RegulationFeb 23 2018

FSCS pays out £12m Keydata refund

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FSCS pays out £12m Keydata refund

Fund managers will get an £11.7m refund from the Financial Services Compensation Scheme (FSCS) this week for the costs of Keydata claims.

This is in addition to the £50m refund, which was handed out in December 2014.

Keydata is the biggest investment failure the compensation scheme has handled and it has paid out more than £330m in compensation since the scheme collapsed in 2009.

The refunds are being handed out because of the "significant recoveries" the FSCS has made, which amount to more than £100m.

These recoveries come from the FSCS's attempts to recoup some of the money it has paid out in compensation, including through legal action against numerous financial advisers.

Mark Neale, chief executive of the FSCS, said: "We came to the aid of thousands of Keydata customers while paying out hundreds of millions of pounds. The costs of providing this protection fell to investment intermediaries and to fund managers.

"We are pleased to issue fund managers with an £11.7m refund this week. This is clear proof of our success in pursuing recoveries for the benefit of the firms that fund us, to which we remain fully committed."

Investment advisers have benefitted from the FSCS's recoveries work with some £38.5m used to offset the costs of compensation.

Today's (23 February) refund for fund managers is for a "cross-subsidy" from fund managers to investment intermediaries in 2010 to 2011 to meet the costs of FSCS for investment claims, mostly from Keydata.

The FSCS funding system provided for the scheme to raise cross-subsidies to cover costs in excess of a single funding class’s annual limit.

Keydata Investment Services designed and sold life settlement policy-based investment products to retail investors through independent financial advisers.

Products were underpinned by investments in bonds issued by Luxembourg vehicles SLS Capital and Lifemark.

From December 2005 to June 2009, more than 37,000 investors purchased the products, investing more than £475m.

In the Lifemark Bonds alone, £373.2m was invested by 30,906 retail customers.

Last year the Financial Conduct Authority fined Keydata founder Stewart Ford £75m and former Keydata sales director Mark Owen and former Keydata compliance officer Peter Johnson £4m and £200,000 respectively.

It cited a "lack of integrity" and "reckless" actions on the part of Mr Ford, Mr Owen and Mr Johnson while running Keydaya, adding the regulator itself had been "deliberately misled" by the trio.

damian.fantato@ft.com