FCA to fine Keydata chief £75 million
Three senior managers at failed investment firm Keydata face millions of pounds' worth of fines from the City watchdog after being accused of lacking integrity and misleading authorities' investigations.
Former Keydata chief executive Stewart Ford, former sales director Mark Owen and former compliance officer Peter Johnson face fines of £75 million, £4 million and £200,000 respectively, as well as being banned from working in financial services in the UK.
These amounts will broadly amount to the fees and commissions earned by the men from selling risky investment products to an unwitting public.
Keydata Investment Services designed and sold investment products via independent financial advisers. The products were marketed as 'Isa-able' but in fact were not eligible to be held in an Isa.
Risky investment products
The products were underpinned by Keydata investments in bonds issued by Luxumbourg-listed special purpose vehicles called SLS Capital and Lifemark SA, which in turn invested in portfolios of life settlement policies.
According to the Financial Conduct Authority, the three continued to sell risky investment products even after realising they did not comply with Isa rules, that the marketing material could actually be misleading customers and that the underlying assets were performing poorly.
"Mr Ford deliberately concealed the problems with the portfolio underlying these products from investors, IFAs and the then FSA [Financial Services Authority]," says the FCA in a statement.
Later, in interview with the FCA, the regulator claims the group "deliberately misled" it about the performance of the investment products. They also tried unsuccessfully to prevent the FCA from publishing its intention to fine the individuals.
Keydata went into administration in 2009, and later several firms were found to have mis-sold the risky products to investors who did not have an appropriate risk appetite. Many investors were left out of pocket, not having realised they had unwittingly invested in Keydata products through their bank or building society.
N&P Building Society was fined £1.4 million by the financial regulator. Over several years, N&P advised 3,200 clients to invest in Keydata life settlement products while failing to properly assess many of these customers.
Days later, Yorkshire Building Society announced it would take over the ailing N&P.
The three have appealed to the Upper Tribunal, which will have the final say and decide once and for all if the fines are justified.
This article was written for our sister website Money Observer
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.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.