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IFAs face £50m Keydata costs

Aifa is seeking legal advice following the Financial Services Compensation Scheme’s decision to recover Keydata compensation costs from advisers rather than providers.

The FSCS estimates claims against failed structured product provider Keydata Investment Services could cost between £25m and £50m, which would be paid by the investment intermediation category.

Aifa is calling on the FSA to review its authorisation procedures following the news. Director general Chris Cummings says: “Keydata portrayed itself to be a product manufacturer, yet the cost of its collapse is being picked up by the IFA profession. This is clearly an issue for the regulator as it has allowed a firm to position itself as one thing and yet be authorised as another.

“If this was known by the FSA, which has to review each business plan of every firm seeking authorisation, then the firm should have been refused authorisation. If the firm’s plans changed after authorisation, then this is another supervisory failing by the FSA.”

The FSCS has warned that other structured product failures by NDF Administration and Arc Capital & Income are likely to add further to the costs but says it is too early to confirm what sub-classes will be hit and by how much.

Earlier this year, the FSCS announced that investment advisers would be hit with a £58m levy, plus a £38m interim levy, due to the failures of stockbrokers Pacific Continental and Square Mile Securities. Cummings says the sub-class is now close to breaching its £100m cap for the first time. It paid out £47.9m of compensation between April and September 2009.

Milestone Wealth Management principal Neil Mumford says: “It is a kick in the teeth for advisers to have to pay more due to the lack of foresight from the FSA. The FSA has again failed as a regulator by not having tighter controls in place.”

Keydata was put into administration on June 8. Administrators say £103m is lost and may have been “misappropriated”.

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