The collapse of UK life
settlements firm Keydata Investment Services in June 2009 has had
unpleasant repercussions for Norwich and Peterborough Building
Society (N&P) which has been fined £1.4m ($2.25m) by the
Financial Services Authority (FSA) for the mis-selling of Keydata
In addition to the fine,
N&P will make £51m available to some 3,200 customers affected
to ensure they do not lose as a result of their investment in
Some £28m has already been
paid to certain aggrieved N&P clients by the Financial Services
Compensation Scheme (FSCS).
N&P will reimburse the
FSCS out of the £51m with the remaining £23m. This will be offered
to aggrieved clients by way of ex gratia payments of amounts above
the maximum payment of £50,000 per client made by FSCS.
In its summing up, the FSA
said N&P failed properly to assess the financial circumstances
of many of its customers, designating them as having a higher
tolerance of risk than was appropriate which led to unsuitable
sales of life settlements products to them.
Some customers, noted the
FSA, were moved out of low risk products such as deposit accounts
into Keydata investments, putting their income and capital at
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“Many of these customers were
approaching or already in retirement, and could not afford to lose
their money,” the FSA stressed.
The FSA also pointed to a
review undertaken by N&P in June 2007 which was prompted by a
realisation that Keydata products formed 30% of all investment
products sold during the first three months of that
But despite N&P’s
compliance team’s report setting out concerns about the suitability
of advice given to customers, no effective action was taken and
Keydata sales remained consistently high, noted the FSA.
Prior to its collapse,
Keydata purchased bonds on behalf of investors which were issued by
special purpose vehicles (SPV) incorporated in Luxembourg. The SPVs
were used to purchase life insurance policies issued in the
N&P is not the only
company to feel financial pain as a result of Keydata‘s collapse.
In January this year, the FSCS announced that financial
intermediaries and fund management companies would have to pay a
total levy of £247m to compensate the 19,000 investors who suffered
as a result of Keydata’s collapse.
The total compensation levy for 2011 was set at £327m and
in addition to Keydata is earmarked to reimburse clients that
suffered losses as a result of the collapse of a number of other
investment product providers and a stockbroking firm.