The High Court last week dismissed the challenge to the FSCS’s decision to levy the costs of Keydata claims on invest-ment intermediaries.
Many experts had predicted the result but it would be very unfair to dismiss the challenge from IFAs and Regulatory Legal as a waste of time.
It is sometimes worth taking a stand against the unfairness of the regulatory machine, even if the chances of success are remote. The FSA promised an FSCS funding review last year but this has been put on ice due to the upcoming regulatory shake-up.
FSCS fee block definitions and particularly the stress being put on advisers by the current rules should be a priority when the review even-tually takes place.
You would hope the judicial review challenge will be taken on board by policymakers as an important symbol of discontent with the current funding measures.
High court judge Mr Justice Beatson agreed with the FSCS that Keydata’s activities should be considered inter-mediation as Keydata purchased securities on behalf of the investor and exer-cised no discretion on bond purchases.
The judge dismissed the argument that Keydata should be classified as a provider as it effectively controlled the whole process, including the manufacture, marketing, literature and being the architect of other companies invol-ved. Debate must now turn to how the current unfairness can be addressed.
A case could be made for fund man-agement groups and pension providers taking on greater responsibility for claims relating to firms defined as intermediaries, given their reliance on advisers to generate so much of their profits.
The Keydata saga also points to a huge supervisory failing by the regulator. Questions must be raised as to whether one specific part of the industry should have to pay the price for issues caused primarily by failings at the regulator. Will the FSA’s move to intervene earlier in product devel-opment help stop a future Keydata from happening?
The thorny issue of ensuring advisers leaving the industry or IFA firms going bust do not leave behind significant liabilities for the rest of the industry to pick up must be addressed.
The FSCS will shortly be announcing this year’s funding requirements, which is likely to include a significant Lifemark levy. Bills will again begin to land at IFA offices around the country. Without significant reform, these big bills look like becoming an annual event.