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FSA board minutes suggest questions remain over Arch cru scheme

FSA building 480

The FSA remains undecided over whether to implement its proposed £110m Arch cru redress scheme.

According to minutes from the FSA’s board meeting on 26 April, some members argued there was not enough information to push ahead with the proposal given the risks highlighted. The FSA concluded it would publish the consultation, but a “convincing case” must then be brought to the board for the scheme to be implemented.

On 30 April, the FSA published the consultation 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.

A number of concerns were raised in the board meeting, including the cost pressures the redress scheme, also known as a section 404, would have on the Financial Services Compensation Scheme and IFAs. FSA board members include Baigrie Davies director Amanda Davidson.

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. Around 600 firms could be affected by the scheme.

Some members said while the redress scheme would advantage Arch cru investors, it would disadvantage clients of IFAs that go out of business as a result.

Concerns were also raised that some consumers would get less compensation through the scheme than through the Financial Ombudsman Service and uncertainties were expressed about whether professional indemnity insurance policies will meet the claims.

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.

The minutes state: “There were a variety of views around the board table and some members were unclear whether the information obtained to date provided enough to take the proposal forward, given the risks highlighted in the paper.

“On balance, the board agreed that the consultation on the proposed s.404 scheme should be published, but that the executive needed to consider carefully the responses to the consultation and bring a convincing case to the board if, after consultation, it was considered the scheme should be implemented.”


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

  1. Vote of no confidence, do the FSA really know what they are doing ?
    In the final death throws of their existance they seem to be running around the farm yard like a headless chicken, and they are going to leave a big pile of dung in the corner for someone else to deal with.

  2. Lets remember – some members of the board had serious doubts over how effective RDR would both in terms of ouctome and costs. They went ahead with it and now look what we have got? The board once again have doubts over another potentially catestrophic event but no doubt they will press ahead with it. Stand well back for the rebound of the proverbial as it is expelled from the fan at such a rate of knots when this goes ahead. The people in charge of the FSA/FCA to be, are completely void of anything other than civil service mentality. They have no idea how to prperly regulate an industry and Lord Turner has the audacity to call the FSA world class leaders in the regulatory field. OMG

  3. ‘uncertainties were expressed about whether professional indemnity insurance policies will meet the claims.’ The PI insurers will not meet claims unless they were notified of circumstances in a timely manner. IFA’s that did not notify their PI insurers a couple of years ago would not have had cover when their PI renewed – the consequences for those firms will be catastrophic.

  4. Several very pertinent questions remain, amongst them:-

    1. What about the FSA’s culpability for the collapse of ArchCru, due to lack of ongoing regulatory supervision? Surely, like all other product providers, ArchCru would have been required to submit to the FSA regular returns equivalent to the RMA Returns required of intermediaries?

    2. What is the justification for a blanket assumption that all sales of ArchCru funds/products were defective, based on inspections of a relative handful of client files? Is this a just determination by any reasonable yardstick? It’s a bit like holding all Toyota dealers to account for manufacturing failures that took place thousands of miles away in Japan.

    3. What about the impact on IFA’s PI cover of the FSA having instructed the FSCS to demand redress from IFA’s via Herbert Smith, thereby invoking exclusion clauses in their policies? What part of the FSMA 2000 empowers the FSA to order PI insurers effectively to waive such clauses?

    4. Why the rush to dump the entire compensation bill on IFA’s before the legal actions against the various parties who actually caused the collapse of ArchCru have run their course? Shouldn’t all other avenues of recovery be pursued before IFA’s are forced to cough up?

    5. What about the decimation of the IFA sector being caused by the FSA’s never-ending succession of hindsight reviews, despite Hector Sants’ claim before the TSC in March last year the “the FSA has no prejudicial agenda against small IFA’s”?

    Will the FSA deign to answer any of these questions. Who regulates the regulators?

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