Keydata Investment Services Limited (in administration) ("KIS")

This is an update produced on 2 July and supplements (or, as appropriate, supersedes) the other questions and answers documents on this website.

Questions and answers - 2/07/09

What is the current position regarding KIS?
Since their appointment, the Administrators of KIS have been working towards selling the business in order to provide continuity for investors.  However, potential issues have just come to light which mean that a sale of the Company as a whole will now not be possible.  These issues are explained further below.

The Administrators are very aware of the uncertainty and hardship which has been caused due to the suspension of income payments.  The Administrators will work as hard as possible to get income flowing here and anticipate that payments will commence this week.  We will continue to provide updates as soon as we have any new information for investors.

Which products are affected?
KIS products fall into six groups, number 1 to 6 below.

KIS's own products and Lifemark's products

1. KIS Life Settlement Products invested with SLS Capital S.A. ("SLS") (£103m invested)
These are products which invested in US life insurance contracts through a bond listed on the Luxembourg Stock Exchange.  Income from these underlying investments was then used to pay investors.

In the last few days the Administrators have become aware that income on these products has not been paid by SLS since October 2008.  No investor has so far suffered an income shortfall as a result of this non-payment as the gap was filled by KIS's own corporate funds.

The Administrators have also identified that early redemptions of these products have been dealt with in an irregular fashion.

The Administrators have been unable to satisfy themselves as to the safe custody of the underlying assets in SLS and, indeed, information received over the weekend suggests that the assets have been liquidated and may have been misappropriated. The Administrators are now working with the authorities in an effort to trace the funds.

For the time being no income payments or redemptions on these products will be possible.

The products affected are listed below. It is understood that some 5,500 investors are impacted.

  • KEYDATA SECURE INCOME BOND - GROWTH (ISSUE 1)
  • KEYDATA SECURE INCOME  BOND - INCOME (ISSUE 1)
  • KEYDATA SECURE INCOME BOND 2 - GROWTH
  • KEYDATA SECURE INCOME BOND 2 - INCOME
  • KEYDATA SECURE INCOME BOND 2 - QUARTERLY INCOME (USD)
  • KEYDATA SECURE INCOME BOND 3 - GROWTH
  • KEYDATA SECURE INCOME BOND 3 - INCOME

2. KIS life settlement products invested with Lifemark S.A. ("Lifemark") (£349m invested)
These products have a similar structure to those invested with SLS but are held with a different entity, Lifemark.  The Administrators have received confirmation of the existence of the underlying assets supporting these products.  However, the Administrators have identified that early redemptions of these products have been dealt with in an irregular fashion.  For the time being no early redemptions on these products will be possible.

Income on these products has been paid regularly and will now continue to be processed to investors as received. However, as reported earlier, these products were also the subject of earlier concerns as to whether they comply with ISA tax rules. Accordingly, it has been agreed with HMRC that the Administrators will deduct tax at source from all income generated from these products pending clarification of tax issues.  The products concerned are listed below.  It is understood that some 23,000 investors are impacted.

  • KEYDATA DEFINED INCOME PLAN (ISSUES 1 - 8)
  • KEYDATA SECURE INCOME BOND 4
  • THE INCOME PLAN (ISSUES 1 - 12 & 14)
  • KEYDATA SECURE INCOME PLAN (ISSUES 1 - 12 & 14)
  • KEYDATA DEFINED INCOME PLAN (SPECIAL EDITIONS)
  • KEYDATA DEFINED INCOME PLAN 5 YEAR SPECIAL EDITION (ISSUES 2 - 8)

3. Lifemark products invested with Lifemark (£2m invested)
The Administrators have received confirmation of the existence of the underlying assets supporting these products. However, the Administrators have identified that early redemptions of these products have been dealt with in an irregular fashion. For the time being no early redemptions on these products will be possible.

Income from these products has been paid regularly and will continue to be processed for investors as received subject to the tax deductions referred to above.

The products concerned are listed below.  It is understood that some 80 investors are impacted.

  • LIFEMARK SECURE INCOME BOND 1 EURO - QUARTERLY INCOME
  • LIFEMARK SECURE INCOME BOND 2 SEK - ANNUAL INCOME
  • LIFEMARK SECURE INCOME BOND 2 SEK - QUARTERLY INCOME
  • LIFEMARK SECURE INCOME BOND 3  EURO -
  • QUARTERLY INCOME
  • LIFEMARK SECURE INCOME BOND 3  SEK - ANNUAL INCOME
  • LIFEMARK SECURE INCOME BOND 3 SEK -
  • QUARTERLY INCOME
  • LIFEMARK SECURE INCOME BOND 4 EURO - ANNUAL INCOME
  • LIFEMARK SECURE INCOME BOND 4 SEK - ANNUAL INCOME
  • LIFEMARK SECURE INCOME BOND 5 EUR - ANNUAL INCOME
  • LIFEMARK SECURE INCOME BOND 5 EUR - QUARTERLY INCOME
  • LIFEMARK SECURE INCOME BOND 5 SEK - ANNUAL INCOME
  • LIFEMARK SECURE INCOME BOND 5 SEK - QUARTERLY INCOME
  • LIFEMARK SECURE INCOME BOND 7 EURO - QUARTERLY INCOME
  • LIFEMARK SECURE INCOME BOND 8 SEK - QUARTERLY INCOME

4. KIS Structured Products backed by blue chip financial institutions (£191m invested)
These products are unaffected by the Administrators' current concerns regarding underlying assets or historic processing of redemptions. The Administrators have now recommenced the processing of income, maturity and early redemptions payments on these products. However, income payments will be subject to the tax deductions referred to above.

The products concerned are listed below.  It is understood that some 14,500 investors are impacted.

  • ACCUMULATING INVESTMENT PLAN
  • ANNUAL KICKOUT PLAN
  • CAPITAL PROTECTED BONUS PLAN
  • KEYDATA CAPITAL PROTECTED GROWTH PLAN 1
  • KEYDATA DEFINED GROWTH PLAN (ISSUE 1)
  • KEYDATA DGP HAMMOND CHAMPNESS PENSION SCHEME
  • KEYDATA DGP PLUS (ISSUES 11,12,14 & 15 (OPTIONS 1 AND 2))
  • KEYDATA DYNAMIC GROWTH PLANS 5-7, 9-12  & 14-20
  • KEYDATA DYNAMIC GROWTH PLAN  8 - BALANCED GROWTH
  • KEYDATA DYNAMIC GROWTH PLAN  8 - OPPORTUNITY GROWTH
  • KEYDATA DYNAMIC GROWTH PLAN PLUS (ISSUES 1 -12 & 14-16)
  • KEYDATA DYNAMIC GROWTH PLAN PLUS (SPECIAL EDITION ISSUES 1 & 2)
  • KEYDATA EXTRA INCOME PLAN (ISSUES 8-12 & 14-26)
  • KEYDATA FTSE GROWTHBUILDER PLAN - CAUTIOUS GROWTH
  • KEYDATA FTSE GROWTHBUILDER PLAN - MAXIMUM GROWTH
  • KEYDATA FTSE GROWTHBUILDER PLAN 2KEYDATA INNOVATIVE GROWTH PLAN
  • KEYDATA INNOVATIVE GROWTH PLAN (ISSUE 2)
  • KEYDATA PROTECTED PORTFOLIO PLAN
  • KEYDATA SECURE GROWTH PLAN
  • KEYDATA UK PROTECTED GROWTH PLAN

5. Products invested with Hometrak S.A. ("Hometrak") (£2m invested)
The Administrators are seeking confirmation as regards the status of the underlying assets which relate to these funds, which are US property assets. The Administrators have identified that early redemptions of these products have been dealt with in an irregular fashion.

In the last few days the Administrators have become aware that income on these products has not been paid by Hometrak since February 2008. No investor has so far suffered an income shortfall as a result of this non-payment as the gap was filled by KIS's own corporate funds.

For the time being no income payments or early redemptions on these products will be possible.

Affected products are listed below.  It is understood that some 240 investors are impacted.

  • KEYDATA INCOME PROPETY BOND 1 - INCOME PROPERTY - ANNUAL INCOME
  • KEYDATA INCOME PROPERTY BOND 1 -INCOME PROPERTY - QUARTERLY INCOME
  • KEYDATA INCOME PROPERTY BOND 2 - INCOME PROPERTY 2 - ANNUAL INCOME
  • KEYDATA INCOME PROPERTY BOND 2 - INCOME PROPERTY 2 - QUARTRLY INCOME
  • KEYDATA INCOME PROPETY BOND 3 - INCOME PROPERTY 3 - ANNUAL INCOME
  • KEYDATA INCOME PROPERTY BOND 3 - QUARTERLY INCOME
  • KEYDATA INCOME PROPERTY BOND 4 - INCOME PROPERTY 4 - INCOME
  • KEYDATA INCOME PROPERTY BOND 5 - INCOME PROPERTY 5 - INCOME
  • KEYDATA INCOME PROPERTY BOND 6 - INCOME PROPERTY 6 - INCOME

Third party products

6. Administrative processing services for third party clients, including where KIS acts as the ISA Plan Manager (£2,206m invested)
KIS provides certain services to other financial institutions including plan management, the processing of application forms, changes to investors' details and making income payments. In many cases an investor may not be aware KIS was involved providing these services.

The Administrators confirm that those investors whose relationship with KIS was only through the provision of back office services can be assured that their investments are safe and that income payments and other processing on those accounts is now fully operational.

In respect of some products where a KIS Stocks & Shares ISA vehicle has been used we are concluding our investigations so we can provide comfort to HMR&C that we can pay income gross rather than net of tax. KIS Cash ISA products are unaffected by this. Please bear with us whilst we conclude these investigations.

When will I receive income on my investments?
For those products, detailed above, where processing of income has recommenced, there may be a delay before investors receive income.  This is a result of the administrative arrangements necessary in order to deduct tax at source.  This deduction of tax is explained elsewhere in this document.  The Administrators hope to make payments later this week.  However, this be cannot guaranteed.

For those products, detailed above, where processing of income has not recommenced, the payment of income to investors has been suspended while the Administrators continue their investigations.

Why have I stopped receiving income on my investment?
The processing of income on certain KIS products, detailed above, has been suspended while the Administrators and authorities seek to trace the underlying investments.  The Administrators have established that income on these products was being paid out of KIS's own cash, rather than out of income on the underlying investments.  This appears to have been the case since October 2008.  This arrangement was potentially harmful to the interests of KIS's creditors as a whole and the Administrators have ended it with immediate effect.  As a result, investors in these products will stop receiving income.  The Administrators realise that this may cause difficulties for investors.  However it is a necessary action while investigations continue.

You say you are now withholding tax on certain products.  What does this actually mean?
The Administrators have determined, following discussion with HMR&C that for certain products (detailed above) where they have recommenced the processing of income, they will withhold tax at the basic rate.  This is currently 20%.  This means that, for example, for every £100 of income due, the investor will receive £80.  The remaining £20 will be withheld, while discussions with HMRC continue.

What will happen to tax being withheld?
This is a precautionary measure.  In the event that products are found to be compliant with the ISA tax regime, tax withheld will be paid to investors.  Otherwise it will be paid to HMR&C. 

Do I now have a tax liability?
As reported earlier, certain KIS products may not have complied with ISA tax rules.  The Administrators continue to discuss the impact that this may have on investors with HMR&C.

Can I get my money back?
The situation regarding the early repayment or 'redemption' of investments will vary depending on the product involved.  This is set out above.  Investors should note that for some products where early redemption is not being permitted at present, income is continuing to be processed.

What has happened to investors' cash held by KIS?
At the time of the administration appointment, KIS was holding some £70 million of investors' cash.  The Administrators have established that this cash is held separately from KIS's own cash in segregated client accounts.  The issues that have recently been uncovered relate to the underlying investments that certain KIS products invested in.  This does not impact investors' cash being held by KIS.

Is this money protected by FSCS?
The cash held by KIS is intact.  For issues with the underlying investments, the Administrators have been in contact with FSCS so that, if there is compensation for FSCS to pay, it can step in as quickly as possible.  If that happens, the Administrators and FSCS will work together to ensure that investors know how to make a claim for compensation.

What happens now and when will I find out more?
The Administrators are continuing their investigations and discussions with the key stakeholders involved and will provide updates as soon as possible on this website.

Dan Schwarzmann and Mark Batten were appointed as joint administrators of Keydata Investment Services Limited on 8 June 2009 to manage its affairs, business and property as agents without personal liability. Dan Schwarzmann and Mark Batten are licensed to act as insolvency practitioners by the Institute of Chartered Accountants in England and Wales.