Advisers are being urged to respond to the FSA’s consultation to set up a £110m Arch cru consumer redress scheme as the regulator signals its disappointment at the quality of responses so far.
Yesterday, it emerged that the FSA board is undecided over whether to implement the scheme, also known as a section 404 scheme, given the associated risks.
The FSA launched the consultation in April to set up the redress scheme for 20,000 Arch cru investors. If implemented, IFAs who recommended Arch cru funds will have to review all cases and pay redress where appropriate.
The consultation closes on 31 July. Money Marketing understands the regulator is disappointed with the quality of responses it has seen so far, particularly template responses from advisers which have not been comprehensive enough.
Foot Anstey partner Alan Hughes (pictured) says while it is likely the redress scheme will go ahead, advisers still have an opportunity to secure “material changes” to the way the scheme is implemented.
He says: “The board is split on whether a section 404 scheme is appropriate. Consequently it is worth IFAs and interested parties making reasoned and coherent responses.
“It is by no means certain a section 404 scheme will go through, but what is more likely is advisers might be able to get material changes if they put forward a strong enough case. It is not a done deal in its current form.”
If the redress scheme goes ahead, firms will have to review whether advice to invest in the Arch cru funds was suitable using a template from the FSA.
Hughes says the FSA’s template does not consider the use of Arch cru funds as a small part of a client’s portfolio to reduce its volatility.
He says: “A lot of people did use Arch cru in that way. We are making quite specific representations to the FSA that the assessment template needs to change to take that into account.
“If the scheme goes ahead, at least it could go ahead in a form which narrows its scope and could therefore save lots of people money.”
FSA estimates suggest the scheme could cost the FSCS £30m and lead to 30 per cent of IFAs who sold Arch cru policies going out of business. The FSA recently warned professional indemnity insurers it is prepared to take action against insurers attempting to sidestep their liabilities in relation to Arch cru claims.
An FSA spokeswoman says: “We would encourage people to come to us with their feedback. This is a consultation and the scheme would be the first time we have used these powers, so we are keen to hear what the industry thinks.”