Pensioners in Norwich and across the region who lost money following the collapse of Keydata Investment Services are starting to fill out their claims for compensation.

For the 3,100 Norwich and Peterborough Building Society (N&P) customers, and about 17,000 others who invested through other routes, it should be the beginning of the end in a long, distressing saga. They have savings, ranging from �5,000 to �100,000, tied up in Keydata, and many fear they have lost everything.

But, while the Financial Services Compensation Scheme's (FSCS) announcement that claims will be considered has offered a ray of hope, the issue is still a long way from a happy ending.

The compensation itself is far from resolved. In its announcement the FSCS, which has already paid out on the tax liability to some 4,400 'category one' customers, said it was now in a position to consider claims from the rest.

Compensation is not guaranteed, as FSCS believes Keydata bonds may not have been stripped of all value. Investors will only be compensated for the shortfall - but establishing the value of these bonds will not be easy. Even then, investors will only be entitled to claim back up to �48,000, and there is a large number, although not the majority, with investments above this sum.

The FSCS is the fund of last resort: customers who could claim their money back through other methods will need to do that before receiving any payout. For example, the Financial Ombudsman Service (FOS) can order independent financial advisers, such as the N&P, to pay individuals up to �100,000 in compensation if it finds evidence of malpractice.

FOS judgments are beginning to trickle through – the first preliminary judgment was that the N&P was guilty of mis-selling in at least one case and should, therefore, pay up. Each case will be considered on merit and is open to appeal.

FSCS compensation is payable only if the investor can prove Keydata breached a contractual or legal obligation. But, as Tony Hunt, founding member of the N&P Victims' group, explained, this is not clear-cut.

'They could decide that only those who relied directly on Keydata brochures are eligible,' he said. 'The vast majority of us relied on financial advisers, so where do we stand?

'It's not simply going to be a case of filling out a form and you get your money. It's quite possible that there could be two people in identical circumstances but one might fill out the form correctly and get compensation while the other might make a mistake and get no payout.'

And Gareth Fatchett, a partner at Regulatory Legal, which represents at least 400 N&P customers, warned: 'The FSCS process is not that straightforward.

'Firstly, N&P customers all invested after receiving financial advice. The forms enquire about the advice received. To state that only the brochure made you invest would clearly be untrue. If you disown the advice, then it would almost certainly prevent a claim against the N&P if the FSCS rejected you.'

The N&P and Keydata

The N&P is considering hundreds of complaints that it mis-sold Keydata products as it did not properly communicate the risks associated with the investment. It denies any wrongdoing.

The building society is already over the time limit to respond and is expected to contact customers this week with an update, although this is likely to be a request for more time.

For those caught up in the fund collapse, the most pressing issue is that they get their money back. But, once that happens, there will be wider questions about the future implications for the financial services sector.

For N&P, the challenge will be how it can reclaim its reputation. Even in the unlikely event of every single mis-selling complaint being dismissed, chief executive Matthew Bullock will be conscious of the need to win back public confidence.

In June, the society offered an interest-free loan to those who relied on their investments for regular income, a goodwill gesture aimed at starting this process. Spokesman Alison Rolls said: 'No N&P Keydata investor who chose to take out this loan is currently out of pocket, as we have replicated the income they would have received had Keydata not gone into administration. What we're trying to deal with now is the capital, and we are actively and productively engaged in discussions with a number of relevant parties with a view to seeking a resolution to this.

'We can't do this alone – our customers are the minority of Keydata investors – so it requires co-operation and contribution from others; but we hope that the proposals being looked at will address the current uncertainty that our Keydata customers face.'