Keydata: where do you stand?
The skeletons just keep coming out of the closet at insolvent investment firm Keydata. The latest instalment of the sorry saga reveals that the money of hundreds of its clients has not been properly invested in their plans due to administrative errors.
For some investors this means that their cash may not have been invested in any product at all.
The news was unearthed by the firm’s administrators, PricewaterhouseCoopers (PwC), at Keydata’s creditors’ meeting on Monday 17 August 2009.
Keydata, a provider of structured products, went into administration on 8 June after the Financial Services Authority (FSA) fined the company £5 million for selling non-compliant ISAs.
It has since been revealed that the firm owes HM Revenue & Customs a tax bill of £12.7 million - more than double the initial figure.
PwC says its investigation has found that in a number of cases investors’ cash may not have been invested in the correct product or they may hold fewer units than they are entitled to.
Although Keydata were aware of their blunder, the affected clients were kept in the dark.
PwC says the company did not advise its clients of the issues and continued as if these investments had been properly invested. Keydata continued to make payments to investors and covered any shortfall from its own funds.
While only a few hundred investors are affected out of tens of thousands of clients, those individuals who were not invested in any product at all could stand to lose all their money.
PwC says it will be contacting the relevant investors personally over the next few weeks to notify them of any discrepancies in their investments.
Meanwhile, it looks increasingly likely that 5,500 Keydata investors will have to turn to the Financial Services Compensation Scheme (FSCS) to get their money back.
This can pay out 100% of the first £30,000 invested and 90% of the next £20,000. This equals a maximum of £48,000.
The 5,500 investors with secure income bonds had their income payments and redemptions put on hold by PwC in June after it emerged that the underlying investments of life insurance based income products held by a company called SLS Capital had vanished.
The Serious Fraud Office has launched an investigation into this matter.
Tens of thousands of Keydata clients could also incur tax liabilities after products invested with Lifemark S.A have been identified as non-Isa eligible.
PwC has said that income for these products will be paid gross and clients will need to include all income paid by the administrators on their personal income tax return.
Question & Answers...
Which products are affected?
Secure Income Bonds 1, 2 and 3 - 5,500 investors in these products have had their income payments and redemptions put on hold while the FSA and the SFO investigate the disappearance of the underlying funds held by a company called SLS Capital.
Around 240 investors who invested into income property bonds run by Hometrack have also had their investments frozen.
Keydata or Lifemark products invested with Lifemark S.A - These products have been identified as non ISA eligible products so individuals will now need to include all income paid by the administrators on their personal income tax return. Income will be paid gross. No early redemptions are allowed on these products. (See pwc.co.uk for a full list of these products)
What happens next?
If the money cannot be recovered, investors have the option to lodge a claim with the FSCS once Keydata is declared in default.
The FSCS pays a maximum of £48,000 in investment cases.
Investors can stay up to date with what is happening through the PwC helpline on 020 7804 4424 or through it website.
Which products are safe?
Keydata products backed by blue chip financial firms are able to withdraw their funds. Income payments will be made net of basic-rate tax.
There is no issue with cash ISA products and payments are being made in the normal course. Products where Keydata only provided back office services are also unaffected.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
Structured products offer returns based on the performance of underlying investments. Many products are linked to a stockmarket index such as the FTSE 100 or a “basket” of shares. There are generally two types of product, one offers income, the other growth and investors have to commit their capital for the prescribed term, usually three or five years. The investment is not guaranteed and if the index or basket of shares does not perform as expected over the term the investor might not get back all their capital.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
Named after a high value gambling chip, the term is used for an investment seen as solid and whose share price is not volatile. Blue chip companies are normally household names and have consistent records of growth, dividend payments, stable management and substantial assets and are the bedrock of a pension fund’s portfolio.