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Hopes rise on FSCS Keydata levy

Advisers have been offered a glimmer of hope that the burden of the FSCS Keydata levy may be lessened as the IFA lobbying campaign continues.

This week’s Money Marketing reveals that the Financial Services Compensation Scheme has sent clarification to interested parties this week regarding its rationale for burdening intermediaries with the £43m Keydata levy.

It also issued a clarification that “no decision has yet been taken by the FSCS” to issue an interim levy on the investment intermediation sub-class, although it hopes to do so by mid-March.

As such, the FSCS says any legal proceedings that advisers may wish to bring against the scheme would be premature and that representations made within 14 days will be taken into account.

In early February, the FSCS announced that investment intermediaries would be hit with a £70m interim levy to pay for claims relating to Keydata, and stockbrokers Square Mile and Pacific Continental.

Aifa director general Chris Cummings (pictured) says the trade body is currently “vigorously negotiating” with the FSCS regarding the interim levy.

“This has been a straightforward regulatory failure from the FSA which has in turn caused problems for the FSCS.”

Aifa director general Chris Cummings

He says: “We are continuing to apply pressure through negotiations with the FSCS to look for a settlement that is fair for the IFA profession.

“This has been a straightforward regulatory failure from the FSA which has in turn caused problems for the FSCS.”

Law firm Regulatory Legal is looking to bring advisers together to potentially challenge the levy.

Partner Gareth Fatchett says: “The budget plan and the press release made it very clear a decision had been made to levy IFA firms. The response to my clients is that no decision has yet been made. In the next 14 days we need to collect as many representation to deliver to the FSCS as possible.”

Advisers have suggested that the fund management community should pay a large share of the levy. But the FSCS’s position statement, seen by Money Marketing, states: “Keydata was not responsible for managing the monies raised by the sale of the bonds.

Similarly Keydata had no discretion to choose which bond it should purchase once it had received funds from its customer. Therefore, it cannot be said that Keydata was managing investments, an activity that would fall within the D1 Investment Fund Management sub-class.” 

The Investment Management Association says it is important claims are paid quickly to maintain consumer confidence. A spokeswoman says: “The likelihood is that fund managers will be paying a proportion of the Keydata costs in any case under the spill-over rules.”

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Comments

There are 19 comments at the moment, we would love to hear your opinion too.

  1. I dont really understand this but then i am a bit dozy sometimes. If Keydata wasnt managing or holding any of the money, why is it then that Keydata’s failure has caused losses to clients? Surely, if money has gone missing/got lost, then something else in the chain has failed? So if its e.g. Lehmans that failed, then surely its Lehmans category that should dictate where the levy is now applied? Having said that, the system of open ended levies simply cant work indefinitiely and so it needs complete overhaul anwyay. Simply, if an institution is marketing a “product” with FSCS protection, then they should be able to sell more of their product (than competitor’s products that have no protection) and so should pay upfront for the benefit of protection and be the ones to pay levies in future. Why complicate it more than that? They benefit, they pay.

  2. Chadwick Hancock 3rd March 2010 at 10:33 am

    Why pay a law firm to challenge something when AIFA is doing the job already? Why pay him hundreds of pounds when AIFA says the costs will average about £400?

  3. Clearly the FSCS doesn’t wish to get into a legal battle with the IFA sector and, if rumours are to be believed, nor does the FSA over the RDR.

    But, if it goes to the wire, it remains to be seen whether or not Chris Cummings is all bark and no bite. Given the arrogance and obstinacy of the FSA, a legal challenge to against the RDR may be the only strategy to force the FSA/CPA to realise that most IFA’s are in fact committed professionals, sincerely serving their clients best interests and that the FSA ought to be concentrating its regulatory firepower on frying far bigger and more predatory fish.

  4. Regardless of this Keydata was regarded by many IFA’s as an investment firm not an IFA firm and this must surely be an FSA failure for not regulating this firm correctly and as such it is the FSA that should pay any redress.

    There is no point in us all paying for the FSA if when it fails to do it’s job we also end up paying the bill for their mistakes as well as. If the FSA cannot be held responsible for their mistakes by those who pay for it’s work then it is just a complete mockery of justice. They can judge, sentence and fine us, but we cannot hold them to account when they get it wrong.

    Nuts if you ask me.

    Time for the FSA and Government to take responsibility for their own mistakes and not expect us to pay for theirs as well.

  5. Stuart Rathbone 3rd March 2010 at 10:53 am

    The state we are in.

    “The State is nothing more than a group of people who enforce a monopoly of violence over a geographic area, declaring themselves “government”. Be it a democracy, a republic, a dictatorship, a plutocracy, communist, fascist, or whatever. How that government is selected is simply an academic process, but the exercising of violence or the threat of violence (coercion) control of one group of people over another is basic.” That looks EXACTLY like what has happening in the UK – and EVERYWHERE for that matter. To ‘misquote an old saying “The plot SICKENS!” All these years I believed the leaders were there to help us to a better life. They are really there to help THEMSELVES to our pocketbooks. The only difference is that the internet gives us access to more information than “THEY” would like us to have access to and the ability to communicate and act together.

    Remember how ever they dress it up the FSA, FSCS & FOS are arms of the state

  6. Another case of shutting the stable door after the horse has bolted! The FSA regulated Keydata and gave them a licence to trade. Now its all gone Pete Tong, it seems someones else is to blame. Same with Self Cert mortgages, same with contracting out of serps and numerous other failings. If the FSA are regulators, they have failed to regulate!

    Personally I object to paying any levy. I have never even sold a structured product. Besides that, what other industry can be handed a huge bill and be told to pay it immediately?! Its time we all woke up in this industry – don’t forget its our money that pays for the FSA in the first place. Its a joke.

  7. It is interesting that in his speech to ELSA on 24th February 2010 Peter Smith from the FSA states ” Where in the past we might have concentrated on sales practices to try to ensure good outcomes for consumers, we will now intervene earlier, in product design and the marketing by providers of those products to distribution firms.” This is tantamount to an admission of failure to regualte in the past. Perhaps if the FSA had looked at Keydata’s product and marketing we would not have the mess we are now experiencing. Yet again retrospective regulation is shown to be pretty useless.

  8. Quote:

    “Similarly Keydata had no discretion to choose which bond it should purchase once it had received funds from its customer. Therefore, it cannot be said that Keydata was managing investments, an activity that would fall within the D1 Investment Fund Management sub-class.”

    The initial decision, and presumably continuing decision, by Keydata that there would be a limit to the markets/products to which their bonds would and could be allocated is by both definition and practise “the management of investments”.

    Keydata took and maintained an “investment management” decision – namely these, and these alone are the Bonds to which any investments will be allocated – that is a fact, and it is a fact that the FSCS have, by their very statement introduced as evidence.

  9. Do the people at the FSCS, the FSA and anywhere else also argue that any manufacturer of packaged products such as bonds, ‘structured’ products or any other collective ‘investment’ has no responsibility for choosing the ‘investments’ that they placed in the product they themselves designed and then promoted? We are told that the FSCS took legal advice, they have acted upon an opinion which appears to be fundamentally flawed but then again an opinion is based on the ‘instruction’ or information supplied so perhaps the problem lies with the lack of understanding of markets at the regulators’ door?

    Bonkers or what?

    Regulation is bust.

  10. I still don’t see why we should have any potential liability to pay anything.The products should never have been approved by the regulators.Yet again we are the easy opt out.I don’t wan’t to be long term in an industry that treats people like this.What happens when the next Key Data comes along?

  11. Well done Chris Cummings and Aifa for chipping away.

    If the foundations of a house become unstable then the house will fall down.

    If we all (that is all IFA’s) refused to pay a bean to them and lobbied our Mp’s at the same time, I for one would consider it unlikely that they would remove a single permission.

    No disrespect to Money Marketing but we would need to involve the National Press.

  12. Do the people at the FSCS, the FSA and anywhere else also argue that any manufacturer of packaged products such as bonds, ‘structured’ products or any other collective ‘investment’ has no responsibility for choosing the ‘investments’ that they placed in the product they themselves designed and then promoted? We are told that the FSCS took legal advice, they have acted upon an opinion which appears to be fundamentally flawed but then again an opinion is based on the ‘instruction’ or information supplied so perhaps the problem lies with the lack of understanding of markets at the regulators’ door?

    Bonkers or what?

    Regulation is bust.

  13. David McCullough 3rd March 2010 at 3:27 pm

    Unfortunatley I don’t think the press would have much sympathy for the IFA comunity. We should lobby the providers as they will be the loosers if IFA numbers collapse due to this ridiculous tax sorry I mean levy.

  14. In answer to Anonymous 3/3/2010 12:04 pm
    When the next KeyData comes along, there will be even fewer businesses and bigger bills afterall we will probably be expected to fork out for all of the banks debacled structured products too when they start to fail and customers complain. Some already have paid compensation, though to be fair, it did come out of the bank’s coffers I believe. Now owned by the taxpayers!

  15. Until the FSA provides the detail of the legal advice received which allowed them to consider this appalling piece of maladroitism it is impossible for any sane IFA to pay.

    We have asked for sight of this again and again and received …. squat.

    If any IFA reading or contributing to this post believes that they don’t hate you, you are wrong.

  16. A good poll question would be:

    “Do you belive it is acceptable for IFAs to pay up in order for others to save face?”

  17. It has always been the case that this crazy system causes people to pay for others’ mistakes. Worse than that, products that we might never have meddled with ourselves.
    Pension transfers?? Split cap shares and Zero div funds?? Drawdown?? Endowments?? And now structured products.
    Until there is a system that asks firms to fund their own potential compensation levy while they are still in business it will always be the ever reducing number of innocent survivors who pick up the ever increasing tab.

  18. Correct Gill. Surely the answer though is very simple. If you “sell” a product (even advice) and you want it protected by the FSCS then you should pay fees as you go – plus you should be the only ones asked to cough up for a levy and should have massive capital adequacy imposed too, plus gallons of PI.
    Clients would of course be happy (!!!) to pay (either an extra fee, or via a lower rate of return on their deposit?) for the protection Im sure, nice and transparent.
    And if they wont pay, no protection. Simples.

  19. I am a keydata investor, having put £32,000 into a SIB 2 non isa, i am told that because it wasn’t in a isa i won’t get any compensation ,the fact is i could only put in £7,000 ,,so what would happen to the rest ?so i was told,, apart from this we were not informed about the isa s when we parted with our money,, I am not blaming our ifa , but why pay compensation to those who did ,and then ,say we will pay up to the amount agreed, but less the amount you recieved over the years ,this is not right in a million years ,, like we will pay compensation well not all of it because we have to pay all the hangers on,, i just wanted to get it off my chest ,, if does’nt concern you please forget this letter ,,p.jackson

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