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FCA fines 'death bonds' boss 75 million pounds

Published 26/05/2015, 15:54
© Reuters. The logo of the new Financial Conduct Authority is seen at the agency's headquarters in the Canary Wharf business district of London
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By Matt Scuffham

LONDON (Reuters) - The boss of a firm which sold so-called "death bonds" was hit with a 75 million pounds fine on Tuesday by Britain's financial regulator, the biggest penalty it has ever handed to an individual.

The Financial Conduct Authority (FCA) said it would impose the fine on Stewart Ford, former chief executive of Keydata Investment Services. In response, Ford said he would file a claim against the FCA and accountancy firm PwC (PWC.UL), Keydata's administrator, seeking damages in the order of 650 million pounds.

Some 30,000 people, mainly pensioners, ploughed more than 450 million pounds into Keydata. Death bonds are second-hand life insurance policies whose value depends in part on the death of the original insurance holders, often wealthy former professionals living in the United States.

Partly because of the longevity of the rich, actual returns often fell far short of those promised by sales staff to often elderly investors.

Keydata was shut by the Financial Services Authority (FSA), the FCA's predecessor, in 2009 and many investors lost much of their life savings.

The FCA also handed fines of 4 million pounds and 200,000 pounds respectively to Mark Owen, former sales director, and Peter Johnson, former compliance officer. It said the individuals would be banned from roles in the regulated financial services market. Neither could be reached for comment.

DUE DILIGENCE

The FCA said Ford, Owen and Johnson failed to act with integrity and misled the FSA on a number of occasions in relation to the performance of the products.

The regulator said the products were sold to customers as if they were eligible for inclusion in Britain's tax-free individual savings accounts (ISAs), but this was not the case.

It said the three were aware it was highly likely the products did not comply with ISA regulations and the products were promoted in a misleading way, while the due diligence on them was inadequate.

In an e-mail, Ford said the FSA "knowingly exceeded its statutory authority in order to bring down Keydata as a blatant attempt to prove it could be effective after its disastrous handling of bank regulation in the lead-up to the 2008/9 financial crisis".

The FCA declined comment. PwC said: "We have had no contact from Mr Ford, so are unable to comment on his alleged claims. We do not believe he has any grounds to bring an action."

The decisions are pending an appeal by the three to the Upper Tribunal, an independent judicial body. "I welcome the fact that this matter is at last going to be properly considered by the High Court and by the Upper Tribunal who will be able to finally see the truth," said Ford.

The regulator said Ford and his family had received 72.4 million pounds in fees and commissions following the sale of the products and Owen received commissions worth 2.5 million.

© Reuters. The logo of the new Financial Conduct Authority is seen at the agency's headquarters in the Canary Wharf business district of London

($1 = 0.6491 pounds)

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