Keydata declared in default by FSCS

13 November 2009 | By Hannah Stodell

The FSCS will start sending application forms to customers of the firm and consider claims for compensation.

Keydata was placed into administration on June 8 and since then the FSCS has worked closely with the firm’s administrators PricewaterhouseCoopers, the FSA and HM Revenue and Customs to understand the full implications of the failure of the firm for its customers.

FSCS has identified two potential claim categories, and anticipates the vast majority of customers who invested in the Secure Income Bond Issues 1,2,3 (Category 1) will be eligible for compensation.

A number of these investments were sold as Isas by Keydata, but HMRC has confirmed they did not meet the necessary requirements to qualify.

HMRC has issued a statement reassuring customers in Keydata Isa products they will not be “out of pocket” as a result of the company selling non-compliant Isas.

Clients who did not invest in Isa products are now also able to bring a claim for compensation

Clients who did not invest in Isa products are now also able to bring a claim for compensation to the FSCS.

The FSCS says these investors may still have grounds for a successful claim against Keydata if it can be established that the firm caused them to suffer a financial loss—even though it has not as yet been able to establish that the apparent loss of the underlying assets results in any liability on Keydata’s part.

It says: “These claims will be considered by the FSCS on a case by case basis in light of an investor’s dealings with Keydata.”

The FSCS will shortly send application forms to all Keydata customers who invested in these ‘Category One’ products to enable them to make a claim for compensation.

Investors in Category One products who have not received a form by the end of November should contact the FSCS helpline on 020 7892 7300 or 0800 678 1100.

FSCS says the second category of potential claim relates to Isa investments in products including the Secure Income Bond Issue 4, the Secure Income Plan Issues 1 to 12 and 14, the Defined Income Plan Issues 1 to 8 and the Income Plan Issues 1 to 12 and 14.

HMRC has confirmed that these ‘Category Two’ products, which were promoted as Isa eligible, do not meet the requirements. This only affects Isa products which had a term of five years or less. There are approximately 16,000 investors in these affected funds.

For the period before Keydata went into administration, investors will not have to pay any tax because HMRC will pursue recovery of the tax from Keydata itself.

For the period following administration, the FSCS anticipates that the majority of investors in these plans will be eligible for compensation in respect of any tax losses incurred as a result of the fact that these investments were not Isa-qualifying.

The FSCS expects to write to affected investors with details of the claims process by the end of December

The FSCS and HMRC are developing a process whereby the FSCS would pay compensation on behalf of eligible investors to HMRC each year, avoiding the requirement for investors to pay the tax to HMRC upfront and later claim it from the FSCS.

The FSCS expects to write to affected investors with details of the claims process by the end of December.

Earlier this year PwC confirmed that evidence suggested that the underlying assets held in the secure income bond issues had been liquidated and may have been misappropriated.

In June, Keydata said it was an “innocent victim” after administrator PwC revealed over £100m of assets from some of the plans had gone missing.
The assets were invested in Keydata plans with Luxembourg investment vehicle SLS Capital which was controlled by businessman David Elias who died in May.