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.