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.”