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Levy implications

What are the wider implications if the basis on which the FSCS has reached its conclusion are correct? You need to read the FSCS statement to follow how I think their legal opinion led to their conclusions, namely that Keydata was not involved in “investment management” but in “investment intermediation”.

Inter alia, the basis they use includes acting as an agent on behalf of others, who it was that was managing the monies, who made the choices over the management of the investments. It really boils down to hands-on or handsoff control on a day-to-day basis.

For all those secondary events, there had to be an initial event and that initial event was the decisions taken by Keydata over how investments once received were to be managed, and that is “investment management” – end of story as far as I am concerned.

But has the FSCS uncovered something that has far wider implications? Remember, (the FSCS address this issue in their statement), it does not matter how the FSA may have granted authorisation, what matters to the FSCS under Fees 6.5.2R and Fees 6.5.3R is the “activity” being
undertaken, whether permission has been granted for that “activity” or not. So say we look for an “activity” which mirrors what the FSCS say amounts to “investment intermediation” but across the “investment management” industry. I will give you just one example. Think of those
fund managers who allocate funds to hedge funds. Does that “activity” not offer a direct mirror image of what the FSCS say constitutes “investment intermediation”?

The granting of the control of day-to-day “investment management” to others as an intermediary between the original investor and the hedge funds. Remember, please, I still stick with my original assertion but the FSCS may be revealing that there are many “investment managers”
who, dependent on their “activity” (not their FSA permissions or authorisations), are also engaging in “investment intermediation”.

If the FSCS maintains its initial thinking, it has major implications, not least to how levies, as in the case of Keydata, are eventually levied, but it may go even wider.

One hopes that if the FSCS sticks to its original (and for me, incorrect) conclusions, it will ensure that the levy is apportioned across all those engaged in “investment intermediation” – a net far wider than perhaps is currently realised as a consequence of how the FSCS have now so interestingly defined that “activity”.

MIKE FENWICK
Industry consultant

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