Financial adviser fined over Keydata mis-selling
Chase de Vere Independent Financial Advisers has been fined £560,000 for mis-selling the policies of the now-defunct Keydata investment firm.
The Financial Conduct Authority levied the fine because Chase de Vere had not explained how risky the policies were.
Keydata was declared insolvent in 2009, but Chase de Vere had advised 2,806 customers to put £49m in the policies.
Many have been compensated, but 139 may lose the £4.4m which they invested above the official compensation limits.
The Financial Services Compensation Scheme (FSCS) has now offered up to £48,000 per person - the limit at the time - to a total of 24,000 Keydata customers.
So far 23,200 have received compensation totalling £330m, a spokesman for the FSCS said.
Risks not explained
The FCA, one of the main City regulators, said Chase de Vere should have realised that the policies, which were invested in portfolios of second-hand US life insurance polices, were too risky for cautious investors.
The Keydata policies were effectively a bet that the original policy holders, who had sold their interest in the life insurance to raise money, would die soon enough to give the investors a profitable payout.
Thus they were known as "death bonds."
"Chase de Vere did not research the Keydata products well enough to understand the risks they posed to customers and did not ensure that its advisers understood those risks," said Tracey McDermott, an FCA director.
"As a result, the advisers did not explain the risks of investing in Keydata products properly to customers, and the firm made this worse by ceasing to provide standardised wording to advisers to help them describe the risks to customers.
"As a consequence of this, Chase de Vere failed to disclose to its customers certain distinctive features and risks of the Keydata products in a way which was clear, fair and not misleading," the FCA added.
Stephen Kavanagh, chief executive of the firm, told Money Marketing: "We are very disappointed to have been fined. However, it is important to put this into context. The shortcomings identified were addressed and rectified some years ago."
About 30,000 people in total lost an estimated £450m which they had been persuaded to invest in various Keydata policies by various financial firms.
In particular, the saga had a disastrous effect on a leading building society, the Norwich & Peterborough.
The N&P had sold Keydata investments to more than 3,000 of its own customers, making it one of the biggest sellers of Keydata policies.
It was fined £1.4m by the former Financial Services Authority (FSA) for mis-selling, and the society's decision to compensate its own customers directly cost it £57m.
That plunged it into the red and triggered a rescue takeover by the Yorkshire building society.
After a two-year investigation, the Serious Fraud Office (SFO) concluded in 2011 that there was insufficient evidence to prosecute anyone for supposed wrong-doing at Keydata.
Keydata was then wound up in early 2014 after an administration process that had lasted nearly five years.
Despite that, the saga rumbles on.
The bank HSBC is trying too fend off a $250m lawsuit in the USA, in which a group of investors have accused the bank of negligence and helping a "major international fraud" in its role as custodian of the second-hand life insurance policies.
Meanwhile the founder of Keydata, Stewart Ford, is reportedly threatening to sue the FCA for £370m, claiming he lost money because its predecessor the FSA closed down Keydata improperly and unnecessarily.