IFAs not responsible for Kaupthing risk - AIFA

IFAs are not responsible for misjudging the risk to depositors placing money in collapsed bank Kaupthing Singer & Friedlander Isle of Man (KSFIOM), according to the Association of IFAs (AIFA).

At the Treasury Select Committee's Banking Crisis Enquiry, an MP asked whether AIFA was 'passing the buck' by arguing responsibility lies with the provider rather than the adviser.

However, Chris Cummings, director general of AIFA says the organisation has worked with the Association of British Insurers (ABI) and the FSA to work out the respective responsibilities of each partner.

"The ABI, with the full consent of its members, set out a position that as the people who designed the products they have a responsibility for making sure those products are fit to purpose, well-targeted and if the risk profile changes, to inform the market of this.

"As IFAs, our duty to our clients is to challenge the market to be open and honest with us, but we can only know what we know at the time," he says.

Cummings believes providers were shocked by the speed of events regarding the Icelandic banking crisis but should have taken action.

"If aware of risks they have a duty of care, if not a regulatory responsibility to expose those risks and keep IFAs and customers informed of changing risk patterns," adds Cummings.

He refuted an MP's question that AIFA members had mis-sold offshore investments as low risk. All IFAs point out offshore risks to their clients but there are tax advantages and benefits to succession planning as well as other reasons for using an offshore product, he adds.

KSFIOM collapsed on 8 October 2008 in the wake of the British government's decision to invoke anti-terrorism legislation to freeze Kaupthing's UK assets, including those of its Isle of Man arm.

Depositors with KSFIOM are set to receive early payments of £10,000 per account while the jurisdiction seeks an alternative to liquidation and activation of a depositor's compensation scheme but recompense could take up to two years.