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.