The structured product debate has centered on the financial stability of counterparties since Lehman’s demise but little attention has been paid to what might happen if the administrator went bust. That has now changed.
Scarce information from the regulator in its official announcement and later on its Moneymadeclear website only heightened fear amongst advisers and their clients of another structured product debacle and led to speculation about risks to investors’ cash.
Fortunately providers were quicker to provide reassurance. On Tuesday Blue Sky Asset Management released a statement saying it did not believe investors in its plans would incur any losses as client assets were held through a separate corporate entity which could not itself become insolvent.
With Keydata out of the picture and known for having its fingers in many pies, concerns then shifted to the extent of possible disruption to income and maturity payments on suspended plans.
The same day Moneymarketing.co.uk revealed that a tax bill of at least £5m from HMRC on non-compliant Isa products that invested in traded US life policies was the reason behind the firm’s abrupt insolvency.
Responding to structured product bashers after this revelation Blue Sky chief executive Chris Taylor said: “This is not a structured products event. This is a product development issue about life settlements. Life settlements never were and aren’t a structured product even when they’re issued by a structured product provider.”
If this is not a structured products event it is most certainly a communication breakdown between Keydata and the relevant authorities for the flaws of four year old products to go unnoticed until now.
Furthermore, the FSA’s “too early to say” line on the fate of investors’ cash prompt one to ask whether everything had indeed been “done to protect the best interests of customers”, particularly as the regulator wasn’t able to confirm whether assets were safe before forcing Keydata into administration.
To PwC’s credit, communication improved over the course of the week, and by Friday the status for captive assets, income payments and IFA commission had been outlined.
With 40 expressions of interest for Keydata, the focus this week will undoubtedly be on which suitor will end up swallowing the business.
But once the dust has settled, perhaps the real focus should be on whether the regulator could and should have done more to stem the hysteria surrounding Keydata’s insolvency?
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