Top-up payments to Keydata investors that were found to have lost out by refusing early compensation offers are yet to receive their additional redress three months after it was initially announced, the Financial Services Compensation Scheme has confirmed.
Following a court order FSCS announced in September it would provide top-up payments to compensate early-settling investors that missed out on subsequent distributions from the underlying Lifemark life settlement bonds, and to counter a disproportionate hit on compensation sums from £32m worth of scheme administration fees.
The specific calculation methodology was confirmed in October, but in an update published on the FSCS website yesterday (4 December) the scheme admitted that payments are yet to be made due to difficulties in reconciling ‘nominal values’, that is the underlying value of investors’ claims before any deductions were made.
Under the previous methodology payments were based on the ‘compensatable amount’ of any claim. Due to the way a compensation cap was applied this resulted in investors that settled later benefiting from a distribution that those who settled early did not.
Keydata claims were paid out at 100 per cent on the first £30,000, and then 90 per cent of the remainder up to a hard cap of £48,000.
A hypothetical investor with a £100,000 nominal claim would, if they promptly accepted the FSCS offer, have received £48,000, while if they waited they would have received an £8,075 distribution and, due to the way the cap was applied, the same £48,000 payout.
This is because despite their nominal claim value dropping to £91,925, the calculation would still have resulted in them receiving a full payout up to the hard cap.
The FSCS says it expects to make the majority of claims during next week, but added that there remain some cases where “payments are not yet possible because further work needs to be done in settling the nominal claim amounts”.
It states: “The work has taken slightly longer than we anticipated, because we have had to further reconcile nominal claim amounts with PricewaterhouseCoopers, Keydata’s insolvency practitioner.
“... [T]here are some cases where payments are not yet possible, because further work needs to be done in settling the nominal claim amounts. FSCS is working to resolve these issues and will provide a further update when we are able to distribute the remaining payments.”
Under the new payout methodology the FSCS will also add back into its payments the costs it had taken from investors as part of a 6.53 per cent payout to investors with large losses.
Approximately 16,000 Lifemark investors have been compensated with a combined total of £228m. This is £32m lower than the £260m value of claims from these investors as assessed by the FSCS, before the scheme deducted “reasonable costs of recovery and distribution”.
Keydata had originally distributed $605m worth of Lifemark bonds.