Advisers lose Keydata FSCS judicial review

Over 200 advisers have lost a judicial review of the Financial Services Compensation Scheme’s (FSCS) decision to levy Keydata compensation costs on intermediaries.

Birmingham high court judge Justice Beatson has this afternoon ruled the FSCS was justified in classifying Keydata as an investment intermediary, not a provider.

Intermediaries had to pay an £80m interim levy last year with about £58m caused by claims relating to Keydata and two failed stockbrokers.

Advisers were outraged that the FSCS decided to classify Keydata as an intermediary and 200 instructed Regulatory Legal partner Gareth Fatchett to review the decision.

It was argued the decision was unfair as Keydata branded itself as a provider, not an intermediary, and was previously regulated by the Investment Management Regulatory Organisation. It was also argued that the FSCS should be forced to consult before classifying failed firms. (article continues below)

However, the FSCS argued Keydata was an intermediary as it passed clients’ savings to offshore partner firms including SLS and Lifemark.

The FSCS is set to unveil another interim levy, to compensate Lifemark investors, before the end of January which is expected to breach the £100m limit for total levies that can be applied to intermediaries in one year. Any further claims, up to a total of £370m, will be paid by investment providers with anything else being absorbed by the general pool.

The FSCS’s costs for fighting the judicial review in the Birmingham High Court were £280,000, which include hiring Charles Flynt QC as counsel.

Advisers paid about £200 each into a fighting fund to absorb costs resulting from the challenge. Any extra costs will be paid by Regulatory Legal.

Regulatory Legal’s own costs, including hiring Anthony Speaight QC and Andrew Maguire, were £50,000.