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MM Leader: Wrong to single out IFAs for Keydata mess

Advisers are still waiting to hear if the Financial Services Compensation Scheme will lessen the burden of the £43m Keydata levy.

The FSCS says a final decision on the levy will be made by the middle of this month and, as things stand, the full levy will be paid for by the investment intermediation sub-class.

As we have previously stated, we believe this course of action to be grossly unfair and hope the FSCS listens to the last-minute lobbying of the
adviser community led by Aifa. Adviser firms would be hit with an interim levy ranging from £440 to several thousand pounds to pay for the failures at Keydata and two stockbrokers.

News that Keydata used to be regulated by the Investment Management Regulatory Organisation pre-N2 adds further weight to the arguments put forward by advisers that the fund management industry should take on a share of the burden.

The FSCS argues that as Keydata outsourced the investment management decisions to the Luxemburg special purpose vehicles SLS Capital and Lifemark, it was not in itself a fund manager and so no burden should fall on the fund manager sub-class.

This argument would then suggest that many other investment firms we consider to be providers would fall into the intermediation sub-class.

The Keydata debacle, which may indeed lead to further future claims, was a failure of FSA regulation. Like the claims resulting from failed
stockbrokers Pacific Continental and Square Mile, IFAs are the ones paying for the mistakes of the regulator.

The FSCS’s expensive lawyers may have concluded that, technically, intermediaries should have to pay the bill but surely in a world where advisers are expected to act within both the letter and the spirit of FSA rules the same should be expected of the bodies which regulate them.

Keydata was widely assumed by most of the industry to be a provider and now we learn it was, in fact, regulated by Imro before the creation of the FSA and paid into the appropriate Investors’ Compensation Scheme.

Hopefully, upcoming reforms of the way the FSCS is funded will lead to fairer settlements in future but for this year’s levies can we make one last appeal to the FSCS’s sense of natural justice. It is quite simply wrong for intermediaries to pay the full costs for this mess.

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