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Keydata FSCS claims may cost £50m- advisers hit with new levy

The Financial Services Compensation Scheme says current claims relating to collapsed structured product provider Keydata could cost the industry as much as £50m, with the burden falling on advisers.

In its latest industry newsletter, the FSCS said its current estimate of claims against the firm could cost in the region of £25m to £50m which will be paid for by the investment intermediation category.

It said compensation payments would be spread across 2009/10 and 2010/11 but warned there is a strong likelihood that it will need to raise a further levy to fund these claims before the end of the financial year.

It also warns that other failures in the structured product space, such as NDFA and Arc Capital, are also likely to add to the costs faced by the industry, although it says it is too early to say which sub-classes will be hit with the costs and how much these will be.

The FSCS expects Keydata to generate a large number of new claims for the second part of the year. The £50m estimate relates to 5,000 claimants whose money appears to have been misappropriated through Keydata investments with SLS Capital, a special purpose investment vehicle registered in Luxembourg. 

However the FSCS is unable to give an indication of potential compensation for investments where the underlying funds are still in existence but are in ineligible Isa wrappers. An FSCS spokeswoman says: “The number of claims we may receive in this category is still uncertain. We are considering the best approach for dealing with this second category of claims and it is too early to provide an indication of the potential costs.” 

Investment advisers are already facing a total Financial Services Compensation Scheme levy of up to £96m, following the collapse of stockbrokers Pacific Continental Securities and Square Mile Securities.

The FSCS newsletter reveals the investment intermediation sub-category paid out a total of £47.9m for the half year ended September 2009, only slightly less than the FSCS full year assumption for the sub-category of £52.1m . Of this money, £26.6m of compensation has so far been paid out to former Pacific Continental Securities clients, £16.9m to former Square Mile Securities clients and £4.4m in other claims.

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. How many firms would like to see the FSCS files in order to verify all this?

  2. Why is it that advisers who have avoided investing client money in structured products over the years yet again have to bail out the bad apples. If you do a good job for your clients you get penalised just as much as the bad advisers. Where is the justice …….?

  3. What has the FSA been doing to regulate these firms whose governance has been inadequate?

  4. how come we have to make up the difference , when clearly the FSA with all its power and muscle, didnot put in place good house keeping practice with the big boys.
    they should lose thier bonuses to make up the short fall.

  5. A better argument for Product Regulation you could not find. I have had no dealing with this company nor advised on this kind of product and yet I must dig in my pocket yet again simply because we have a spineless Regulator that will not regulate.

  6. Typical FSA..they cant get their act and monitoring role right in first place and so because of their failures ( which they themselves have admitted) they expectas always to passthe buck to advisers. Its time all senior people at FSA should lose thier jobs and get some decent senior competent staff in.

  7. The FSA was warned by both HSBC and KPMG that Keydata had mis-represented their governance in the Keydata literature, yet the FSA chose to do nothing about it even after a formal complaint was raised. Perhaps IFA’s should counter charge the FSA for their poor governance (Check out ‘Keydatavictims’ on the web).

  8. IFA’s should NOT be grouped within the same pool for FSCS purposes as firms which handle client money. We did not used to be and we have had no opportunity to argue against the unilateral act on the Regulators’ part in redifining pool members

  9. Once again we have a situation where the FSA has failed in regulating products properly

    . IFAs pick up the cost and the FSA get the bonuses no doubt with us paying the tax!!!!!

  10. Many advisors are missing the point. Whilst they may be putting their hand in their pocket covering the bad advisors, they are also covering the companies that have gone belly up regardless of the advice that was given.

    We can all be holier than thou and say we did not touch this we did not touch that etc etc, but believe you me one day you will touch something and you will get caught by a third party problem not of your own making. So stop bleating!

  11. I have never ever advised anyone to invest in these products, I never did like them. Why should I pay compensation when I have lost business to Banks who have advised my clients to move out of sensible investments into these products?
    Why did the FSA not see what I could see that big print possible benefits and very small print risk is always potential trouble?
    Have the FSA reimburse the people who did not read the small print from their immense package of pay and benefits.

  12. And yet, in the face of months of damning coverage, the banks continue to to market their structured products as ‘guaranteed’, with a balnd risk warning buried somewhere in the literature where you can’t find it unless you’re really looking; and thrust onto a gullible public by a bunch of so-called advisers who either don’t know the difference or just don’t care. This is where the FSA should really be directing its attention, but I’m not holding my breath.

  13. It’s the responsibility of the FSA to heath check product providers not the IFAs. Therefore who ever it was who passed Key Date within the FSA should be put up against a wall and shot. Hard but fair!

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