The cost of compensating Keydata victims is likely to hit £440 for the ‘typical' adviser firm in the appropriate sub-class, according to AIFA calculations.
The association also reveals the FSCS sought legal advice before opting to allocate Keydata's £70m default costs to the investment intermediation sub-class, which includes many adviser firms and to which Keydata belonged.
Though AIFA's £440 estimate is significantly lower than earlier claims costs could rise to £10,000 per adviser, the organisation says its members are being ‘taxed' for the failure of poorly-run organisations.
AIFA says its analysis suggests the cost for full investment firms will be around £1,100.
However, the average AIFA member is only exposed to investment on around 40% of their business, meaning they will pay levies of approximately £440 to cover the cost of compensating Keydata investors.
Investment advisers have been told they will receive notice of their share of the £70m FSCS interim levy by the end of March. It will need to be paid in full within 30 days.
Meanwhile, AIFA reveals the FSCS only allocated the levy to the investment intermediation sub-class after seeking legal advice. It says it is now "imperative" this legal opinion is made public.
AIFA director general Chris Cummings says legal advice AIFA has received indicates the Keydata decision can only be challenged on the grounds of evidence of ‘a mindset of reckless indifference' within FSA.
The only precedent of a similar action, from BCCI against the Bank of England, was unsuccessful. "Exercises such as this can be extremely costly," Cummings says.
Law firm Regulatory Legal is pursuing a judicial review against the FSCS on the grounds it failed to adequately consult with IFAs and industry stakeholders.
"IFAs are being asked to pay too much for the failures of others," Cummings adds. "Importantly, this is a clear demonstration of why good firms should receive regulatory dividends - such as lower fees."
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