Will N&P’s Keydata payout set a precedent?

Norwich & Peterborough (N&P) building society has set aside a massive £57m to cover the cost of compensating customers its IFAs invested in failed investment firm Keydata.

N&P’s capitulation, welcomed by investors in Keydata-backer Lifemark after a year of denials of wrong-doing, will put pressure on other firms to fall on their swords. AWD Chase de Vere, Positive Solutions and Sesame all have significant client exposure to Lifemark, I understand. But all advisers need to consider the implications of this under-the-table deal.

Frustrated investors everywhere will now expect an N&P-style payout – where even customers who haven’t complained will get their money back. They will look to the FSA and the FSCS to agree elsewhere the same calculation of payments involved here, namely full return of capital plus compound interest of 1% above the Bank of England base rate, in line with redress from the FOS.

Those who don’t get this sum will want explanations from the regulator, the compensation scheme, the Ombudsman and the firm in question as to why. So far, answers are not forthcoming from N&P on what compelled it to offer blanket, no-questions-asked compensation. It will pay out, but has not admitted guilt or liability for the only aspect of the process where it can be negligent, and for which it is ultimately compensating – the advice.

Other, particularly large, firms in a similar sinking boat may take heart from this silence and choose to fight out each case against them at the FOS. It is unlikely they will think this way for long.

N&P may be keeping mum but the reality is it has had its back against the wall for a fortnight, since a Final Decision from the FOS ordered the society to pay compensation for poor advice in relation to Keydata products in a case victims said mirrored 500 others.

It was presumably told to cut its losses. By doing a deal under the same terms as FOS, N&P’s main gain is two-fold in that it avoids a constant and very public stream of revelations about bad selling practices, while appeasing the FSA by paying for its mess.

The FSA should investigate what went wrong here, regardless, and take a look in the mirror. Why did it allow a friendly society to offer its largely unsophisticated elderly clients products which scores of IMA members who deal with professional investors have said they wouldn’t, and didn’t, touch with a bargepole?