MM Leader: FSA must boost Arch cru compensation deal

27 October 2011 8:00 am

For the second time in recent months, politicians seem to be proving their worth in looking to hold financial regulators to account.

With large numbers of constituents angry about the compensation package agreed between the FSA and Capita, BNY Mellon and HSBC, MPs are not going to rest with the deal that has been put on the table.

The £54m compensation package is designed to ensure that, alongside distributions already made and remaining assets, investors receive around 70 per cent of their fund value when the range was suspended in March 2009.

Treasury financial secretary Mark Hoban repeated in Parliament the FSA’s assertion that investors can claim against their IFA to receive further compensation above the regulator’s agreed package.

A fair amount of bad advice may well have been given over the Arch Cru range. Commentators in Money Marketing and elsewhere had raised significant concerns about the concept of the “new asset class” private equity range being promoted by former Arch cru chairman Jon Maguire.

The FSA knows the adviser firms which sold Arch cru at significant levels and it is likely the quality of advice given by such firms has, or will, come under tough scrutiny. Some may face serious sanctions.

However, as the authorised corporate director, Capita had a responsibility for the range and should be prepared to play a bigger part in the compensation package.
The current arrangement has the feel of a behind-the-scenes deal designed to make life easier for the regulator rather than offer investors the compensation they deserve.

Investors looking to recover lost assets from an IFA are likely to face a tough battle, with firms fighting claims. It is understood a significant number of adviser firms that sold large amounts of the Arch cru range have ceased trading, so many claims will be passed to the Financial Services Compensation Scheme, penalising IFAs which stayed well clear of Arch cru.

We hope MPs continue to pressurise the FSA into increasing its package.

MPs scrutinising the draft Financial Services Bill should take careful note of the benefits to consumers of financial regulators facing proper Parliamentary accountability and look to ensure this is enhanced.

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