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Sears: Firms who missold Keydata products are side-stepping liability

Sears: ‘An inquiry needs to establish exactly where the problems arose and where the blame lies’
Sears: ‘An inquiry needs to establish exactly where the problems arose and where the blame lies’

The Investment Management Association has called for the FSA to launch an inquiry into advisers who recommended Keydata and Lifemark products.

Director of wholesale Guy Sears says firms that missold Keydata products are sidestepping their liability because the FSCS has paid compensation directly to investors.

He says: “There should be a proper inquiry into what advice distributors gave. They are entitled to a fair process but an inquiry needs to happen to establish exactly where the problems arose and where the blame lies.”

Sears says the FSCS has acted as a first point of call for many Keydata investors rather than a last resort for investors who are unable to secure compensation from their adviser.

He says: “What I find strange in the case of Keydata is that clients have been paid by the FSCS but complaints have not necessarily been raised with the initial adviser. Normally, a complaint is raised with the initial adviser firm, it is investigated, and if necessary they pay compensation. But here we have a situation where the scheme has paid out before it has been decided whether or not the system should pay. I wonder about the kind of behaviour this engenders in firms.”

In January, the FSCS announced a £326m interim levy, mainly to cover the £247m cost of compensation for Keydata investors. Fund management firms had to pay £233m towards the levy while advisers paid £93m.

In February, the IMA revealed it was considering launching a judicial review on behalf of its members to challenge the FSCS levy but, two months later, decided against the move.

Sears says the IMA took this decision because it did not want to stand in the way of investors getting compensation. He says: “The Keydata situation was not of fund managers’ making and yet fund managers ended up paying £233m out of the total £247m for claims against Keydata and Lifemark.

“Clearly, we want money to come back to our members but ultimately it is not about money, it is about investors. This is partly why there was no judicial review. The last thing we would have wanted was to prevent investors losing or delaying the compensation that was owed to them.”

But despite dropping plans for a judicial review, Sears believes it is important that the structure and funding of the FSCS are reviewed.

He would like to see a compensation scheme that better reflects the risk profile of firms paying into the scheme. He is also keen for a system akin to the FOS’s wider implications’ process, where similar complaints on a large scale are referred to the FSA to investigate whether further regulatory action is needed.

Sears adds any reform will need to take into account the £18bn the Treasury loaned to the FSCS to cover the cost of winding down failed banks such as Bradford & Bingley and Kaupthing Singer & Friedlander in 2008.

He says: “The hangover from all of this is the banking loan. That loan will need to be repaid or refinanced, and the FSCS will have the right to call for it as an additional levy.

“I do not think the Treasury would want to trigger another levy on the industry but the fact is that we have a compensation scheme which owes our Government £18bn.”

The IMA is currently understood to be in talks with Lifemark administrator KPMG Luxemburg, together with the FSCS, to provide a loan facility to Lifemark of at least £18m to meet the premium payments and cover operating costs of the life settlements for 2011.

Sears would not be drawn on how those talks are progressing. He says: “We have a really good working relationship with the FSCS and we have always wanted to ensure the best outcome in terms of the Lifemark settlements.

“Everybody is focused on whether or not we would put money in but we only need to put money in if it is consistent with running the assets well. In any way we can assist the FSCS we will do but I cannot say any more than that.”


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

  1. Brian Harrison 10th June 2011 at 9:37 am

    Couldn’t agree more, those who sold the product should pay the compensation. If the whole industry is held accountable instead of individuals it invites the abuse because there is no personal liability. In the eyes of the public it further damages their confidence in the whole of the savings and investment industry.

  2. Missold Investor 10th June 2011 at 10:07 am

    Keydata and IFAs had different roles, with different responsibilities. Keydata’s role was primarily about the generic marketing and operation of the product. The IFA’s role was about advising the consumer for their personal circumstance. It is entirely possible for one to be right and the other to be wrong. These are two separate complaints.

  3. Can MM please stop censoring my comments without simply editing them. You have my email as it has to be posted, Email me first and explain why you are censorting before you do so PLEASE.

    IFAs who believed the Life Settlement Plans were appropriate for modest parts of clients portfolios should NOT be pursued like witches UNTIL an Independant inquiry as to what actually went worng at Keydata and Lifemark has been carried out and completed. Missold Investor has explained why there are different complainst which could be levelled at different people.
    Those who reccomneded life settlements for a proportion of a clients portfolio will have read the report produced by Dr debbie Harrison of the CASS business school and will have checked her credentials before deciding whether her comments had merit.
    Add to that, the head of the IMA Mr Ferrans told journalists he thought Stewart Ford had been “the victim of a sting” so before the IMA starts trying to get IFAs whose clients have not complained chased, perhaps Mr Ferrans need to speak to his mate Mr Ford first or perhaps even better call for an Independant Inquiry BEFORE trying to dish blame.

  4. You are completely missing the point Mr Sears. Keydata should never have been authorised in the first place as ‘fit and proper’ by the FSA.

    First and foremost this whole shambles is down to regulatory failure. Trying now to pin down a couple of advisers for mis-selling it totally futile and a complete waste of time.

    The Buck stops at Canary Wharf!

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