FSA begins Arch cru adviser investigation
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The FSA is carrying out an investigation into advisers who recommended Arch cru funds and has written to firms asking for further details about their Arch cru sales.
In a letter to advisers, sent yesterday and seen by Money Marketing, the regulator says it is looking into sales involving the CF Arch cru investment portfolio fund, the CF Arch cru specialist portfolio fund, the CF Arch cru balanced fund, the CF Arch cru global growth fund, the CF Arch cru income fund and the CF Arch cru finance fund.
The investigation spans CF Arch cru fund sales to retail investors between July 2006 and March 2009, and includes advised sales, discretionary sales, or sales on a mixed basis.
Firms have been told to provide the FSA with basic details about their Arch cru sales, including the date of investment, the fund name, the client name, and the amount invested. Firms will also have to specify on what basis the funds were recommended.
The letter, dated December 13, gives advisers until 2pm on December 19 to provide the requested information.
The letter says: “We are not asking you to forward us individual client files at this time but we will be writing to you next week to require you to do so. Therefore please begin preparing the client files for any Arch Cru sales in anticipation of this request.
“We may also request further additional information with respect to your firm’s sales of CF Arch cru funds such as your due diligence.”
At a closed meeting with MPs last month FSA conduct of business unit managing director Margaret Cole said 900 IFAs were involved in recommending Arch cru. It is estimated that over half of the 140 firms who accounted for the majority of Arch cru sales are no longer trading.
An FSA spokeswoman says: “This is further work that we are doing looking into the firms that sold these products. This is part our supervisory work where we write to firms and I cannot comment further at this stage.”
Pressure group Justice in Financial Services and law firm Regulatory Legal have each filed for a judicial review of the £54m compensation package agreed by the FSA between Capita Financial Managers, BNY Mellon Trust & Depositary and HSBC in June. JFS spokesman Joe Egerton says the letters look like the start of a consumer redress scheme, a move he says he will challenge.
In November, the Financial Ombudsman Service provisionally upheld a complaint against an IFA who recommended clients to invest in Arch cru, and ordered the adviser to pay redress.
Regulatory Legal partner Gareth Fatchett says: “The FSA is clearly going to review the advice in the light of the provisional decision issued by the FOS recently.”
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Readers' comments (17)
Joe Egerton (Justice in Financial Services) | 14 Dec 2011 8:36 am
The FSA is clearly preparing to launch a Consumer Redress Scheme. Every IFA needs to understand that this will cost them a great deal of money as most of the moneys will be paid at the end of teh day by FSCS.
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Anonymous | 14 Dec 2011 8:39 am
I wonder when the FSA will start the investigation into the Coutts advisers who sold the AIG bonds...
oh sorry - I forgot - it's a different set of rules for the banks. It's only IFAs that are individually accountable....
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Anonymous | 14 Dec 2011 9:06 am
If the directors of RBS can be potentially prosecuted for wrong accounting, why does this not apply to the ACD or accountants for the Arch Cru funds?
Also if there is a potential judicial review how can the FSA continue with any action until this situation has been resolved?
Seems they can carry on diverting attention from themselves by attacking IFAs.
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Anonymous | 14 Dec 2011 9:22 am
Let me see if I understand this correctly:
1. The FSA authorise the funds.
2. Capita is the ACD responsible for the day to management of the funds' structures and their compliance.
3. The funds are marketed as "Cautious Managed" and promoted as appropriate for lower risk clients. At no point does the FSA or Capita protest otherwise.
4. IFAs advise their clients to invest, often as part of a balanced portfolio, with their due diligence being based on the FSA's authorisation and Capita being the ACD.
5. The funds' managers win awards for their consistent performance.
6. Capita fail to spot a number of systematic failings; including overweight positions and mis-pricing of units.
7. The FSA undertake an Arrow visit in late 2008 which uncovers irregularities, but no immediate action is taken.
8. The funds are suspended in 2009.
9, Prior to the publication of its investigation into the causes of the funds' collapse, and Capita's role in it, the FSA announces a "no-fault" deal with Capita (and the depositories), which is claims will provide investors with 70% of the funds' value at suspension. The payment is subsequently discovered to be a fraction of the amount required to meet this target, although the calculation was frustrated by the systematic removal of pricing histories from the internet since the suspension.
10. The FOS' initial decision is the advice was unsatisfactory, as "cautious managed" does not mean "lower risk" and, therefore, the advisers are responsible for clients' losses.
11. The FSA, having refused a s.14 investigation, reluctantly hold a 'behind closed doors' meeting with MPs, and make veiled threats that IFAs will be investigated if they continue to complain.
12. The FSA announces investigation into the advice provided, but has still yet to formally release its investigation into why the funds collapsed and Capita's role in the matter.
I would be grateful if anyone could correct my above understanding of the matter, and explain why the FSA and Capita are, in fact, without blame or hidden agenda in this debacle. Furthermore, that the blame lies solely with IFAs and no-one else should be held responsible.
This entire affair is a disgrace and the individuals responsible at the FSA for its underhanding dealing and gross abuse of power should be sacked without further delay.
It is blindingly obvious that the FSA and Capita failed in their individual duties of care and that the FSA is wantonly trying to set IFAs up as the fall guy. Even if the advice was poor in hindsight, or due diligence was insufficient, the lion's share of the blame must rest with Capita.
Otherwise this is tantamount to a driver buying a car from a showroom, crashing the car and the police taking action against the salesman. This is not just.
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Anonymous | 14 Dec 2011 9:26 am
Regretably Justice has nothing to do with this. It's politics and clout and where is the fall guy of least resistance!
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TERRY | 14 Dec 2011 9:51 am
Unfortunatley IFA,s are not members of the right clubs or organisations, so it is easy to attack them. The sooner the government realise that the FSA is not fit for purpose, the quicker we can get back to reality.
More IFA,s disappear the more easy pickings for the banks and the more directorships available for ex FSA personel in the banks and quangos.
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Nick | 14 Dec 2011 9:58 am
As usual with the FSA, when they have a problem they attack IFAs!
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Anonymous | 14 Dec 2011 10:14 am
FSA-asleep on the job, unable to regulate.
IFA- Scapegoat for FSA failings.
Time to get out of FS as no matter what goes wrong the FSA are hell bent on saving their own skin and blaming the IFA.
No wonder they want the common law of causation removed in the case of IFAs.
Leading beyond authority!
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DH | 14 Dec 2011 10:19 am
Soon, oh very very soon, Santa will be bringing me my "crystal ball" and how my life will change being able to spot the short commings of years to come !!
I like all the other IFA's we do not have the FSA's get out clause of the "benefit of hindsight" and the ability to be able to use the excuse, its not our fault we were looking the other way when the banks, Arc Cru, Lifemark, Keydata, Etc Etc failed !!!!! we feel that RDR and TCF is far more important !!
The witch hunt is on guys !!! and another chance to rid the market of those pesky IFA's
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Peter Turner | 14 Dec 2011 10:20 am
COB 2.3.3 says, "A firm will be taken to be in compliance with any rule in COB that requires a firm to obtain information to the extent that the firm can show that it was reasonable for the firm to rely on information provided to it in writing by another person."
That seems to mean that whatever Arch Cru, as a separate legal entity from the IFA said in writing could be relied upo.
It would also mean that if somebody published on their website that any firm they authorised and regulated had to be fit and proper and had to have adequate capital AND that Arch Cru was authorised and regulated then that "somebody" had carried out due diligence and satisfied itself that those standards had been met.
Of course, there is the question of whether it was reasonable to suppose that the "somebody" was actually competent and had really taken those steps.
Would it perhaps be the case that in publishing that the "somebody" was being unclear, unfair and misleading?
If there was a serious prospect of that then an adviser should not have given any credence to what the "somebody" said.
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