In what is believed to be a first for the FSCS, it is trying hard to avoid a situation where is has paid out compensation to investors who look set to ultimately profit from their original investment, thus inadvertently handing them a double gain.
“FSCS is indeed seeking to recover the costs of compensation in accordance with its statutory obligation to pursue recoveries where it is reasonably possible and cost effective to do so,” the statutory body said in response to an inquiry by International Adviser.
Distribution of death bond assets
Last year, the FSCS was reported to have paid out around £3m ($3.9m, €3.37m) to some investors in the Fortress International Fund, a sub fund of Luxembourg-domiciled LFP Prime Sicav-SIF S.A., which invested in US life insurance policies, also known as death bonds.
Many of the investors claimed they had been victims of mis-selling by their adviser, the now defunct Kevin Neal Associates Ltd which once boasted footballer Alan Shearer as a client.
In June last year, the directors of the Fortress International Fund resolved to put the fund into liquidation and are believed to have begun distributing the proceeds this year, with more funds expected to be returned to investors.
There are unconfirmed reports it has already paid out around £8m to date.
Call for cash back
As a result, in May 2018, the FSCS wrote to Fortress International to establish the amount and timing of any distributions, stating that it wanted “to be informed in advance of any payment being distributed to ensure claimants do not receive a double recovery”.
The letter, which has been seen by International Adviser, states clearly that the FSCS is seeking to recover money from Fortress International Fund.
However, according to sources IA has spoken with, the fund does not believe it has to repay the FSCS for the compensation money it has paid out to investors for mis-selling, and is unlikely to meet the demand to hand over any funds.
As many of the investors who have received compensation from the FSCS put their money into the fund through an offshore bond or Sipp, it is entirely possible these providers may also receive a request from the FSCS.
Who pays?
One offshore bond provider is said to have offered to keep the Fortress distributions so that any clients who have received FSCS compensation do not get a double pay day.
Unless the FSCS can find a way to force Fortress or the Sipp and offshore bond providers to return its money, or the end investors return their compensation themselves, it looks unlikely anyone will pay.
Clive Moore says:
Presumably the FSCS would have taken ownership of relevant funds when they paid compensation out. There will almost always be some recovery from the assets.