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Arch cru redress scheme opt-in figures far higher than FSA estimated


Almost half of Arch-cru investors have opted-in to the consumer redress scheme, pushing up potential adviser payouts from an estimated £20m to around £53m and raising the risk of more adviser defaults and FSCS claims. 

In December, the FSA estimated that between 15 and 30 per cent of clients who were 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 questioned the estimates and warned that far more clients would opt-in when offered the chance to. 

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 7021 cases were within the scope of the scheme and 48 per cent of investors (3333 cases) had opted-in to the scheme. We have written to other firms, who 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 week, the FSCS’s August newsletter said advisers face a medium risk of an interim Financial Services Compensation Scheme levy this financial year due to additional costs associated with Arch cru and failed stockbroker Fyshe Horton Finney.

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

Based on its low opt-in estimates last December, it then predicted that just £3m to £7m would fall onto the FSCS as a result of adviser defaults associated with the scheme.

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

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.  


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. Excellent news. There’s nothing I love more than paying for the consequences of bad investment advice given by others (sarcasm switch off).

  2. MA says the only way to escape this car crash of an industry is get a job with Barclays Bank.

  3. This is really no way to Regulate. Sure if justified redress has to be paid. But one wonders now whether this is not the road to perdition.

    There is so much redress in so many areas. Sure it is hard if people lose money, but to an extent that’s what investing is all about. Is this all bad advice? If so our industry is truly terrible.

    However in the Arch Cru case I believe (like for Key Data) this is by no means a black and white conclusion.

    So we have a situation where firms who had no bad intent and were in all likelihood mislead by those running the investment, will be put out of business. As a result a burden will fall on those who are not involved. I won’t talk of fairness, because life isn’t fair – in spite of what the Regulator tells the investing public.

    Surely a better way is to say to the firms who are in lumber – OK so it wasn’t entirely your fault. You can stay in business. The FSCS will stump up on valid claims and you will repay your individual liability at 10% per annum out of your earnings. You will then pay a further 10% in year 11 as interest – or if you prefer you can pay what is owed up front. We will recover at least 40% from the managers, trustees, and ACD of the investment as well as a levy on the fund management category – after all it was one of theirs that flunked. So your own liability will be limited to 60% Don’t try to duck out by doing a Phoenix, because we have your details and will not reauthorise you in any other entity.

  4. Shock, Horror, I’d expect that figure to rise still further and be over 50% by the end of this fiasco!! No doubt good old MM or the FCA will not be mentioing the fact that the Capita redress now looks paltry in comparison to what Advisers (who were also mislead) are going to kop for!!
    This smacks of the old school tie network in play and is a complete and utter disgrace!!

  5. Looks like the FSA and Capita have got away with it then…… Make a big mistake and pass the buck onto someone else. I bet they won’t invite any of the poor advisers to the party…they must now be wiping the sweat away be having a good laugh at our expense!

  6. As someone who never recommended any ArchCru product or fund, I’ve not seen the FSA-designed questionnaire asking investors whether or not they might like to opt in to its redress scheme.

    Can anyone out there reproduce it here for everyone to examine, as I for one would be interested to see whether or not it’s clear (as in succinct and unbiased), fair (to intermediaries) and not misleading (to investors).

    Does it, for example, imply who, in the opinion of the FSA, the guilty parties are (without, of course, making any mention at all of the fact that many parties are of a strongly differing opinion)? Or does it just encourage investors to opt in, on the basis that, one way or another, they’re likely to receive full compensation, regardless of whether or not their adviser is driven out of business as a result?

  7. Harry’s suggestion is a good one, but it misses the point with regards Crapita’s failures and the backroom deal done by the FSA with them. Why can’t any firm who advised the use of Arch funds make a counterclaim against Capita in law for it,s failures? Why can,t firms who didn’t reccomend Arch Cru make a claim against Crapita to recover the monjies being levied via FSCS? Why don’t we all just refuse to pay the proportion of FSCS interim Levy that is in respect of ArchCru?

  8. Are FSA estimates of just about anything worth a light? Look at its “estimate” of what its RDR was going to cost ~ originally £600m but now well beyond three times that figure.

  9. Oh look the FSA/FCA got an estimate wrong yet again!

    Do they actually apply any actuarial methods when making their estimates or is it a figure picked from random?

    More likely they try and pick an initial figure that is slighlty palatable knowing full well what the true figure is.

  10. Harry’s idea seems a sensible one and more constructive than the ‘it was nothing to do with me as I’m whiter than white’ brigade.

    However, it is clear that Capita appear to have got away lightly for their failings, but I’d like to ask the question why my firm has to pay for the failing of spread betting and stockbroking firms? If William Hill falls over, will we all be culpable?

  11. @ Martin
    What an ill informed choice of comment.

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