View more on these topics

FSCS to pay out on Lifemark claims

Advisers are facing another large Financial Services Compensation Scheme levy after the scheme decided that Keydata Lifemark investors are eligible for compensation.

A statement from the FSCS today says: “Following our investigations to learn more about the way in which Keydata promoted the Lifemark-backed bonds, and the products themselves, investors will be pleased to know that we expect to be able to compensate eligible claimants. We are satisfied that the marketing materials produced by Keydata to promote the products did not comply with the Financial Services Authority’s rules.”

It adds that the FSCS will send application forms to affected investors in October and issue another statement on the calculation and payment of compensation by October.

Around 23,000 Keydata clients invested £349m in Lifemark – which is teetering on the brink of insolvency – and are now entitled to claim for up to £50,000 each in compensation.

The products covered are Keydata’s defined income plan issues 1-8, the income plan issues 1-14, the secure income bond issue 4 and the secure income plan 1-14.

The costs of this could combine with the other compensation claims this year to breach the £100m annual limit that can be paid by the 6,500 firms in the investment adviser sub-class.

The remainder would then be paid by the investment provider sub-class up to a total of another £270m, and any extra compensation bills over that would be levied across the entire retail industry. 

The Lifemark compensation is expected to fall within the investment intermediary sub-class as failed structured product provider Keydata, which passed the assets to Lifemark, was classed as an adviser for the previous levy.

The investment advice and provision sub-classes are already facing costs to cover FSCS claims relating to the Alpha to Omega, Integrity and Wills & Co failures this year.

The FSCS in March already announced an investment intermediary levy of £24m for the 2010/2011 year. The FSCS also announced an interim levy of £80m payable by investment intermediaries to cover a shortfall in its payments for the 2009/2010 year.

However, the decision will come as a relief to UK advisers who placed clients in Keydata’s Lifemark products, who could have been forced to pay out compensation themselves if the FSCS had not stepped in.

In addition, as the FSCS compensates Lifemark investors it will take over their exposure to the group’s traded life settlement portfolios, which although facing cash shortfalls are not totally insolvent.

KPMG’s Luxembourg branch is currently in talks with a consortium of IFAs and another group of Keydata bondholders over securing lifeline funding to keep Lifemark’s bonds solvent.

If that process succeeds then the FSCS could later be able to rebate the levies back to the industry, and even provide extra compensation to clients who have only been able to receive the maximum £50,000 per investment.


News and expert analysis straight to your inbox

Sign up


There are 12 comments at the moment, we would love to hear your opinion too.

  1. Roddi Vaughan-Thomas 28th September 2010 at 2:18 pm

    Oh, that’s lucky, Stewart Ford won’t have to give back the £38 million he took in undisclosed fees now. Shame the IFAs that didn’t know about that particular 10% hidden upfront charge will have to pick up the bill now….

  2. Financial Sleeping Authority?

  3. Why do the claims not have to go through FOS to judge whether the advice was correct in the first place.

    It seems to me that advisors are now being let off lightly with the rest of us having to pick up the bill. Surely the advice should be judged in conjunction with the marketing literature which we already know was inaccurate.

    Am I missing something here!

    What if the same thing happens with the N & P Building Society where we already know much of the advice appears questionable. Will they judge that in the same manner and then dump the bill on the rest of us?

  4. Shambolic, can’t think of a more appropriate word, can you?

  5. I forgot to say that this will become your prison, and theirs (the regulators and their political masters).

  6. When will everyone realise our regulation has not worked.
    They are making the good pay for the bad because the other bad lot cannot police the bad.
    22 years on and still they cannot stop this happening, why, it is purely incompetent regulation.
    I wonder when Ifas will be paying the fines for criminals??.
    FSA have a look at yourselves. You could not arrange a pi** up in a brewery!!!

    We have to start going for self regulation.
    Surely we can go to the markets and outline after 22 years of trying to regulate our industry it has not worked.
    I agree in protecting the consumer but not at my expense for others mistakes.

    AIFA will just say, we are not happy about it and again we are pointless. I have no respect for them as they never manage to stop us having to pick up the pieces.

  7. Firstly, as has already been discussed at length, nobody but the FSA seems to consider KeyData to have been an intermediary.

    Secondly, this isn’t the first time a provider has failed and its product marketing literature has subsequently been found to have been in some way defective. From that, one might reasonably expect the FSA to have learned a lesson or two and, instead of dumping onto the already hard-pressed IFA sector the cost of sorting out yet another mess after all the brown stuff’s hit the fan, move to a system of product literature pre-approval.

    That is not, by the way, the same as product regulation, which I do not believe to be workable, any more than I believe commission rate capping to be workable. A product which may be completely suitable for one type of investor might well be equally unsuitable for another. And anyway, the FSA would never be prepared to take responsibility for anything going wrong with a product to which it had given its prior seal of approval.

    But clearly, the failure of KeyData and the fact that the FSCS has identified its product marketing literature to have been non-compliant with FSA rules tells us loud and clear that the FSA needs to adapt and change its procedures ~ as it is so fond of telling us that we must all do. Will the FSA act? Don’t hold your breath ~ the RDR is a much more interesting diversion.

  8. A proper Regulator would regulate the products rather than the advice process – but then we don’t have a proper regulator.

    Far easier to waste a fortune regulating the advice process, requiring unnecessary exams, playing at regulating, etc especially when it is done with other peoples money.

    Regulating the product would run the risk of the Regulator being held responsible and that would never do.

  9. How does this compare with the misleading illustrations provided under the LAUTRO assumed expenses regime?

  10. The FSA are partly culpable, They are involved at several different levels and failed to alert industry of their concerns, how much went to Lifemark post 2005 investigation? OK FSCS stepping in is a welcome step,,,,,Treasury over to you..SA

  11. Bob – Why do you think the FSA/FSCS has decided this ?
    Is it because they will not let N&P go bust?
    So now we are going to have to pay for N&P greed and recklessness. I am waiting to see if N&P directors are to investigated and personally fined for thier actions- I bet they are not going to be. If it were a reginoal IFA that had done what they have done they would be smashed to bits and the directors held personally responsible and fined mega thousands. But as we all know it is one rule for banks and another for IFAs.

  12. Don’t FSCS rules say that if someone else is responsible or partially responsible, money must be recovered by the FSCS from those parties too?
    Hence where an advisery firm has clearly given negligent advice, i.e. 100% all in to one product, they must contribute for that proportion of loss or their PI and FSCS are obliged to make sure this happens.
    For firms where it was only part of a client’s portfolio and within that % (after the event) deemed appropriate by the FSA for one counterparty (not withstanding their February 2010 hindsite comments on Life Settlement Plans), it would be less likley FSCS should pursue partially contributions from those firms.
    What is needed is FSCS to comment and take a view on this sooner rather than later, so that consumers (we’re all forgetting them) are given an outline of whether they should be complaining (100% allocation) or possibley not(note I say possibley only) where asset allocation was not excessive.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm