City revolts over bill for bust firms

David Hellier
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LEADING City investment management and stockbroking groups were yesterday in open revolt about plans for them to pay £233m to a controversial compensation fund after the collapse of the financial products seller Keydata.

There was a growing feeling last night that prudent firms – from tiny blue-blooded Mayfair fund managers to giants such as BlackRock – were being unfairly hammered for the sins of a few, entirely unrelated players in very different financial industries.

The Association of Private Client Investment Managers (Apcims), whose 180 members include JP Morgan Cazenove as well as Evolution and Brewin Dolphin, called a meeting to discuss the possibility of refusing to pay into the Financial Services Compensation Fund (FSCS).

One source said: “Some members are appalled at being called upon to fund this bailout. They feel they have nothing to do with the type of firm that got into trouble.”

Sources also said that the Investment Management Association (IMA), whose members manage £3.4 trillion, is considering challenging the decision to levy its members in the courts. Its members include firms such as Aberdeen Asset Management, Aviva and Odey Asset Management.

One source said that the IMA, which feels there are issues relating to who else should contribute towards the cost of Keydata, will take a cold-hearted decision as to whether to challenge the compensation levy through a judicial review. The IMA has engaged lawyers on the issue in recent weeks and many of its member firms have done the same.

“In the end the decision will rest on a fairly cold assessment of the chances of winning a court battle,” said one IMA adviser. “There has been no decision yet as to whether to go ahead.” Those interested in disputing the levy were last night told that the IMA was “looking at challenging the payment on behalf of the investment management industry”.

One source said that even if the IMA didn’t decide to adopt a legal challenge, there was no reason why some of its members might not go down that route.

Of the total levy of around £450m now being raised by the FSCS, £93m will come from financial advisers and £233m will come from fund management firms. A previous interim levy of £80m was raised from intermediaries in early 2010. Under the rules of the scheme, there is a maximum £100m that can be called upon from intermediaries after which monies can be called upon from stockbrokers and investment managers.

A spokesman for the FSCS acknowledged that the current compensation system might need an overhaul. “We want to find a system that everybody supports.”

Liontrust Asset Management yesterday revealed it was hit with a £415,000 bill, up from £20,000. Rathbones has paid £3.6m, Brewin Dolphin £6.2m, Brooks Macdonald £545,000, Charles Stanley £2.6m, IG £4m and Evolution £1.4m. The British Insurance Brokers’ Association (BIBA) has warned that its members face a 50 per cent hike in levies.