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Arch cru redress scheme opt-in far higher than FSA’s estimate

Almost half of eligible Arch cru investors have opted in to the Financial Conduct Authority’s consumer redress scheme, pushing up potential adviser payouts from £20m to £53m and raising the risk of more adviser defaults.

In December, the FSA estimated that between 15 and 30 per cent of clients who had been advised to invest in Arch cru would opt in, reducing the adviser redress paid out by the scheme from the proposed £110m to between £20m and £40m. 

At the time, advisers warned that far more clients would opt in when offered the chance to do so. 

Advisers had until 29 July to tell the regulator how many clients had opted into the scheme. 

So far, 443 firms have responded and 30 have not. 

An FCA spokesman says: “These firms reported that 7,021 cases were within the scope of the scheme and 48 per cent of investors (3,333 cases) had opted in. 

“We have written to other firms which do not appear
to have met the deadline requiring them to provide the report and explain why they have not complied with the scheme rules.”

Earlier this month, the Financial Services Compensation Scheme warned there was a “medium risk” of advisers being hit with an interim levy for 2013/14 due to additional costs associated with Arch cru and failed stockbroker Fyshe Horton Finney.

The FSCS has already factored in nearly £40m of Arch cru costs associated with firms which have already gone bust, to be paid for by advisers.  

In a consultation paper published in April 2012, the FSA warned that up to 30 per cent of firms which had recommended Arch cru could default due to the redress scheme. As a result, it sugges-ted up to £33m could fall on the FSCS.

After amending the sch-eme so clients would have to opt in to have their advice to invest in Arch cru rev-iewed, the regulator pred-icted that between £3m and £7m would fall to the FSCS as a result of lower adviser defaults associated with the scheme.

These new opt-in figures indicate that adviser FSCS costs could be much higher.

Equilibrium Asset Management investment manager Mike Deverell says: “It was inevitable clients would opt in to the scheme. I am surprised so many have not. 

“Based on the wording of the documents the FCA asked advisers to send to their clients, it seemed a no-brainer for them to ask for their cases to be investigated.”

Aurora Financial Planning chartered financial planner Aj Somal says: “I am sure the FCA thought it was helping with these estimates but if they are this far out, then it is difficult for us to know the potential costs.”

Arch cru redress: The story so far

March 2009: The £391m Arch cru fund range is suspended

June 2011: The FSA announces it has agreed a £54m payment scheme for Arch cru investors with authorised corporate director Capita Financial Managers and depositaries HSBC and BNY Mellon

April 2012: The FSA consults on a separate £110m Arch cru consumer redress scheme which would requires advisers who recommended Arch cru to review their sales and pay redress where appropriate

December 2012: The regulator amends the consumer redress scheme so that consumers have to opt in to have their advice to invest in Arch cru reviewed. It estimates 15 to 30 per cent will opt in, reducing redress to between £20m and £40m

April 2013: Consumer redress scheme starts

August 2013: FCA reveals 48 per cent of Arch cru investors have opted in, pushing up potential advisers costs to £53m

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