Keydata Investment Services (in administration) Update
13th November 2009
Keydata Investment Services Limited (in administration) (Keydata) is in default. This means the FSCS can start sending application forms to customers of the firm, and consider claims for compensation.
Keydata was placed into Administration on 8 June 2009, and since then the FSCS has been working closely with the firm's Administrators (PricewaterhouseCoopers), the Financial Services Authority (FSA) and HM Revenue and Customs (HMRC), to understand the full implications of the failure of the firm for its customers.
A number of complicated legal issues surrounding Keydata have prolonged this process. The FSCS has identified two categories of potential claims:
Category One: Secure Income Bond issues 1, 2 and 3
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. In addition, a number of these investments were sold as ISAs, and HMRC has now confirmed that they did not meet the necessary requirements for qualifying as ISA investments.
Many of these products were bought by investors on the basis that they were ISA qualifying investments, but it has turned out that this was never the case. Whilst we must consider claims on a case by case basis, we presently anticipate that the vast majority of these customers will be eligible for compensation.
The remaining Category One investors, who did not invest in ISA products, are now also able to bring a claim for compensation to the FSCS. These investors may still have grounds for a successful claim against Keydata if it can be established that the firm caused them to suffer a financial loss, even though we have not at this stage been able to establish that the apparent loss of the underlying assets results in any liability on Keydata's part. These claims will be considered by the FSCS on a case by case basis in light of an investor's dealings with Keydata.
The FSCS will shortly be sending application forms to all Keydata customers who invested in these Category One products to enable them to make a claim for compensation. If you invested in a Category One product and have not received a form by the end of November, please contact our helpline on 020 7892 7300 or 0800 678 1100.
Category Two: ISA investments in products including 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.
HMRC has confirmed that these Category Two products, which were promoted as eligible for an ISA, do not meet the requirements for ISA investments. This only affects ISA products which had a term of five years or less. There are approximately 16,000 investors in these affected funds.
For the period before Keydata went into administration (8 June 2009), investors will not have to pay any tax because HMRC will pursue recovery of the tax from Keydata itself.
For the period following administration, the FSCS anticipates that the majority of investors in Category Two 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. Moreover, 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. The FSCS expects to write to affected investors with details of the claims process by the end of December.
Tax guidance for Keydata investors from HMRC
HMRC has published details of the tax implications for Keydata investors. This information can be found on their website: www.hmrc.gov.uk/isa/
The Administrators' website
For further details about the Administrators' work, including a comprehensive list of Keydata products affected by the ISA issues, please refer to www.pwc.co.uk/KIS
We have also compiled a list of Frequently Asked Questions which you may find helpful.