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FSCS ends four-year legal battle against Keydata advisers


The Financial Services Compensation Scheme has ended its long-running battle with advisers who sold Keydata products.

A consultation paper published by the FCA and PRA on the management expenses levy limit reveals the compensation scheme is dropping legal action over four years since it began.

It says: “Costs in this area [financing and major recoveries expenses] are expected to fall by 50 per cent in part due to the conclusion of recovery action in relation to the failure of Keydata Investment Services.”

The FSCS will not comment further.

In October 2011, the FSCS hired law firm Herbert Smith Freehills to start legal proceedings against Keydata advisers in a bid to recoup £75m in compensation.

By February 2015 £122m had been recovered, including £52m resulting from litigation against advisers. Costs incurred by the compensation scheme hit £20m.

The FSCS has paid out over £330m in compensation since the firm entered administration in 2009, making it the biggest investment failure in its history.

In May 2015, the FCA revealed it was pursuing Keydata founder Stewart Ford for £75m and was seeking to ban him from financial services.

Ford, former Keydata sales director Mark Owen and former compliance officer Peter Johnson are appealing their decision notices in the Upper Tribunal.

Keydata timeline

October 2011: FSCS instructs law firm Herbert Smith Freehills to bring legal proceedings against Keydata advisers – in a bid to recoup up to £75m in compensation paid out to investors – on the grounds that firms breached their duty of care and made false statements about the suitability of the products.

February 2012: FSCS offers Keydata distributors with claims against them of less than £50,000 a 50 per cent early settlement discount.

September 2012: FSCS settles 103 claims it was pursuing against firms.

March 2013: Case management conference held to determine how the legal action should proceed against firms being pursued by the FSCS and the criteria for selecting six lead defendants.

June 2013: Money Marketing reveals advice firm Financial Escape secured a 99 per cent settlement discount with the FSCS over client recommendations to invest in Keydata, paying just £400 in an out-of-court settlement.

August 2013: FSCS selects six lead defendants, among them Positive Solutions and Chase de Vere.

December 2013: FSCS settles with all of the lead defendants, with the exception of Chase de Vere.

January 2014: FSCS writes to other advice firms about becoming lead defendants.

March 2014: Case management conference due to be held in March is postponed until May after HSF asked for more time to consider the selection of new lead defendants.

April 2014: FSCS writes to firms informing them of its intention to expand the criteria for replacement lead defendants.

May 2014: FSCS proposes expanded criteria for replacement lead defendants at a case management conference. It expects to serve notices to new lead defendants in July.

November 2014: Chase de Vere hit with £560,000 fine for failures surrounding Keydata.

January 2015: FSCS drops cases against advisers.



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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Oh great. So if I would have toughed it out I could have got away free. Instead, legal fees, compliance consulting and a final offer and payment of settlement. And all the while knowing full well that I had no case to answer as a) The files for the 3 clients were absolutely correct.
    b) No client lost a penny as they all received compensation.

    Of course that the Regulator placed KD as an adviser rather than a provider was the biggest cock up compounded by the now well publicised many other regulatory failures.

    Any chance of a refund? (Is get getting icy in Hell?)

    Perhaps I should sue Herbert Smith (a disgrace to the legal profession), the Regulator and the FSCA? When I win the lottery next week I certainly will.

  2. I am a simple man with simple clients and provide simple solutions. Now, I am not saying love me, love me I am thick, but there are some things my simple brain will not allow me to understand. One of these things is why the FSCS was involved in dealing/talking with firms that are still trading.
    I thought they were there to deal with compo for investors who lost out and whose advice firm had gone out of business for one reason or another.
    Can someone please explain to me (in simple terms) if I am missing something here? I cannot get to grips with this at all.
    Thank you in anticipation of some easy to read explanations

    • Marty, FSCS paid compensation following the failure of Keydata (irrespective of whether a client complained, they mailed all investors inviting a claim for compensation), and then used their subrogation rights to pursue advisers, alleging that they were negligent in the advice.

  3. This does rather look like the FSCS was simply bullying advisers into paying and when it ran into some who were prepared to stand up to the bully they ran away.

    Phil Castle at Financial Escape seems to have made a shrewd move, though. £400 to make them go away no doubt sticks in the gullet but lest face it, that is less than a FOS fee and considerably less than fighting it ovr all this time.

    As for those who, after all this, would recommend Herbert Smith, please raise one hand.

    I suspect those who would not recommend Herbert Smith are already raising a couple of fingers.

  4. Christine Brightwell 18th January 2016 at 5:10 pm

    Oh dear. Again. Is it me or is the chap in the picture receiving a punch to to chin?

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