Regulation  

FCA complains it was misled as it fines Keydata trio £80m

FCA complains it was misled as it fines Keydata trio £80m

The Financial Conduct Authority has cited “lack of integrity”, “reckless” actions and complained the regulator itself was “deliberately misled” as it announced its decision to fine a trio of senior figures in the now defunct Keydata £80m, including a £75m penalty for founder Stewart Ford.

The findings are being contested and all three decision notices published today (26 May) have been referred to the Upper Tribunal, which has the authority to overturn or uphold them, or to modify the enforcement action.

In three decision notices, founder Mr Ford, former sales director Mark Owen and former compliance officer Peter Johnson are fined £75m, £4m and £200,000 respectively. The FCA is also looking to prohibit them from performing any role in regulated financial services.

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The regulator found the trio failed to act with integrity and deliberately misled the then Financial Services Authority on a number of occasions in relation to the performance of the investment products.

The FCA says the three made false representations in compelled interviews with the regulator about the performance of the products, having failed to disclose problems with the one of the underlying portfolios which impacted on performance.

Advisers who have been hit with recovery claims by the Financial Services Compensation Scheme have long complained that the regulator is in part culpable for the failure of a investment group that was authorised at the time the issues emerged.

FTAdviser reported this time last year that the FSA had rated products sold by Keydata as ‘inherently high-risk’ and noted a “significant probability of… high potential relative loss” as early as 2007. No action was taken until the firm collapsed in April 2009.

According to the notices, Mr Ford and trusts set up for the benefit of his family received some £72.4m in fees and commissions on sales of the Lifemark products. Mr Owen is said to have received commissions on sales of the Lifemark products in the amount of £2.5m.

Keydata Investment Services designed and sold life settlement policy-based investment products to retail investors via independent financial advisers. Products were underpinned by investments in bonds issued by Luxembourg vehicles SLS Capital and Lifemark.

From December 2005 to June 2009, over 37,000 investors purchased the products, investing over £475m. In the Lifemark Bonds alone, £373.2m was invested by 30,906 retail customers, via IFAs. The FSCS has subsequently made payments to investors in the products of over £330m.

The FCA in particular cites that the products were sold as eligible for Isa status, when they were not in fact eligible.

The notices set out the FCA’s view that the trio permitted Keydata to continue to sell the Lifemark-backed products to retail investors when they were aware that it was highly likely the products did not comply with Isa regulations.

It adds that financial promotions were unclear, incorrect and misleading, that the due diligence on the products was inadequate and that there were problems with the performance of the portfolio ultimately underlying the products.

With regard to the SLS-backed products, Mr Ford “deliberately concealed” the problems with the portfolio underlying these products from investors, IFAs and the then FSA, the notices state.