News
11/06/2009 - Is My Money Safe with Keydata?
Citywire has produced the following Q&A for Keydata clients:
Some 85,000 people have money invested in Keydata products. The company was declared insolvent on Monday and since then details have been emerging about what is going to happen to the business.
This Q&A aims to address individual concerns, for some background on how the crisis unfolded click here.
1. Is my money safe?
Provided Keydata was managing its business legally - and all indicators so far are that it was - then any money invested in its products should have been ring fenced and kept separate from the assets of the company. This means that even in the company becomes insolvent the assets are safe. The accountancy firm brought in to act as administrators, PricewaterhouseCoopers (PwC), seem to believe this was properly managed, though it has promised to make a more definite statement on it soon.
2. So will my investment just function as normal then?
Unfortunately not. The first problem is that the administrator has suspended income payments from products. Clearly many of these products which offer high income would have been used by people who were relying on investment income to live. However, yesterday the PwC administrator told me that the suspension of payments was because of a restriction placed on the business by the financial services regulator, the FSA, this has now been lifted so he hopes to resume normal payments immediately. It is likely that payments scheduled to come out on a monthly or quarterly basis will not be disrupted.
The second problem is that many of these products are structured to have a fixed life - of say five years. The product promises to return capital in full after that time period. However, the plan is only designed to return the full amount invested if the money is left in for the full time period. In this situation it may be that you feel it necessary as an investor to withdraw your money early. In that case you may find that you do not have all your capital returned, but simply get the current market value. After the dreadful markets of the past two years this could be less than you think.
Probably the most likely outcome however is that the products will be sold on to a different provider - many have already thrown their hat into the ring. In this situation the plans could continue to the end of their lives and the capital would remain protected.
3. I have heard that some of the ISAs Keydata sold were in fact not eligible to be tax-free. Could I have to pay tax on my investment that I was not expecting?
Details are still sketchy on the situation with ISAs issued by Keydata. However, it appears that some early issues - we think the first four issued in late 2005 and early 2006 - of the Defined Income Plan (then called the Secure Income Bond) may not in fact have been eligible for inclusion within an ISA wrapper, even though they were sold as if they were.
Only certain types of investment can be tax-free for ISA purposes. Because of a problem Keydata experienced structuring this product is fell outside of the rules. We understand Keydata had sought to cover the tax bill on behalf of investors, however this has not now happened. The question is now over whether HMRC will try to pursue those ISA investors to have a tax bill paid.
No definitive answer has been provided but our enquiries have yielded a general response from HMRC which has stressed that it looks to the company and not the individual to meet this bill. It is therefore likely that you will not have to pay any more tax.
4. I've only just invested my money, can I get it back?
The administrator has said that money will be returned in the normal way to investors who are still in the 30 day cooling off period that runs from the time they invest.
5. Should I be contacting a lawyer?
You should of course take any financial or legal advice you think is necessary. However, many more details of what will happen to your money are likely to emerge in coming days. It may be wise to hold off incurring legal fees until a little more detail emerges as it likely that your product will simply move to another secure provider, with capital remaining safe and income payments resuming. Bear in mind that while the company has experienced problems there is no evidence that the products themselves are not working properly. The administrator is recommending you do not take any action now. If you invested through a financial adviser it is reasonable for him or her to contact you to fill you in on their understanding of the situation.
6. Am I covered by the Financial Services Compensation Scheme
When regulated businesses are declared in default by the Financial Services Compensation Scheme (FSCS) and investors lose capital they are in principle covered by the compensation scheme up to a limit of £48,000. The scheme pays 100% of the first £30,000 lost and 90% of the next £20,000. However, the firm has not yet been declared in default - which is different from insolvency - because it looks unlikely that investors have lost any money. The FSCS has issued a notice telling investors to get information from the administrators website in the short-term.
7. Keydata's website has shut down, where can I go for more information or to talk to someone about my investment?
The administrators PricewaterhouseCoopers have set up a helpline you can call. It is 020 7804 4424. it also has a website which it will keep updated. www.pwc.co.uk/KIS.
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