FSCS faces legal challenge from Keydata victims

...does the FSCS also provide investor protection for losses caused by acts of God? Volcanic eruption? Plague or pestilece?

I thought the investor compensation scheme was there to cover negligent advice, not fraud by third parties.

I have never seen anything like this in other industry.

It is nothing short of persecution.

In addition it was also interesting to read about Australian small firms plight in conjunction with a similar action to RDR by their government. They too have a good consumer practice record like us, while the big boys (banks etc) do not, same as here too.

For some reason governments appear able to kick the little people and no-one is available to defend them.

All of this in time can only have one outcome, no small firms, Australian advisers certainly believe this is the case too.

Lets get the cheque book ready - there's sure to an interim interim levy payment for defence costs.

Guy goes into jewellers (no security whatsover), punches out lights of assistant, takes all the diamonds & legs it. Assistant takes 2 years to recover. Does anybody know if there is compensation due from any department of ARSA (Armed Robbers Sevices Authority?

Lets ask a simple - did any of these "victims" take advice from an IFA.

I would suggest only a minute percentage did.

I have also heard the term "extremely tenuous legal basis", somewhere before - does that phrase ring a bell Mr FSCS.

Could this case in fact help the disgrace of the interim levy for all IFA's, in that these "victims" acted on their judgement, without advice and bought the contract through the fund manager, one Keydata.

Politics......Politics........Politics

That's all it is. kicking the small guy is easy and pretenting to the ignorant electorate for cheap votes.

Roll on elections and more blunders from Crash Gordon who saved the world from Boom & Bust!!!!!!

I think some of the comments are a bit unfair – if understandable.

There are two issues.

Put yourself in the place of a poor investor. Of course they should be compensated. This was fraud.

The question is – who pays the compensation? If the FSCS judges that Key Data could not reasonably have foreseen the malfeasance this then points directly to a failure of regulation. Bear in mind that the literature had top class credentials – a Fortis Subsidiary, HSBC and KPMG. That KPMG later requested that their name be removed should have alerted the somnambulists at Canary Wharf. Moreover the small print says that “We accept full responsibility for any loss that might arise as a result of any default by any nominee company in which name the assets are held” !!! Note ANY DEFAULT.

The average investment per client is ‘only’ £18k. The liquidator (who is undoubtedly making a fortune) needs to get his finger out so that whatever assets are still left are there for the benefit of the investors. Let us say at a rough estimate he can recover £20 million (presumably after taking a few million for himself). Therefore using the above figures there is a liability of £83 million. The adviser community has already raised £80million, so as a gesture the Government and the product providers could split the remainder between them – for them it is petty cash. From the Government’s perspective this could be partially recouped by ‘fining’ the FSA for dereliction. All bonuses to be used to pay back the Government outlay and a 25% reduction in pay for all those over £100K pa until the debt is cleared.

Fair enough?

At least in this way financial services as whole may – just may – manage to salvage a scintilla of self respect and show the public that it is just possible to put some faith in our industry.

The FSCS, claims to be the last resort. It bails out consumers involved with regulated parties, that have lost money and the institution responsible is no longer in a position (insolvent, in administration etc.) to defend it's own actions.

Those actions COULD be negligence in advice, but could also be recklessness, such as allowing the disappearance of £103 million or claiming the sponsorship of KPMG on the investment model without their permission.

Complicity also follows here: the FSA knew that KPMG had complained about their erroneous involvement, but didn't want to tell anybody else until now. I think that this is a material fact.

In addition, why are certain acts covered and others not?

> Lehman Brothers were FSA regulated, but FSCS baulked at paying that out. They cite the counterparty risk.

> Icesave wasn't, but the Government lent the money to payout and is now hoping to sue Iceland.

> Equitable Life was, but clients are still waiting for their cash, despite a hammering from the Ombudsman.

Finally, Gordon Brown has effectively admitted to yanking the chain at the FSA over the banks unbridled approach. When the Financial Services Act 1986 was enacted, the power was given to the Chancellor, who then put the then SIB, now FSA, between the Exchequor and the flack. Evidently, The Chancellor can override this, when he sees fit.

To conclude; the FSCS needs to be clear about what it does do and what it won't do, because when we have political obfuscation, such as that admitted by Gordon, then we will forever have unease.

I suspect that we saw RBS have a great time, since the Exchequor was gladly receiving the huge Corporation Tax receipts and naturally didn't want it to dry up, which is similar to Japan deferring it's decision on a whaling ban based upon extinction.

Maybe I'm being a bit thick here, but surely a regulated product falls under the auspices of the FSA and therefore the FSCS?

So the question surely has to be WHO in the FSA decided that this was to be a duly authorised and regulated product?

Then THEY can pay ALL of the amounts due under the FSCS.

Now surely that's treating customers (including us!) fairly?

But that will never happen because nobody ever seems to be to blame inside organisations like the FSA. Instead we'll be told that "a big civil servant did it and ran away".

Is it any wonder that I'm a cynic???

Well said Harry...spot on.

Whatever happened to the principal of "let the buyer beware"? If we are to move to a fairer society as some poluticians - deliberate spelling - promise should I not receive a share of investors profits as an insurance against being mugged to pay compenstion to the "victims" of firms who are nothing to do with my professional activities?

Moreover small firms should not have been placed in the same compensation levy group as large firms - this iniquitous system was supported by AIFA. As as consequence I no longer have confidence in AIFA's judgement.

Principle not principal.

I can't believe some of the pathetic comments here. Do we really want to go back to the days when the general public regarded our industry as little better than double glazing or timeshare salesmen. If you stop thinking about your own short term interests and consider the victims we will all benefit in the long run.

I order to have the confidence of the public we need problems like this to be rectified and compensation paid to every investor. The FSCS’s pitiful attempt to differentiate between ISA and Non-ISA investments is utterly nonsensical. If they have rules which allow them to do this, and make a mockery of the entire industry these rules should be changed, NOW.

The issue we should concentrate on is the levy and Keydata being considered an intermediary when it was clearly a product provider.

No,but they would get compensation from the Criminal Injuries Compensation Board

Brian M. if you are going to call people pathetic and self-interested I suggest two things: firstly you highlight the comments that you think are pathetic and explain your reasoning and secondly that you do not hide behind anonimity whilst you throw out general insults.

I have no objection to a well thought out, sustainable and equitable compensation scheme. However I do not wish to be placed in the position of, to use an analagy, a Lloyds Underwriter in a terrible syndicate where the odds of losing my wealth are greater than the reward potential for taking that imposed risk.

You will be, or should be, aware that IFA firms conduct circa 65 % of personal finance business and yet are responsible for less than 2% of upheld complaints - source FSCS statistics. Having an unfair and unsustainable compensation scheme doesn't make the public think any better of IFAs; it has the potential to deprive the public of decent IFAs if they are put under unfair and unreasonable financial pressue due to the actions of others.

Tell me, dear sir, are you an actual small IFA business owner or an employee or senior officer/director of interested party, i.e. interested in maintaining the status quo? I quite understand that you have the right to remain incognito but it would help me to understand why you might hold the view that those who are unhappy with the compensation culture and its oftentimes unfair modus operandii are "pathetic".

I declare that I own a small fee based investment-centric practice and wish to remain in business to serve my clients best interests. It is hardly "pathetic" to attempt to sustain a professional practice in the face of mounting odds, including an unfair and ill thought out levy system.

Instead of blogging on line I suspect we could all agree what should and should not happen in these circumstances as I see myself agreeing with much of what has been said above, particularly by Harry and even by BrianM and David Chubb who appear contradictory views, but I think it is just the delivery and use of inflamatory comments (pathetic for instance....) which has clouded the general agreement.

1. Confidence needs to be maintained with investors and for that clarity of when the FSCS will pay out needs to be established.

2. Where regulatort failure has occurred (as in this case) and the FSCS may well not be liable in law, then a medium needs to be in place such as Harry suggests with either the FSA itself being fined with those fines coming out of their staff bonus pot, or from Govermnemnt not small firms pockets.

3. Firms need to go in to the right levy groups and to be charged fairly. There are 244 names on pacific continental as former approved persons, that is a bvery big firm when my firm has ONE approved person and yet I am paying for that massive firms failure while their approved persons move on to other stockbrockers or leave the industry unscatthed. Check the FSA resgister and see just how many approved person they had and where they have gone if you don't believe me....... one at least even went on to anotehr firm whose final notice for a £200k fine appeared on the FSA website yesterday!

Thank you Phil Castle. The Blogosphere Is a poor substitute forum for a a constructive outcome for the reasons we have seen.

I voiced my concerns about the fairness and sustainability of the FSCS levy on small IFA firms in the very early "Noughties" in person, by telephone and in written correspondence with senior people within the FSA, FOS, FSCS and AIFA. Changes are being considered now to improve sustainability and fairness to those who are required to pay for the scheme but it has taken years for the well paid non personally affected within those organisations to act. Generally speaking a good advisor should be able to analyse a potential problem in advance and offer a solution. Because I behave in a certain way I feel even more badly let down by those who hold the key and appear to lack any notion of what is on the other side of the door and hence do nothing. Even worse are those who have understood the potential consequences of an unfair levy system and yet have done nothing to improve the situation on a timely fashion through lethargy or malice aforethought.