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.”