FSCS compensation - who pays?

Question

Sadly I invested in the Keydata (FSA authorised) "death bonds" offering a "low risk" 7.5% annual income in 2006.

Better news - at least I did it inside an ISA which it has been proven by the FSA not valid for ISA investement - despite the brochures soliciting this. I have been informed by the FSCS I will not be liable for tax on the income for this "invalid ISA investment".

Keydata is now totally t*ts-up. IMHO the whole thing was a scam - money missing, administrator missing/dead, life insurance policy people not dying fast enough (I understood average life expectancy was statistically very predictable with a large sample.) People much smarter than me, including several large building societies promoted Keydata products. Everybody applying to the FSCS.

The FSCS are playing it cagey, ie "send in your claim before we announce who will/will not be compensated - and the criteria".

I understand that FSCS compensation generally comes from an IFA levy. Some IFAs are reasonably upset - if they were smart enough to avoid this bad investment, but have to pay the levy to cover the IFAs that weren't.

In my case, I made the investment on a "non-advised" basis. If I get compensated, where does this money come from - IFAs, the government's big pot, where else ???

Keydata victim

biggirlsblouse · Accepted Answer

to meet the UK depository protection scheme requirements don't the banks/building societies have to pay a levy?

anon · Answer

A financial structured product investment - even one "claiming" (wrongly) to be operating under FSA rules is not a bank/BS deposit. I don't think/know if they pay a levy.

Rob Graham · Answer

'Not under FSA rules' means that it is not a regulated product. Thus it does not come under the FSCS scheme either.

But regarding regulated investments, all those advising on such products will be paying an FSCS levy. And the amount of compensation depends on what type of product it is. Deposits are £50,000. Other products are

100% of the first £30,000 and 90% of the next £20,000, i.e. £48,000 max. The reason for this max it to put some of the blame onto the investor for no doing his own due dilligence.

And compensation is usually paid by the advisor if he's found (or admits) to be at fault in some way, not the FSCS. This is where the ombudsman comes in to make a ruling if there's a dispute.

Rob Graham

Ronald Raygun · Answer

Why is that? What has changed?

If it's just that "people are living longer", surely that is measurable and predictable. Doesn't it just boil down to tracking the way the parameters are changing? I don't suppose that's particularly easy, but surely parameters have not exactly been constant in the last few decades either, so

*some* amount of tracking must have already been involved. What has made it suddenly *much* more difficult?

Tim · Answer

"anon" wrote Maybe last century (20th) it was, but it's much more difficult looking into the future now!!

Tim · Answer

"Rob Graham" wrote The advisor won't pay if they can't afford to - that's when the FSCS comes into play... "Rob Graham" wrote The FOS will pass the case to the FSCS if the advisor is "in default"!

Tim · Answer

"Ronald Raygun" wrote

Yes, that's the problem. Projections have always been made and, although they were never exactly right, they usually weren't far off. But then around the turn of the century the rate of improvement in mortality rates (especially for older males) suddenly took off, apparently surprising everyone.

With this in mind, what would you think - should we project similar rapid improvements into the future, or more "normal" improvements?

"Ronald Raygun" wrote

It's difficult to decide whether to model the recent rapid improvements continuing, or returning to more subdued improvements. Also there are issues such as the "1930s cohort" - people born around the 1930s seem to have better life expectancies than both the generation before & the generation after!

Gio · Answer

My mum invested some money with Keydata too but fortunately it appears the sum has been transferred to Credit Suisse. She has no idea when that happened because there was no notification. She has currently written to Credit Suisse to ask for the money to be transferred to her standard bank account.

Gio

FSCS compensation - who pays?

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