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Advisers say Arch cru redress scheme ignores PII and liability issues

FSA Front 480

Advisers say the FSA’s amended Arch cru consumer redress scheme does not address fundamental issues such as third party liability over the funds’ collapse and the limited professional indemnity insurance available to cover claims.

The FSA published a policy statement on providing a redress scheme to Arch cru investors today, following its consultation in April. Under the amended scheme, firms have to write to clients who were recommended Arch cru and clients have to opt in to have the advice reviewed, rather than advisers being required to review all Arch cru advice as originally proposed.

The regulator estimates between 15 and 30 per cent of clients who were advised to invest in Arch cru will opt in to the scheme, reducing the redress from the proposed £110m to between £20 and £40m. Of this, between £3m and £7m is expected to fall on the Financial Services Compensation Scheme.

IFA Centre managing director Gill Cardy says adopting the scheme on an opt-in basis is a positive development.

But she says: “The FSA is obsessing about advisers giving unsuitable advice, which may or may not have been the case, but if the Arch cru funds had not gone down the toilet we would not be in the position we are now. The regulator seems to be happy the causation of investor losses was advisers rather than mismanagement of the funds or failures by third parties.”

Industry responses to the FSA’s consultation raised concerns about increased costs and the availability of PI cover as a result of the scheme, but the regulator said it would be “perverse” for it not to protect consumers in order to avoid potential hikes in PI premiums.

Cardy says: “I think the FSA is seriously underplaying the PI issue. I doubt the insurers are going to play nicely on this, and it is likely they are going to fight any Arch cru claims tooth and nail.”

Equilibrium Asset Management investment manager Mike Deverell says: “A lot of advisers did misunderstand the funds and therefore they are partly culpable for client losses, so it is absolutely appropriate that Arch cru advice should be reviewed. But my suspicion is there is something not right with the role of those connected with the funds which has not been fully resolved. From that point of the view there are still questions to answer about how the funds were run.”

Capital Asset Management chief executive Alan Smith is wary about the number of firms that recommended Arch Cru that will close as a result of the scheme, and the knock-on impact this will have on the FSCS.

He says: “The FSA is appearing to appease intermediaries, but given our heavily-driven compensation culture, if people are receiving a letter indicating they are in line for compensation most will opt in.

“It is to be welcomed somewhat that the FSA’s approach seems to have softened, but I do not think that will change the eventual outcome much. The scheme still ignores the key issues which remain around the role of Capita as authorised corporate director, which seems to be far more culpable than advisers were.”

Association of Professional Financial Advisers policy director Chris Hannant says the amended scheme is an improvement, but argues the case for a consumer redress scheme has still not been met.

Hannant says: “The key part of a redress scheme is it should be imposed against the party responsible for causing the loss. We believe in light of what the FSA has said about Capita the principal cause of the loss was arguably the way the funds were managed.

“We are also concerned about the long-term impact on PI cover, and the effect on the ability to get cover going forward will remain difficult for years to come.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. “the regulator said it would be “perverse” for it not to protect consumers in order to avoid potential hikes in PI premiums.”

    Really? Like as in “never mind the quality of the advice, just pay up”?

    Surely this line must be out of context…..

  2. It is great that Gill Cardy is quoted more as an IFA representative. I like her calm but well thought through comments. Such a refreshing change from the shouty nonsense of so many other self appointed industry leaders.

    BTW this scheme is clearly a farce. When will the FSA work out that it is by fairness, consensus and agreement that you resolve things rather than just blaming the easiest target.

    Unfortunately for the FSA our PI insurers are getting less happy to co-operate with their nonsense and it looks as though we are heading for another Keydata style omnishambles that doesn’t serve clients well and shows the FSA to be incompetent.

    This mess happened on their watch and they cannot even negotiate a fair solution. What a waste of £500m they are.

  3. “We also reviewed the PI policies of the 24 firms that we sampled the sales of, and of these five policies had specific exclusions for Arch cru. Two firms had significantly high excesses specifically for Arch cru claims, so the evidence from the file review suggests that many firms will not be able to claim against their PII policies.”
    The lack of understanding of many advisers of PII is quite frightening and Ms Cardy herself is demonstrating a lack of real understanding herself, worrying as a spokesperson for some IFAs. Whatever you may think of the AC issue, the FSA are broadly speaking right on this one. IFAs should look at their PII policy very, very carefully – and indeed what they disclosed to the insurer at their last renewal date.

  4. This is typical FSA.

    The losses were not caused by the unsuitability of the investment but serious regulatory and administrative failings.

    But the FSA is saying lets fudge the issue by looking in hindsight (having allowed the products to be marketed as low risk) at advice now working on the presumption that they werent low risk products.

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