THE Financial Ombudsman Service has advised an IFA facing a claim for recommending an offshore bond exposed to KSF Isle of Man that it was correct to class deposits with the bank as low-risk investments.

The client, who had a low-risk profile, invested in a Clerical Medical International offshore bond and a significant sum was deposited with Derbyshire Isle of Man. The bank was taken over by KSF IoM, which was put into administration in October 2008 and subsequently wound up.

In a letter to an IFA, seen by Money Marketing, an Ombudsman adjudicator says that leading credit rating agencies gave KSF a favourable rating until its administration and therefore deposits with the bank could not be viewed as anything other than low-risk investments despite media speculation at the time about the viability of Icelandic banks.

In the letter, the FOS also says that the IFA's terms of business did not oblige him to continue to monitor the institutions holding the bond's deposits, even if he was receiving trail commission, as his primary responsibility was in recommending the investment and not necessarily providing further 

advice.

The adjudicator is yet to issue its final decision on the case and is reviewing risk warnings given about protection provided by the Isle of Man's depositor compensation scheme.

Foot Anstey associate Alan Hughes, who is representing the IFA, said, "This is very positive. The adjudicator seems to be saying that IFAs were entitled to rely on the credit ratings and that large deposits related to Icelandic institutions were compliant and suitable for a lowrisk investor and though they have subsequently suffered a loss, the IFA cannot be held responsible."

Estimates suggest that nearly ?400 million was invested in KSF Isle of Man through offshore bonds via a number of life offices.

(Source: Money Marketing)