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Communication breakdown

Advisers and clients were caught off guard last Monday with the impromptu announcement from the FSA that it had successfully applied for Keydata to be placed in administration on the grounds of insolvency.

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 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?

Let me know your thoughts by clicking on the link below.


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. FSA & Keydata
    Should the FSA have done more to reduce uncertaintly about Keydata? -Absolutely. Did the FSA act with what appears to be a complete lack of concern for consumers? -Absolutely. With a surprising & noticable lack of information forthcoming from the FSA on Keydata, most of our clients; who we as a responsible IFA have been in regular communication with, have been entirely unsure about their investments. As we now know how much many at the FSA receive in bonuses, one would expect they could spend a little of their well paid time adhering to their much vaulted but clearly flaunted, TCF principle. I for one cannot wait for a Conservative review.

  2. FSA & Key Data
    It feels like a very heavy handed and defensive approach from the FSA. A much better outcome could have been achieved by working out a solution rather than the knee jerk reaction taken with the corresponding uncertainty.

  3. Ned Naylor - IFA 16th June 2009 at 6:44 am

    Keydata & HMRC ISA Rule breach
    Has anyone actually obtained HMRC approval from Keydata for the products they took to market which are now allegedly in breach of ISA rules. The FSA have stated to me that they do not vet products, that is the responsibility of the company who put them to market, no proof from HMRC seems to exist or has been disclosed to back up their claim the products did not meet HMRC ISA rules. Surely someone from Keydata submitted them to HMRC for approval. If approval was given, why are they now deemed to have breached ISA rules and surely someone from the FSA with a bit of common sense should have actually verified the HMRC claims for rule breach before declaring the firm insolvent. You couldn’t make this situation up as a fictional event if you tried. Once again our regulatory body, whose wages we actually pay, does more harm than good with such precipituous actions, they have not instilled any confidence in the market and ruined an otherwise solvent company.

  4. Keydata
    What I would like to know is for how long the Regulator had been aware of the problems at Keydata before it forced them into administration, and why it allowed customers to continue to invest with Keydata during that period. Why did it allow customers, who it purports to protect, to potentially risk money by investing with Keydata at a time when the FSA must already have known what it was going to do? Surely any investors who have applications pending with Keydata will now not proceed, and will probably now not invest elsewhere because of lack of confidence. Once again the actions of the FSA further undermine confidence in an industry where confidence has already been destroyed, principally because of the Regulator’s inability to regulate banks properly.

  5. Keydata – breakdown in communication between authorities
    To say this is a communication breakdown between Keydata and the relevant authorities is a complete understatement. The questions that arise are; 1) how was Keydata allowed to promote not one, not two ……. but 12 separate plans over a prolonged period of time, that failed to meet ISA regulations and why was this not picked up sooner by either HMRC and or the FSA? Second, at point did HMRC identify the flaws, and at what point thereafter was the FSA advised?

  6. Norman Hedges, IFA. 16th June 2009 at 10:21 am

    Keydata and the FSA (and HMRC)
    The Keydata plans have been offered since 2001. How is it that ISA product approval had not been achieved before now? The FSA surely has a responsibility to issue industry and public warnings. The HMRC has probably now ensured that it will not get its money. Could HMRC have worked with Keydata to allow continued trading, in products which offer a very reasonable risk / opportunity for good returns? Through that process enjoying tax receipts from UK trading activities rather than nothing from a company in administration?

  7. FSA – Key Data
    Once again the FSA acts like a medieval robber baron. Sending out raiding parties either to exact tributes (sorry ‘fines’ in their rule book/jargon) or else to just destroy the farms… oops firms!!
    The FSA has a two pronged strategy in place to try to deflect attention and criticism from the part that it played in the financial crisis.
    The first is to thrash around and make itself look big and powerful by issuing fines, closing down firms, banning brokers etc…
    The second is to tell us that, despite its own total failure in this area, it is THE organisation that KNOWS that MORE regulation is the answer. What utter rubbish.

    More and more regulation is not the answer.

    Proper regulation, properly overseen and administered is absolutely necessary, as is a requirement that any such regulation should be overseen by an organisation that understands the market place.
    The FSA, in it’s current form is not that organisation as it is so far removed from reality.

    The FSA is fighting for it’s own survival and this is therefore hardly the time for it to be campaigning for more regulation especially as it has been proven to have failed to properly oversee the regulation currently in place.

    I echo another contributer in hoping that a Conservative government will be installed in time to effect this.
    Gordon ‘Big Brain’ Brown, who set up this tripartite scheme of regulation, despite his recent protestations to the contrary, is too arrogant to ever admit that he could be wrong or have made any mistakes so will not radically reform things.

  8. Communication breakdown
    “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.” But hang on ~ the FSA’s very own home web page describes itself as “an open and transparent regulator”. Complete garbage, of course, but then garbage seems to be the FSA’s principal stock in trade.

  9. Ned Naylor - IFA 16th June 2009 at 12:51 pm

    What a Farce
    As the FSA mismanagement and knee jerk reaction to Keydatas issues with HMRC unfold, there does not appear to be any disclosure to back up the HMRCs contention that the ISA plans alleged to be non compliant were non compliant.

    The FSA is not accountable, it is not a public body, the regulated members pay their wages through our fees, but what do we gat, a totally unfair and inadequate system of regulation which allows the FSA to ride roughshod over what was, before its actions a perfectly sound financial company, which is now the subject of a bidding war to gain control of its clients, much to the disgust of IFAs all over the country.

    It is wrong to invest in the executive of the FSA such draconian powers, without there first being some form of check and balancing procedure to ensure the rights and interests of customers is protected.

    Someone needs to be held accountable for this mess.

  10. Keydata failure
    Keydata Management clearly failed to properly set up and to check the validity of these products under ISA rules and therefore bear the brunt of the responsibility. It also seems surprising that it has taken all this time for the debt to HMRC to become an issue. How long have negotions been going on? At what stage were the FSA involved? Why could no agreement be reached with HMRC? The FSA actions confirm once again that the senior staff are overpaid, incapable of reaching sensible decisions, and motivated principally by protecting their own position, and lucrative careers, funded by the huge contributions that we are forced to make to them, with almost no accountability on their part. Does anyone have any (questionable) Sicilian relatives?

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