Compensation for Keydata victims

17 November 2009

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.

Many of these investments were sold as ISAs, despite them not meeting HMRC’s necessary requirements for qualifying as ISA investments.

“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.

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