Compensation for Keydata victims
Thousands of people who lost money when investment firm Keydata collapsed can now apply for compensation.
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.
However, it has taken until now for the firm to be declared in default by the Financial Services Compensation Scheme (FSCS). This opens the door for around 21,500 people to lodge a claim for compensation.
The FSCS can pay victims 100% of the first £30,000 lost, and 90% of the next £20,000. It has identified two categories of potential claims. The first category is made up of around 5,500 people who invested in Keydata secure income bond (issues 1, 2 and 3) – losing the £103 million held in these funds.
“The administrators have confirmed that there is evidence to suggest that the underlying assets held in these funds have been liquidated and may have been misappropriated,” the FSCS said in a statement.
“While we must consider claims on a case-by-case basis, we presently anticipate that the vast majority of these [ISA] customers will be eligible for compensation,” it adds.
Non-ISA investors in this category are also able to claim for compensation. However, the FSCS will only approve claims where it can establish that Keydata caused individuals to suffer a financial loss.
The FSCS will send application forms to all Keydata customers who invested in these products. If you have not received a form by the end of November, you can contact the FSCS on its helpline on 020 7892 7300 or 0800 678 1100.
The second group of investors is made up of 16,000 people with other Keydata products also falsely identified as ISA investments.
HMRC has now confirmed they will not have to pay any tax for the period before the firm fell into administration.
The FSCS says it anticipates that the majority of investors in this category 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 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,” it adds.
These products include: 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. These products lasted for up to five years.
The FSCS says it will write to affected investors with details of the claims process by the end of December.
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).