Positive Solutions is set to join Chase de Vere as one of the lead defendants in the Financial Service Compensation Scheme’s legal challenge to recoup compensation paid to Keydata investors, Money Marketing understands.
The FSCS is in the process of finalising its list of six lead case defendants, or test cases, where the firms will have to defend themselves against claims of professional negligence. The FSCS is trying to recoup up to £75m out of around £400m paid out in Keydata compensation, and has brought proceedings against at least 500 adviser firms.
The lead cases are being selected according to a rigid set of criteria set out by the High Court, which stipulates that lead defendants have a sufficient number of clients who were recommended both SLS and Lifemark Keydata products. The selection process is also trying to a representative sample of firms to defend their Keydata advice, including networks and smaller directly authorised adviser firms.
Once the lead defendants are finalised, firms that are chosen can seek to legally challenge their selection.
PosSol and Chase de Vere declined to comment on whether they were likely to be chosen as lead defendants.
Law firm Beale and Company is acting on claims worth a total of £18m. Partner Damian McPhun says Keydata advice given by the lead case defendants will be examined in court, but they will have to defend general legal arguments rather than specific Keydata recommendations.
McPhun says: “The FSCS has not really done much due diligence around what specific advice was given to specific clients. It has not reviewed files, and its claim has always been made at a fairly high level around the brochure being blatantly misleading, which it claims advisers should have spotted. It is these kind of overarching issues that will be looked at as part of this lead case defendant process.
“The FSCS is dealing with a conflicting set of principles. On the one hand, the FSCS has to make recoveries where it effective to do so, but on the other hand the FSCS has a statutory duty to make the most cost-efficient use of their resources. It is not supposed to be throwing good money after bad if there is no reasonable prospect of recovery.”
Capital Asset Management chief executive Alan Smith says: “The FSCS seems to have approached this completely the wrong way round. If there has been misselling, there is a well-established process to address this but that process seems to have been put to one side here. It sets quite a dangerous precedent and adds confusion and complexity about how the regulatory compensation process operates.”