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FSCS recovers £100m from Keydata; rebates half to fund managers

The Financial Services Compensation Scheme has recovered £100m in Keydata compensation and will rebate £50m of that to fund managers.

In a blog posted on the FSCS website, chief executive Mark Neale says fund managers will receive a cheque for £50m this month.

And he says financial intermediaries have also benefitted from the recoveries work this year and last year with £30m being used “to offset the costs of compensation and the costs of recoveries”.

The FSCS has been locked in a legal battle with advisers over Keydata, which is set to proceed to trial following the selection of new lead case defendants in October. Advisers have been offered settlement discounts of as much as 90 per cent. 

Neale says the FSCS has already recovered “several times more” than the costs it has incurred through the legal action.

He says the FSCS will publish a “full account” in the new year of how much it has recovered from Keydata and how much it has spent to achieve those recoveries.

Last year, the FSCS said it expected to recover £75m in Keydata compensation. In January, Money Marketing reported it was facing legal costs of £30m in its battle with advisers.

Neale says: “It’s not every day you get a cheque for £50m from FSCS. But this is what will happen for fund managers in December.

“And financial intermediaries also had the benefit of our recoveries work this year and last year with some £30m being used to offset the costs of compensation and the costs of recoveries.

“How come? Well, because these returns of funds by FSCS represent one part of the significant recoveries we’ve achieved following the 2010 failure of Keydata.”

An FSCS spokeswoman confirms fund managers will receive a cheque based on the proportion of the levy they paid in 2010/11. In January 2011, the FSCS raised an interim levy of £233m from fund managers and £93m from investment intermediaries relating to the failure of Keydata.

Neale adds: “This action continues; it will continue while there remains value to recover. But it has already made a major contribution to recoveries we have achieved. FSCS has reached fair settlements with many of the businesses against whom we took action.

“The industry is significantly better off as a result of FSCS’s action to recover value and is already seeing substantial returns.”

The FSCS levy for investment advisers for 2014/15 has been set at £112m, up from an estimated £105m. The levy for investment advisers in 2013/14 was £78m.

Advisers have to meet the costs of FSCS claims up to £150m in one financial year.

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. £93 million paid by intermediaries initially, £100 million recovered from intermediaries by the “action” and £30 million refunded to intermediaries. All for the failure of a fund provider.
    What could be fairer than that?

  2. So fund managers, who should have been in a much better position to carry out due diligence than intermediaries, get compensation?

  3. I wonder how much of the money raised from the Keydata mess (once the huge Herbert Smith & court costs have been paid) is going to be absorbed into the FSCS budget for ‘operational and administrative’ purposes. We pay when things go wrong, we pay when the FCA screws up, we pay when the FSCS makes a mess of things, we pay for their increasing salaries, plush offices, gold plated pension schemes, we pay.

    Soon there will be more FSCS and FCA staff than advisers. I want to point out all of the injustices of this whole mess, but what is the point because we are never listened to.

  4. In an article on 2nd May 2012 Dr Debbie Harrison an academic for CASS business school and former writer for the Times who has since been appointed to the FSCP said: “I was commissioned to write a report for specialist advisers in the wealth management market in a personal capacity, to explain how the traded life policies market worked, and to analyse Keydata’s approach. At the time, the approach conformed with recognised industry standards.”She suggested the FSA was more at fault, than the advisers, for not monitoring Keydata, which was put into administration by the FSA in June 2009.

    Since that quote she has been appointed to the FSCP and then been very quite on the subject of Keydata.

  5. Add to that on 17 Mar, 2010 Douglas Ferrans, former boss of Scottish Amicable and Insight Investment, chairman of the Investment Management Association (IMA) said:
    “he knows Stewart Ford from way back when he commuted between Glasgow and London. He described Ford, the founder of Keydata which plunged into administration ……, as an ‘entrepreneur’ whom he believes is a victim of a sting”

  6. Difficult to comment on this without writing an essay.
    1. The Regulator bears culpability. They knew facts which they didn’t disclose to the investment community. They made a compliance visit which it seems was ineffective.
    2. As Phil as pointed out the gurus got it wrong too but didn’t have the ethics to stand up and be counted. Take a bow Dr. Harrison.
    3. This was a failure of a provider. The failure was as a result of a criminal act. Elias did a runner with the money.
    4. The recovery process was both a farce and effectively blackmail. Many did not have PI cover as the insurers ducked out claiming that they excluded criminal acts. The smaller guys, some admittedly may have been culpable, but some may just as well have been clean, but to fight in courts may well have cost more than the claim being made and the process drags on interminably. Initial claims were grotesque and the subsequent discounts made it uneconomic to fight and clear your name. So – Blackmail.
    5. The whole process was badly handled from the outset. Herbert Smith scandalously and hugely breached Data Protection. All they got was a smack on the wrist. Banks get fined billions for the same crime. Regulators have admitted in private that they would not have pursued this in the way it has been had they had the benefit of hindsight.

    Conclusion – a bloody mess and I still think that the cost benefit is a whitewash.

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