees regardless, ahead of all creditors – unless the FSA reviews their actions and success (or lack of it) and perhaps concludes that they may not actually be the best firm to award further lucrative administration business to. Regardless everyone whould be watching carefully to see that Keydata doesn’t explode/implode, with significant further losses and claims created.

  5. The FSA is directly responsible for all of the structued product provider failures and for Arch Cru. How do they possibly justify throwing the bill for compensation on to IFAs?

    Time for some serious legal work.

  6. With respect to the Keydata situation was the Regulator doing it`s job effectively?

    “Res ipsa locquitor!

  7. Anonymous 6.20 pm above

    I hope that one day you fall and end up with egg on your face. Did you predict the downfall of Lehmans, Bear Sterns, Northern Rock, RBS and the rest? In the climate of late NOTHING can be taken for granted. You should zip it and not be so smug

  8. At last AIFA is beginning to stand up for us few IFAs that are left. I for one congratulate them as this madness cannot continue. We the few that do look after our clients cannot keep paying for those that just start up flog as much as possible and then disappear with the ill gotten and get away with it.

    I agree the winner so far and possibly only winner is PwC – as normal.

  9. At last AIFA is beginning to stand up for us few IFAs that are left. I for one congratulate them as this madness cannot continue. We the few that do look after our clients cannot keep paying for those that just start up flog as much as possible and then disappear with the ill gotten and get away with it.

    I agree the winner so far and possibly only winner is PwC – as normal.

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