One of the many concerning aspects of the Arch cru debacle is that IFAs who never touched the products will together fund more of the costs than the compensation package agreed last year by the fund range’s ACD Capita and two depositories.
Announcing this week’s £110m consumer redress scheme, the FSA predicted up to 30 per cent of adviser firms which recommended Arch cru and are still authorised could be forced into default, dependent on PII arrangements, triggering Financial Services Compensation Scheme payments of up to £33m.
The FSA says these figures are a worst-case scenario and a bit of closer scrutiny suggests the calculations need to be treated with care. The FSA says 795 firms sold Arch cru. Many have already gone bust yet the FSA could not provide our reporter with an estimation of the number who are still authorised (ie 30 per cent of what ???).
However, if we take the FSA’s £33m calculation as a ball park figure, and add it to the FSCS’s factored in costs for the amount intermediaries will have to pay out for Arch cru (around £40m), the combined figure is likely to be much higher than the £54m compensation scheme that the FSA agreed with Capita, BNY Mellon and HSBC last year.
(The FSCS indicated last month that nearly £40m of extra costs would be allocated across investment and pension intermediaries to pay for Arch cru. Costs are split 70:30 between the investment and pension intermediary sub-classes.)
Since announcing last year’s £54m compensation scheme the regulator has confirmed that no regulatory action would be taken against HSBC and BNY Mellon whilst we await a finding on Capita.
Much of the concern following this week’s redress scheme has focused on the FSA’s judgement over levels of responsibility, especially as no findings on Capita have yet been published.
That IFA FSCS costs for Arch cru are likely to be higher than last year’s Capita/HSBC/BNY Mellon compensation scheme says a great deal about both the way the FSA has handled the Arch cru scandal and the desperate need for FSCS reform.
The fact adviser firms who steered well clear of Arch cru will together be paying more in compensation than the fund range’s ACD does not seem right.
Paul McMillan is the editor of Money Marketing- follow him on twitter here