The Financial Services Compensation Scheme has started legal proceedings against firms who recommended Keydata Lifemark products.
A letter, seen by Money Marketing and sent on behalf of the FSCS by law firm Herbert Smith to 162 adviser firms, states the FSCS’s belief that adviser firms had failed to ensure they had taken reasonable steps to ensure Lifemark products were suitable for investors, had failed to ensure investors understood the risks involved with Lifemark products or had failed to ensure recommendations were clear, fair and not misleading.
The letter says: “Even without having conducted any of his own due diligence, any reasonably competent IFA would or should have known that the Lifemark products were high risk investments or at any rate higher risk than was appropriate for the relevant investors.”
The letter goes on to say that firms who have been sent the letter have breached its contractual and statutory duties through negligence and negligent misstatement. Firms are required to acknowledge receipt of the letter within 21 days and submit responses to the allegations within three months.
An FSCS spokesman says: “The FSCS pursues recoveries whenever practical and cost effective to do so. We believe good claims exist against a large number of IFAs for loss suffered by investors who invested in certain Keydata Investment Services Ltd products.
“As a result, and in order to protect against the possible expiration of the limitation period, we have issued legal proceedings against a number of IFAs who sold the first of the Lifemark-related products. We have served those IFAs with FSCS’s claim form, and requested a stay to allow the FSCS to engage directly with the IFAs in respect of its claim. We cannot comment further at this stage.”
Firms to have been sent the letter from Herbert Smith include AWD Chase de Vere, Sesame, Tenet, Lighthouse, Intrinsic, Origen and Positive Solutions.
In December, the FSCS had accepted 5,200 claims from Keydata SLS investors and paid out £67m. An industry levy of £326m was raised to pay Lifemark claims.