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FSA should have avoided panic over Keydata

Following the administration of Keydata last week, a number of concerns need to be raised regarding the way the news was communicated to advisers and the public.

News of Keydata’s administration was relayed via a short press release from the FSA last Monday afternoon which gave no indication as to the reasons for the administration. This was followed by a message on the regulator’s Money Made Clear website suggesting it was “too early to say” whether investors have lost money.

Cue wild speculation regarding the reasons for the insolvency, concern from advisers and the general public regarding the safety of assets and debate about the future of the structured product industry.

It was left to the likes of Blue Sky Asset Management chief executive Chris Taylor to articulate the reasons why assets were likely to be ringfenced and therefore safe. And it wasn’t until Tuesday afternoon, when broke news that Keydata had been hit with a huge tax bill, that the mist began to lift.

There may have been legal restraints on what the FSA could and could not say in its original release but surely the regulator should have established the position of clients’ assets in the event the firm was made insolvent before applying for the insolvency?

And if this assessment was made, surely such an indication should have been given by the FSA alongside, or very soon after, the announcement of the administration.

Likewise, the FSA could have avoided a great deal of concern and speculation if an indication regarding the tax bill was given to journalists.

Since then, administrator Price-waterhouseCoopers has provided a steady stream of information. Assets are likely to be safe, suspended income payments should begin again shortly and IFA commission payments will be paid. In accordance with usual HM Revenue & Customs practice, PWC will look to recover tax liability from the Isa manager rather than the investor.

The episode appears to be an example of the FSA keeping to its word following chief executive Hector Sants’ recent “be very frightened” speech.

Keydata is understood to be furious, believing it has been made an example of. We should find out in the weeks and months ahead whether the regulator was heavy-handed or not.

The main priority now must be for an orderly sale of assets. Another industry scandal is in no one’s interests.


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