More than 30 companies have expressed an interest in buying Keydata Investment Services after it was made insolvent by the Financial Services Authority on Monday due to a tax liability caused by the sale of non-compliant Isas. It has now emerged that the company sold more products that fall into this category, taking the total amount of non-compliant Isa money to £200m.
Keydata, which has over £3bn in assets under management and specialises in selling structured products through a network of independent financial advisers, failed to list its Isas on an Inland Revenue recognised stock exchange. This has resulted in the company being liable for £5bn in unpaid tax that must be paid to the Revenue.
However, the FSA has now lifted a ban on operating lifted on existing funds so that the company can return to normal until a buyer is found. This will be a relief to its 85,000 investors some of which had had their income payments frozen.
Dan Schwarzmann, at PricewaterhouseCoopers who was named as administrators, said: “We are hopeful that we will be able to complete a sale of the business as a going concern by the end of the next week. This will bring some much needed certainty to the thousands of investors, IFAs, staff of the company and other impacted stakeholders. In addition as of Friday we are recommending processing as far as is practicable within the confines of the administration.”
He said that the company sold investments to the public as Isas that were not compliant with the rules. “In order to be sold as Isas they needed to meet certain criteria, but this was not the case in at least three plans - Secure Income Bonds 1, 2 and 3,” said Mr Schwarzmann.
He added: “The total list of products which may be impacted is the Secure income bonds issues 1-3, Secure income Plan issues 1-12 and 14 and Defined income Plans issues 1-8. We do not expect any further products to be added to this list.”
Jubilee Financial Products, a specialist investment boutique, Opal, a provider of structured product services, and Meteor Asset Managment are some of the companies to have approached PWC over a potential acquisition of the company.
Are investors protected?
By Sharlene Goff
If Keydata is unable to return funds to its clients they may be able to seek compensation from the Financial Services Compensation Scheme (FSCS).The FSCS is the UK’s statutory fund of last resort for customers of authorised financial services firms. It can pay compensation if a bank or investment company is unable to meet claims against it.
The FSCS said it was still too early to say whether Keydata’s customers would have to seek compensation. But if it becomes clear that customers have suffered financial losses as a direct consequence of their dealings with the firm, and that Keydata is unable, or likely to be unable, to pay claims against it, the FSCS may be able to provide cover.
There are limits on the amount of compensation it will pay, however.
For investments the maximum is £48,000 per person. The FSCS will cover the 100 per cent of the first £30,000 and 90 per cent of the next £20,000.
But Jason Walker, senior manager at AWD Chase de Vere, reassured investors saying he believed that the tax-status of the Isas would be sorted out once the plans were registered on a recognised stock exchange.
“This should be sorted out when the company is sold and if it is then these Isas will retain their tax-free status,” he said.
A spokesman at HMRC said: “We will work with the joint administrators with a view to protecting the tax position of Isa investors as far as possible. We will look to ensure that ISA investors are able to keep their ISA wrapper.”
Keydata’s structured products were targeted at both income-seeking savers, and investors looking to profit from an equity market rally. The company described its most recent launches, which closed three weeks ago, as “a swathe of products to help investors beat the credit crunch.”
Its Extra Income Plan Extra Income Plan offered a choice of 7.15 per cent annual income, 1.75 per cent quarterly income or a 39.5 per cent five-year return, with 100 per cent capital protection provided the FTSE 100 did not fall by 50 per cent during its five-year term. This capital security was provided by Exchangeable Notes issued by institutions with a credit rating ‘AA’ or better – although Keydata did not disclose these counterparties.
Alternatively, its Dynamic Growth Plan Plus offered investors the opportunity “to exploit the much predicted limited growth in the FTSE 100 index in the short to medium term by gearing any rises”. Investors were promised 10 times any rise in the FTSE 100 index subject to a maximum investment growth of 90 per cent.
At the time of their launch, Mark Owen director of sales and strategy, claimed: “Our latest range of investments… supports our belief that properly devised structured products are a sensible investment ideal as a foundation for any sound portfolio.” It currently holds more than £2bn of private investor’s assets in these products.
Keydata’s most recent life insurance-based product closed last Saturday. The Defined Income Plan – Issue 2 was marketed as “an uncorrelated investment providing investors with an attractive alternative to traditional income plans”. It actually invested in a Bond listed on the Luxembourg Stock Exchange, whose underlying holdings included a combination of cash and a portfolio of senior life insurance policies.
The business has nearly 70 asset management clients and over £3m of revenue in 2008. The three directors of Keydata Investment Services paid themselves £7.8m in salaries in the past two years.
Investors were urged to check PwC’s website or phone 020 7804 4424.
