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MM Leader: Now Lifemark compensation looms for IFAs

The Serious Fraud Office has initiated yet another couple of turns of the screw in relation to the Keydata saga.

It is now investigating Lifemark alongside its investigations into SLS Capital, the other special purpose investment vehicle used by Keydata.

Around 23,000 Keydata clients invested £349m in Lifemark and the SFO investigation is an ominous move, although perhaps inevitable.

Lifemark is already in administration, with all income payments to Keydata investors frozen. The FSA has raised concerns of a liquidity gap involving Lifemark assets and we are unsure about what proportion of these assets are recoverable.

These are worrying times for Lifemark investors. Many have invested their life savings into the relevant Keydata plans. The Lifemark assets dwarf the £103m of misappropriated SLS assets which IFAs are currently paying the price for through the grossly unfair FSCS interim levy.

If a large amount of the Lifemark assets are lost, it is likely that the FSCS will come after advisers again unless the much needed FSCS reform is pushed through after the general election.

The SFO has also announced that a “sizeable” proportion of the £103m SLS assets have been traced.

As this issue develops, the FSCS must fight hard to ensure it receives a decent proportion of these assets which can then be rebated to the intermediaries currently paying for related claims.

The FSCS has a duty to try to regain these assets on behalf of the industry. In the past, it has taken action against firms it believes are responsible for claims it has paid out, for instance, precipice bond providers, and retrieving any SLS assets should be no different.

Elsewhere, Money Marketing welcomes the formation of the Keydata investor action group set up by Anthony Lahert, who says the group will not be pursuing advisers and has the support of many IFAs trying to help clients get their money back.

Alongside the disgraceful way that the FSCS has handled responsibility for the Keydata costs, it must be rem-embered that investors need a decent amount of their money back if we are to retain any kind of consumer confidence in the industry.

Fundamental reform of the FSCS, plus potential claims against those responsible for the Keydata debacle, including perhaps the FSA, may be the only way of ensuring that advisers and investors have any confidence in our compensation system.


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. “Confidence in our compensation system”?

    Are the expectations of the ‘consumer’ realistic or have they been led to believe that nomatter what the reason is for their loss they are guaranteed not to lose one penny? Does this embolden them to take more risks than they otherwise might and to claim when things go wrong?

    Is the regulator using the ‘fund of last resort’ as a get out clause for its own failure to regulate? I often ask myself why we have regulators and all the associated costs when we have this compensation system, despite all the regulators the financial disasters continue to befall the country and may in fact have increased in number and quantum since regulation as we know it was invented by the Tories, yes, the Tories.

    “It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.”

    Thomas Sowell

  2. Sowell also said-

    1. Much of the social history of the Western world, over the past three decades, has been a history of replacing what worked with what sounded good.

    2.One of the common failings among honorable people is a failure to appreciate how thoroughly dishonorable some other people can be, and how dangerous it is to trust them.

  3. I wish the FSA would be transparent, it is so quick to criticise but never looks inwards.

    The FSA like nothing better than to broadcast on radio in the papers etc their actions, we are improving things by doing this…..

    However they never to add this the transparency of the additional cost, so since the FSA has been created we have had success, here here and here, this is good however it has cost the consumer around 15% of all transaction costs, ie a £3,000 has a min of £450 cost due to regulation plus some additional labour which is difficult to quantify.

    They are like the most dishonest salesman that ever walked the planet, would not be allowed due to consumer rights to do this outside of regulation, never mind in a regulated industry.

    It is almost like saying, when you get a repair or service on your car, wouldnt you like and expect everything checked for safety?? Shouldnt the car be clean? Shouldnt the tyre pressures be correct for your regular use? Shouldnt you get an area to sit which is warm with a coffee and biscuit etc etc, then when the consumer says yes and after it is done, well that will be an extra £150 thank you.

    Should it not be, we think this is a better way for this industry to operate, the benefits we think are x y and Z, we estimate an additional cost of …. do you think this is beneficial to you??

    The consumer is paying for this compensation, if it is not out of the correct ‘pot’ then it is robbing the public of their cash, I have just increased all of my charges 1% due to the never ending regulatory burden, so now as I am operating almost a post RDR system, I had to increase them to survive, just a long stop or a little cash aware regulation would not add so much cost to the consumer.

    In a post RDR world, with these compensations getting out of control I see TERs on investments equal to the highest costs in the old With Profit investment era, this is a huge regulatory failure if we remember back to the early FSA’s complaints about our industry.

    Worse still with the extra spending the FSA keeps planning and their runaway budget and hapless authorisation of product which then turn out to be industry failures I see no end to this, we may one day be looking at 3.5% TERs on unitised product!! Due to a lack of commercial awareness in a regulator.

    The regulator itself needs moving out of Canary Wharf, in to an industrial estate and apply the same outside business costs and wage pressures as outside industry, then they may get their heads out in to the sunshine and start regulating sensibly.

    Compensation is a cost to every policyholder and fee payer in financial services, the regulator should respect consumers money, they certainly do not at the moment.

  4. I reckon the restructuring plan which apparently has been sitting on file at the Lux regulator since early feb waiting for PWC and KPMG to ok a bondholders meeting for approval is not meant to get a public hearing. I reckon these guys want to see this liquidated so that their role in this mess cannot come to light. But there cannot be a liquidation. These are not assets that can be liquidated, and nobody seems to get this. If CSSF / FSA /PWC / KPMG or whoever has an agenda here bothered to pay attention, they would understand that these assets will evaporate…and we’re not talking about reaping something from a liquidation. We are talking about a complete and total loss. Total.

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