Deadline nears for FSCS in bid to recoup Keydata funds

Damian McPhun, partner in the insurance group for law firm Beale and Company, confirmed that the six-year limitation period for the FSCS to bring negligence claims against IFAs over the sale of the Lifemark products, marketed by Keydata, concludes at the end of this month.

According to Mr McPhun, the FSCS is now in a position to launch a lawsuit against IFAs who advised on the products, as the FSCS did in November regarding advice on SLS products provided by Keydata.

He said the aim of the litigation would be to recoup funds already paid in compensation and refund some of those who paid the FSCS interim levy of £326m.

He warned that the ongoing £57m claim in relation to SLS at the Royal Courts of Justice was just a precursor, claiming the Lifemark proceedings would be worth four times the SLS amount.

He said: “The FSCS has six years from the point that these products were issued in February 2006 to issue proceedings. It will have to come in the next few weeks.

“The limitation period will be February 2012. It is all going to kick off very soon.

“We already know that more than £200m has been paid out.

“These documents could land on the doorsteps of IFAs in the next few months.

“SLS is just the precursor, the big concern for IFAs, and for their insurers will be Lifemark. This will be far more substantial.”

Mr McPhun, who is representing IFAs on the instruction of their PI insurers, defending the FSCS claim, said: “The FSCS has been sending generic letters to IFAs asking about due diligence.

“At the moment the insurers are requesting documentation from the FSCS as the IFAs have not been provided with anything to show that they have been negligent.”

It comes ahead of a meeting of Keydata investors who hold Lifemark bonds on the 13 February to vote on a liquidation proposal.

Keydata was declared in default in June 2009. A year later, Luxembourg-based Lifemark’s bonds defaulted.

The Lifemark bonds invested in life policies that require continuing premium payments.

A Keydata brochure for one of the Lifemark Secure Income plans, issued in February 2006, said: “Keydata Investment Services is one of the fastest growing and well regarded asset managers in the UK. We launched our first product in 2001 and since then we have attracted over £1 billion of assets.”

According to the FSCS 2010 annual report, it paid out £214m in compensation to consumers for Keydata claims.

It completed 2067 claims in the 2010/2011 period in relation to SLS products, paying an average compensation of £17,078.

In relation to Lifemark, the FSCS said in 2010 that in terms of issues raised by Lifemark’s tax liability, it completed 10,560 claims and made payments of £923,839 to HMRC.

On Keydata funds backed by Lifemark, the FSCS said it received 15,100 claims in 2010/2011 and had paid out an average compensation of £12,494.