MM leader: Keydata saga has cost the industry dear

Natalie Holt website

The legal wranglings over Keydata have been going on for over four years now, following an investment collapse on a scale like nothing the industry had ever seen in June 2009. A staggering six years on, and neither the FCA nor Keydata founder Stewart Ford looks like they are nearing any form of closure.

This is not for the FSA and FCA’s lack of trying. The legal process has been protracted in the extreme, thanks to Ford’s judicial review of the FSA investigation and ongoing civil cases.

The Keydata founder’s latest attempt to stop the FCA from publishing a decision notice against him recently failed, but the case itself against Ford and former Keydata director Mark Owen and former Keydata compliance officer Peter Johnson is still working its way through the appeals process. It could be another year or more before the case is heard at the Upper Tribunal.

The FSA is not without responsibility in all of this, not just in being the ones to force Keydata into administration but its entire handling of the case (Money Marketing’s revelation that the regulator sent confidential, unencrypted information relating to the investigation to neighbours of Keydata directors springs to mind). Ford too, has questions to answer about whether he intentionally misled advisers about the products being high risk. If advisers sold the products without appropriate due diligence, they cannot be without reproach either.

The Keydata saga has done untold damage to advisers in terms of their reputation. But it has also hit advisers and the wider industry where it hurts the most – their pockets.

Quantifying the true extent of what Keydata has cost firms is difficult, but an illuminating exercise nonetheless. Out of a total £80m Financial Services Compensation Scheme interim levy in 2009/10, around £58m related to Keydata. Keydata Lifemark claims accounted for £247m out of a total £326m interim levy in 2010/11.

The FSCS itself has spent almost £16m in its legal challenge against Keydata advisers. Then there is the cost to individual firms who recommended Keydata products: a £6m fine for Sesame, an almost £14m legal bill for Chase de Vere, £57m set aside by Norwich and Peterborough Building Society. And that’s before you get to those firms who sold Keydata who have since defaulted.

My best guess, by no means definitive, puts the total cost somewhere around £398m. Suddenly the £75m fine the FCA is looking to hit Ford with somehow pales in comparison.

Natalie Holt is editor of Money Marketing – follow her on Twitter here