Judicial review of Financial Services Compensation Scheme's exercise of power to impose compensation costs levy

Publication Date10 May 2011
Pages195-204
DOIhttps://doi.org/10.1108/13581981111123889
AuthorJoanna Gray
SubjectAccounting & finance
LEGAL COMMENTARY
Judicial review of Financial
Services Compensation Scheme’s
exercise of power to impose
compensation costs levy
Joanna Gray
University of Newcastle, Newcastle upon Tyne, UK
Abstract
Purpose The purpose of this paper is to discuss the judicial review of Financial Services
Compensation Scheme’s (FSCS) exercise of power to impose compensation costs levy (Rv. Financial
ServicesCompensation Scheme Ltd and Financial ServicesAuthority ex parte ABS Financial Planning and
others; Queens Bench Divisionof High Court; Administrative Court (Birmingham); Mr JusticeBeatson).
Design/methodology/approach – The paper describes the judicial review action. It arose out of the
FSCS imposition of an interim levy of some £32 million to defray compensation costs arising from the
default of Keydata Investment Services Ltd (Keydata) and the claimants impugned, as wrong in law and
procedurally incorrect, its decision in March 2010 to allocate the costs of that levy to be borne by those
firms that the FSCS classified as “investment intermediaries”. The paper gives details of the decision.
Findings – The claimants argued that the error in law or irrationality were constituted by the FSCS’s
determination that: first, the costs of the Keydata claims arose or could be expected to arise out of one or
more of the four regulated activities in the D2 sub-class to which FSCS referred in its reasoning behind its
decision. Rather, the claimants argued, the true position was that the claims did not arise out of any of
these activities but arose out of Keydata’s marketing of its plans; and second, the costs did not arise and
could not be expected to arise out of any D1 sub-class activity of “managing investments”.
Originality/value – This decision illustrates the increasing difficulty of drawing a clear line between
discretionary management and agency broking, for the claimants made a strong argument that
Keydata should be considered to have been much more than a passive distribution conduit or channel.
Keywords Legal decisions,Financial services
Paper type General review
Rv. Financial Services Compensation Scheme Ltd and Financial Services Authority ex
parte ABS Financial Planning and others; Queens Bench Division of High Court;
Administrative Court (Birmingham); Mr Justice Beatson.
Date of Judgment: 12 January 2011
Facts
This judicial review action was brought by some 217 companies and partnerships
representative of those firms carrying on various regulated activities concerned with
investment business against the Financial Services Compensation Scheme (FSCS).
It arose out of the FSCS imposition of an interim levy of some £32 million to defray
compensation costs arising from the default of Keydata Investment Services Ltd
(Keydata) and the claimants impugned, as wrong in law and procedurally incorrect,
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
Legal
commentary
195
Journal of Financial Regulation and
Compliance
Vol. 19 No. 2, 2011
pp. 195-204
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981111123889

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