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FSCS out of court settlements with Keydata advisers top £12m

Out of court settlements with dozens of financial advisers who advised on failed Keydata life settlements bonds have enabled recoveries of more than £12m for the Financial Services Compensation Scheme, an analysis of its latest published figures reveal.

In its latest ‘outlook’ report, which provides an update on claims and recoveries figures throughout the financial year, the scheme revealed concluded commercial settlements had achieving recoveries “significantly in excess” of the costs incurred in the litigation.

In April in an interview with FTAdviser, chief executive Mark Neale pledged that court actions against Keydata advisers would pay, after its accounts had revealed costs of around £8m and £3.8m in the 2012/2013 and 2013/2014 years relating to the proceedings.

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An FSCS spokesperson confirmed to FTAdviser that reference to significantly exceeding costs related to the combined £11.8m spent in prior financial years. The £7.2m which has been set aside to cover costs in the current year has not been counted.

According to today’s (18 November) report, the number of defendants involved in the proceedings has reduced “very significantly” since the commencement of the proceedings and is now around 150.

Following settlements with the previously selected set of six lead case defendants, the FSCS has been working to select new lead case defendants to represent the defence case. After a case management conference in July, a further 17 lead defendants were selected.

Last year, it was confirmed the FSCS will have to increase the amount of redress paid to early settlers for Keydata claims, which will bring total compensation paid out to around £260m.

Mark Neale, FSCS chief executive, added: “I am pleased to confirm that we are preparing refunds to those who met the cross subsidy levy in 2010/11 recoveries for Keydata. A full account of our recoveries work on Keydata will be published in due course.”

The document also included information on its work with Catalyst Investment Group Limited, a firm declared in default by the Financial Conduct Authority on 4 October 2013.

To date, FSCS has received almost 4,000 claims against Catalyst and has already settled 1,800 with compensation of around £26m. In total, FSCS expects to pay around £60m in relation to Catalyst claims during 2014/15.

At the start of this year advisers in the investment intermediation sub-sector were warned they would be hit with £105m in levies to pay Catalyst redress.

The FSCS also confirmed that due to the complexity of claims against firms declared in default in July - TailorMade Independent Limited, 1 Stop Financial Services, Kynaston-Carnoustie Financial Consultancy Limited and Crawford Scott Limited - it cannot yet say how much compensation will be paid in relation to Self-invested personal pensions during 2014/15.

In August, the FSCS indicated the prospect for additional levies due to the risk of increased compensation claims from Sipp complaints, with Mr Neale stating that this risk remains.

peter.walker@ft.com, ashley.wassall@ft.com