View more on these topics

Adviser anger as Capita FM escapes £4m FSA fine over Arch cru

FSA Front 480

Advisers have hit out at the FSA over its decision not to levy a fine against Capita Financial Managers despite “serious failings” in the way the company oversaw the Arch cru funds.

The FSA announced earlier today it has censured Capita for failing in its role as authorised corporate director of Arch cru. The final notice against Capita reveals the breaches “would have ordinarily” led to a £4m fine, but the FSA says in this case that was not appropriate.

The regulator says Capita Financial Managers could not fund both its contribution to the £54m payment scheme agreed in June 2011 and a financial penalty, which is why the FSA has chosen not to levy a fine on the company. Parent company Capita Group contributed £32m to the payment scheme, with depositories HSBC and BNY Mellon paying the remainder.

The FSA has proposed a separate £110m consumer redress scheme which if approved will require advisers to review their Arch cru sales and pay redress where appropriate. It was reported this weekend the decision on whether to go ahead with the scheme has been delayed following an overwhelming industry response. The FSA estimates that £33m could fall on to the Financial Services Compensation Scheme.

IFA Centre managing director Gill Cardy says: “Capita FM appears to have got off with a censure because apparently it cannot afford a fine. But the FSA will happily expect advisers to pay, irrespective of whether they can afford it and the costs that will fall on the Financial Services Compensation Scheme. It is totally unacceptable.”

Cardy is planning an open letter to the regulator about the inequality of Capita’s treatment by the regulator over Arch cru compared with the proposed redress scheme paid for by advisers.

Informed Choice executive director Nick Bamford says: “Nobody has ever been told how the amount Capita paid to the payment scheme was calculated. I do not understand why it is OK for firms like mine and many others, who did not sell Arch cru, to pay compensation through the FSCS but poor old Capita, who was hugely responsible for this debacle, has already paid enough.

“It does not seem right or fair. The FSA cannot possibly let Capita off the hook and expect others who are totally unconnected to Arch cru to pay.”

Attain Wealth Management managing director Gordon Crothers says: “There seem to be some double standards at work. So what if Capita has already made a contribution? I will still be expected to pay, even though I have not been involved with Arch cru. Advisers cannot afford to keep paying out just because there are some big companies who have not done their due diligence correctly.”

Association of Professional Financial Advisers policy director Chris Hannant says: “We have been very concerned the FSA agreed a limit on liability with Capita and other organisations at a stage when it had not completed its investigations, which seemed premature to say the least.

“It does not seem right that firms should be able to evade fines or punishment just because they say they are impoverished. And yet the FSA is quite happy in the context of the redress scheme to see adviser firms go out of business. It seems there are different levels of fairness being applied to different entities, which may be proportionate to the kind of law firm you can afford to hire.”


News and expert analysis straight to your inbox

Sign up


There are 25 comments at the moment, we would love to hear your opinion too.

  1. Mr FSA and Mrs Capita are jolly nice people and enjoy each others company at dinner. Mr FSAI doesn’t want Mrs Capita to be fined too much because she wouldn’t be able to pay the dinner bill.

    Financial Advisers are the lowest of the low and should contribute whether they are involved or not. Mr FSA doesn’t care if you starve.

  2. It does not seem right or is right that IFAs should have to pay. I have deauthorised partly because of RDR but mainly because of the serious potential liabilities that may come an IFAs way now and in the future. All it takes is a couple of MF Global size institutions, fraud, or just bad practice and the IFA community picks up the bill, not of their making…… and then need to pass on the FSCS bill to new and existing clients in the form of larger fees!!!

  3. I suspect the ‘favourable’ treatment afforded to larger firms is driven by the market impact should they collapse. If little ole Park Financial closes down there’s not much consumer damage – because our size simply doesn’t create ‘market footprint’. If HSBC closes though, that’s a serious disruption to millions of people. So, from an FSA perspective, it’s more acceptable to let smaller firms fail than giants. Fair? No. Life? Yes.

    However, on a separate note, the answer would have been to levy personal fines on any culpable senior managers because
    1) that doesn’t threaten Capita survival and
    2) That’s the only way to make these people change their behaviours anyway

    Calum McCarthy called it dead right in his 2006 Gleneagles speech – “incentives matter”

  4. If Capita were an IFA the FSA wouldn’t stop until they’d taken every last penny.

    You have to ask yourself why Capita is treated differently?

  5. This is utterly outrageous, and a total abuse of power.

    No matter how you dress it up, the FSA cut a deal with Capita prior to completing its investigation into the matter, and is now constructing a means of ensuring that IFA’s pay for this mess.

    One only needs to read the full censure Final Notice to realise how selective the FSA has been. For example, on page 10, it states:

    “CFM had recognised by July 2007 that its processes and controls for taking on new funds, making changes to existing funds and appointing investment manager delegates did not include sufficient in-depth scrutiny and due diligence. New procedures were therefore developed and introduced by CFM, but were not fully implemented until May 2008.”

    In that case, how does it account for the final Private Finance Fund that was launched in October 2008, and which has lost investors around 60%.

    Furthermore, the FSA had completed its ARROW visit into the funds by then, and knew that there were serious pricing problems.

    This is self-protection at best, and flagrant abuse of power at worst. The individuals at the FSA, who are responsible for this, need to be personally brought to account.

  6. So Ms Cardy is writing a strongly worded open letter and Mr Hannant is very concerned !!

    I bet the FSA are quaking in their boots, don’t you guys ever get a bit fed up with the FSA’s two fingered responces, may I ask what would push you into a more proactive responce ?

    Waste of space

  7. Nicholas Pleasure 26th November 2012 at 1:55 pm

    What is going on? Why is Capita let off the hook whilst small firms are driven out of business?

    In any other sphere of government we’d have some retired judge conducting a public enquiry into what’s happened at the FSA with regards to Arch Cru (and Keydata).

    Is it not time for some transparency and justice in financial services regulation?

  8. Unaccountability again.

    It’s a charter for the crooked, deceitful and inept.

  9. You would have thought after all the uproar over RDR etc the FSA would have bent over backwards to be appearing to be fair to IFAs, with all their other demands they’ve pushed onto the sector.

    None of it…just carry on favouring the big guns and hit the small fry when required.

    As the FSA is being wound up the end of the year….the FCA can simply deny responsibility for any redress, blaming their predecessor.

    If you are a cynic, you might wonder if this was all planned!

  10. As the new FSA head ‘Wheatley’ said “a lot of my friends are bankers and they have changed their ways”.

  11. So the cozy relationship between the FSA and the big boys continues unabated.

  12. I presume that, once the dust settles, the FSA will proceed with their Consumer Review proposals; regardless of the responses received to the consultation paper.

    If so, on the basis of the proposed benchmarks and liability calculation formula, ‘no risk’ investors will receive a fraction of the payment that will be made to ‘balanced’ investors. Surely, there should be a correlation between suitability and compensation – otherview, ‘grossly inappropriate’ advice will generate less compensation than ‘marginally unsuitable’ advice!

    In addition, as the Consumer Review only affects ‘advised’ clients, investors who held Arch Cru in discretionary portfolios are outside the scope and will receive no compensation from their manager; unless they can demonstrate that the overall portfolio mandate was unsuitable for their stated objective.

    I would not be surprised if, in order to bridge the gap, the FSA decides to include discretionary clients in the Review!

  13. FSA ……Run by the ex big boys for the big boys proof of this happens time after time ! rotten to the core someone somewhere must put a stop this out of control beast!!

  14. I was beginning to wonder what Capital FM (95.8) had to do with the Arch Cru mess, until I read a little closer…..

  15. What!!! Why was the fine (which they don’t pay anyway) only £4 million???
    And if not Capita, who gets stitched up instead ??
    Lets work it out :
    – FSA is consulting on how to pin “widespread mis-selling” on the IFA sector
    – Capita’s Aldous is suing Arch Financial in the UK, as well as the former auditors, administrators and directors in Guernsey
    – Capita’s Aldous is suing the shipping counterparty in Greece

    Somebody must need a result very badly. And that’s not just the people sitting in Canary Wharf Towers.

  16. Natalie, maybe a competition would work here in terms of who could come up with the best literary quote to describe what is going on.

    My only dilemma is whether it should be Shakespearean or something more German

    Or even Kaska, there’s a thought!

  17. @DuncanCarter

    My offereing would be……

    “Oh what a tangled web we weave, when first we practice to deceive”

  18. This sums it up quite well for me

    Clowns to the left of me, Jokers to the right, here I am stuck in the middle to stew !!

  19. “A lie that is half-truth is the darkest of all lies.”

  20. The final notice against CAPITA Financial Managers Ltd is a Pulitzer Prize for fiction contender the whole notice is fabricated in a manner to let the FSA justify their collaboration with CAPITA.

    I could provide a contrary comment on virtually every statement on the 27 pages but will mention just 3.

    Page 15 – 4.34 – “In relation to the Arch ICs, however, there were no readily identifiable alternative benchmarks or values to which regard could be had for the purposes of fair value pricing, other than the published NAVs of the Arch ICs. This was not a matter considered by CFM at the time. However, subsequent analysis shows that the CISX share prices closely tracked these NAVs. Given that the NAVs were produced by an independent administrator and also subject to periodic external audit (the first of which was published in October 2008), an ACD of the Funds may have concluded, that at least for some period of time, it remained appropriate to rely on the CISX quoted share prices of the Arch ICs.”

    The so called “independent “ administrator responsible for producing the NAV’s was Bordeaux Services (Guernsey) Ltd whose directors were Neal Meader and Peter Radford.

    Both of these individuals were also directors of Arch Guernsey ICC ltd along with Robert Addison of Arch Financial Products LLP. I would hardly say the directors of Bordeaux producing NAV’s for another company they were also directors of was independent.
    Page 18 – 5.3 (2) – “COLL 6.3.3R and COLL 6.3.5R(1), through its failure adequately to consider whether or not the Arch ICs’ share prices as quoted on the CISX represented a fair value price upon which to price the Funds’ investments in those shares, given the liquidity of the shares and the Funds’ status as majority shareholder of many of the Arch ICs. However, it is not clear that the invocation of fair value pricing would have resulted in a different price being used;”

    I think the previous statements since 2010 by Hugh Aldous (appointed chairman of Guernsey funds in 2010 and also a CAPITA official) make it quite clear that fair value pricing would have resulted in different prices being used.

    Mr Aldous’s statement from the Guernsey Cells March 2011 accounts :- “Throughout our investigations we have discovered what we consider to be negligence, lack of diligence, the use of unsuitable counterparties and the making of improper gains by the former managers. In our view the Net Asset Value (NAV) of several of the cells was overstated from 2007 onwards and the share prices of cells were influenced so that they tracked the overstated NAVs unreasonably. We are pressing our action and reporting our findings to the Guernsey Financial Services Commission and, through them, to the Financial Services Authority. We are in pursuit of the previous owner of ships and other parties whom we consider caused loss to the Cells and, in some cases, misappropriated funds. A consequent cascade of claims will follow to others who failed in their duty of care to the cells.”

    Page 1 – 1.2 – “CFM agreed to settle at an early stage of the FSA’s investigation. As part of the settlement reached between CFM and the FSA, CFM has agreed voluntarily to contribute, without admission of liability, £32 million towards a £54 million payment scheme for investors who hold investments in the CF Arch cru Investment Funds (the “Investment Funds”) and in the CF Arch cru Diversified Funds (the “Diversified Funds”) (together the “Funds”).”

    How can the FSA say there was early settlement.

    The compensation package was hastily announced in June 2011 following intervention by several MP’s on behalf of investors and the package had been rushed through so quickly that the actual terms could not be detailed until October 2011 over 2 ½ years after the funds suspension.

    Yet the FSA were aware of issues from October 2008 and as detailed in an email from Clive Adamson – Director of Supervision at FSA to a friend who was invested in CF Arch Cru the FSA were fully away of CAPITA Financial Manager Ltd’s failures in September 2009 but knew they had problems financially to resolve the issue and wanted to pass blame to IFA’s

    The email reads as follows:- “From: Clive Adamson []
    Sent: 21 September 2009 21:10
    Subject Re:
    I have found out something about this situation and while I can’t tell you everything as it is not public I will try to outline what appears to have happened.
    Essentially, the Arch cru funds invested in a series of entities listed in the Channel Islands which themselves invested in a range of illiquid investments. When it became clear that there was insufficient liquidity in the Arch Cru funds (which became apparent when the funds tried to sell the Channel Islands vehicles and failed as there was no market) they were suspended. As I understand it, Capita were the manager of the funds but outsourced this function to Arch Investment Managers.
    It seems the best case is that Capita make some sort of restitution for the lost value (unlikely to come from Arch as they don’t really have any significant resources) but this may take time and depends on Capita having sufficient resources. There are also other entities which acted as depositories that may come into any action.
    The worst case is that there is no compensation and investors are stuck in the funds with uncertain prospects of recovery due to the nature of the underlying investments. It is also not clear that compensation can be obtained from the FSCS compensation body as this can only be obtained under certain circumstances which may not occur here.
    The best course of action is to make a formal complaint to any advisor you used and to Capita. If you don’t receive satisfaction you can complain to the Financial Ombudsman Service.
    You also mentioned an Investor Committee which should be able to put pressure on Capita (including writing to the top company in the Capita Group, which I think is a quoted company, and writing to the national newspapers may also help. Getting in contact with the FSA may help in applying pressure on Capita.
    I’m sorry this is not very positive but this is a very difficult situation. Please treat this information very discretely as it is very sensitive.
    Best wishes

    Over the last 3 ½ years this whole debacle has been covered up and publications such as Money Marketing, FT Adviser and New Model Adviser have removed comments following articles regarding CF Arch Cru either through not wanted to hear the truth or from threat of legal action from CAPITA’s lawyers, and no doubt this will continue.

    Finally how can the FSA justify this decision when compared to other decisions made recently. One can only presume that if the systems were not in place to be ACD of the CF Arch Cru funds then there were no systems in place prior to October 2008 to any of the other 200 or so funds they were ACD for, so potentially the disaster that is CF Arch Cru could have occurred in any of the other funds.

    Look at Standard Life and the Pension Sterling fund – Standard Life paid over £100million into the fund within a month of fund falling in value to ensure investors suffered no loss from the mis-marketed fund yet Standard Life were fined over £2million.

    AEGON were fined over £2million for systems errors in which no client lost money.

    UBS fined over £32million for losing its own money not that of investors.

    You really could not make it up.

  21. A disgrace. I will now be avoiding any funds where Capita act as ACD.

  22. So, is it conspiracy or cock-up? If the latter, then the FSA should stop digging. If the former then, they cannot be allowed to get away with this stitch-up.

    It is crystal-clear that the Final Notice is a tissue of half-truths, ineptness and ommissions.

    As regards the ommissions, it is germane to most IFAs’ defence against the politically-inspired Consumer Review that, while the Final Notice does set out Capita’s wide range of duties and responsibilities, it makes absolutely no reference to the published marketing material, fund updates that promoted the funds as low risk – not to mention the funds inclusion in the IMA Cautious Managed sector.

    Are we to believe that Capita FM, as ACD of the funds, had no obligation to check or control the contents of such material?

    Or is it the case that reference to such responsibilities, and Capita’s failure to act, might undermine the justification for the Consumer Review?

    I believe that this is the FSA’s Achilles Heel, and formal clarification should be sought from the FSA (a job for MM?) as to whether Capita had any regulatory duties or obligations in this regard. If so, then surely a failure to correct this information should provide a defence for advisers who acted on it in good faith?

  23. So following on from my earlier comment, perhaps MM could ask the FSA to formally comment on why neither Capita or the FSA’s compliance visits picked up that this ‘high risk’ fund was mascarading as ‘cautious’.

    We know the FSA has a specialist investment team to monitor schemes that invest in assets such as private equity and private finance. If Capita was failing to monitor or control ARCH and the underlying investments, then what exactly was the FSA doing or not doing?

    A NURS scheme investing in specialist investments should have been monitored by the specialist investment team at the FSA. I believe it was treated as a standard OEIC and so was not picked up by the FSA: even though the FSA conducted Arrow visits with Capita in 2006 and 2008. So what monitoring did the FSA do on the fund manager ARCH FP?

    If the answer is little or none, then the FSA should be held to account for this dereliction of duty. Certainly, it undermines any justification for the Consumer Review.

    Had the FSA or Capita identified this mislabelling at outset, the fund could never have been mis-sold.

    Strangely, the FSA seems happy to focus on this issue of risk when seeking to nail IFAs under the Consumer Review, but is reticient to consider it in respect of Capita’s or their own responsibilities.

    If the media could take up this issue, then it could provide some very interesting ammunition when the FSA seeks to hammer IFAs for not knowing that this was a high risk fund.

  24. Capita has got off because of its links to the Government.

  25. Message from the FSA

    Advisers should concentrate on their business, ditch unprofitable clients, ensure that their fees reflect fair remuneration for their work on behalf of clients and please don’t forget to add 50% to all your future fee estimates to pay for our lamentable failures to regulate people like these.

    Now pay up and shut up, you have no power, your strongly worded letters are a waste of time, you have no prospect of industrial action and when the IFA sector becomes an irrelevance it is all your fault anyway as you did not treat your customers fairly.

    Oh! Don’t forget the unlimited lifetime liability to unproven claims of mis selling fueled by CMCs, you will have to pay up for these chancers as well.

    One last thing, we are untouchable, we can screw up big time and you have to pay for it.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm