The FSCS also confirmed it was to ignore the rightful outrage that greeted its original decision to place the full burden of complaints against Keydata on to the investment intermediation sub-class.
The £80m interim levy on intermediaries is over half the £148m sum the FSCS expects the entire financial services industry to pay in levies for the 2010/11 financial year.
Placing this levy on intermediaries is unfair and unjust. Keydata portrayed itself as a product provider and that was the way the FSA let it market itself.
This episode was principally a failure of FSA regulation, yet it is IFAs who have to clear up the mess.
The FSCS’s argument centres on the activities of Keydata. The firm did not handle client money directly or have discretion over bond purchases after receiving funds. Investment management was outsourced to investment vehicles Lifemark and SLS Capital and so in the FSCS’s eyes Keydata’s activities were that of an intermediary.
The logical conclusion of this argument is that responsibility for a huge number of firms we would consider to be at the riskier end of the market, and well outside the usual definition of an intermediary, would fall on advisers. Who will advisers have to bail out next?
The FSCS’s decision regarding NDFA, Arc Capital & Income and Defined Returns Limited is equally outrageous.
Again, these firms were portrayed and regulated as product providers who dealt with IFAs. NDF Administration and Direct Returns Limited did not even have intermediation as one of their FSA permissions. Yet, as with Keydata, the FSCS has lumped them into the intermediation sub-class when it comes to paying out claims.
The bills for this unfair levy have begun landing on the doors of adviser firms which are already struggling with the financial crisis and the retail distribution review deadline.
Meanwhile, many of those behind the companies that sold these products move on to their next venture.
The FSA and FSCS should be ashamed of this decision, which shows a lack of judgement and understanding of a market which has had just about enough.