The FSA believes IFAs should accept responsibility for investor losses over Arch cru and says it may look to conduct an an industry wide past business review and order redress if it finds evidence of misselling.
The regulator held a closed meeting with 40 MPs and representatives of a further 20 MPs yesterday over the £54m compensation package for Arch cru investors agreed by the FSA with Capita Financial Managers, BNY Mellon Trust & Depository and HSBC Bank in June.
FSA conduct of business unit managing director Margaret Cole (pictured) told MPs that IFAs had the most direct relationships with investors and should be the first place to look in terms of resolving the Arch cru case.
Cole said: “It is not good enough that some IFA firms say they have no responsibility for investor losses and that some of them seek to distract from their own possible responsibility by demanding that others pay more.”
Cole cited the provisional decision published by the Financial Ombudsman Service earlier this week which upheld a complaint against an IFA who recommended clients to invest in Arch cru. The adviser has been ordered to pay redress based on return of their original £8,000 investment, plus interest, less anything they receive from the compensation scheme.
If the compensation scheme is withdrawn following the legal challenges being launched by Justice for Financial Services and Regulatory Legal, the IFA will also be responsible for what would have been payable under the compensation scheme.
Cole said it was not realistic to get the 900 IFAs involved in recommending Arch cru “round the table” in the same way as they could with Capita, BNY Mellon, and HSBC. It is estimated that over half of the140 firms who accounted for 90 per cent of Arch cru sales are no longer trading.
Cole added: “If we find that IFAs are liable for mis-selling Arch cru investments, then we as the regulator have a number of options open to us, including the power to seek an industry wide past business review and redress if we find widespread failure. That is complicated, it requires certain process and will take time to sort out.
“But we were able to get Capita, BNY Mellon and HSBC ‘round the table’ and to secure some money for investors now. We thought that was worth doing – to obtain a definite and certain pot of money for investors.”
In its annual accounts to the end of March published earlier this month Capita admitted there is “significant difficulty and uncertainty” in assessing the value of the Arch cru funds.