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Dealing with FSCS Keydata letters

FSCS is moving in on IFAs that sold Keydata Lifemark plans

IFAs that sold Keydata Lifemark products are now starting to receive from Financial Services Compensation Scheme solicitors the legal proceedings issued to recover the compensation paid by the FSCS to clients who invested in Lifemark bonds on the advice of their IFA.

An IFA that receives the claim form will be invited to agree a 12-month stay of the proceedings to facilitate negotiations. This is the same tactic adopted by the FSCS last year in connection with the earlier proceedings relating to Keydata SLS products.

The tactic proved tempting for IFAs since it allowed them time to try and get confirmation of cover for the claim from their professional indemnity insurers and, if this was not forthcoming, to decide whether they would, and could, pay the claim.

If the FSCS adopts the same settlement strategy as for the Keydata SLS products, the IFAs that only advised a small number of clients to invest in Lifemark products, or face a relatively small total claim, are likely to be offered a substantial discount of up to 50 per cent of the claim if they agree to an early settlement.

The FSCS has shown little appetite for pursuing claims against a large number of IFAs, probably because it would result in an unwieldy action that could delay and complicate the proceedings that do go before a court for determination.

Those IFAs that do not have insurance cover or sufficient resources to pay a discounted claim will be faced with the unenviable prospect of going out of business and possibly some form of insolvency proceedings. However, that will not arise unless and until the FSCS has proved its claim against the particular IFA or any test or lead cases are decided that make it unlikely the claim can be successfully defended.

For those IFAs that intend to sit on the sidelines until such a time, it will be vital that they do not allow judgment in default to be entered against them by failure to take some step in defending the proceedings.

There is concern within the IFA community that a lack of a well funded professional association and lack of a willingness to stand together make IFAs easy targets for the FSCS to pick off individually. IFAs that band together to form a defence group can expect to reap the benefit of economies of scale and take advantage of the applicable generic defences that are likely to be put forward in the expected test cases for the SLS and Lifemark claims.

Those IFAs that agree to an early settlement of the claim against them will not be able to take advantage of any subsequent court decision in favour of IFAs that sold Keydata products.

Robert Viney is a partner at law firm DAC Beachcroft

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Deja vu

    Anyway, if your PI insurer told you that you aren’t covered I would like to help you with a claim against the broker and the insurer.

  2. What we need is an IFA Defence Union.

  3. Evan, I believe this particular witches brew could do with a healthy dose of guerrilla legal warfare. Any thoughts?

  4. Julian Stevens 22nd May 2012 at 7:46 am

    Whatever happened to that cornerstone of English Law, namely that an accused person shall be deemed innocent unless or until proved guilty?

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