The FSA is predicting a substantial drop in the number of claims relating to Arch cru that will fall on the Financial Services Compensation Scheme following its decision to introduce its consumer redress scheme on an opt-in basis.
The regulator published a policy statement on its Arch cru consumer redress scheme yesterday, which amended the proposed scheme first set out in April. Under the amended scheme, firms have to write to clients who were recommended Arch cru and clients have to opt in to have the advice reviewed, rather than advisers being required to review all Arch cru advice as originally proposed.
The FSA estimates between 15 and 30 per cent of clients who were advised to invest in Arch cru will opt in to the scheme, reducing the redress paid out by the scheme from the proposed £110m to between £20 and £40m.
In its consultation paper on the proposed scheme in April, the FSA said up to 30 per cent of firms that recommended clients to invest in Arch cru could default as a result of the scheme. It added that out of the £110m redress, up to £33m would be paid by the FSCS.
Based on its opt-in estimates, the FSA now predicts between £3m and £7m will fall on the FSCS as a result of the opt-in scheme. In total, the regulator estimates up to £37m in Arch cru claims will fall on the FSCS, including £30m for existing Arch cru claims which were not factored in the FSA’s original claim estimates.
In the policy statement, the FSA estimates that £90m worth of Arch cru claims have been lodged with the FSCS to date, with the FSCS currently handling around 1,800 claims against 60 firms.
The FSA says total redress will be less than this £90m figure as many investors have submitted claims for the original investment amount without taking into account interim distributions or the residual value of the Arch cru fund assets. The £90m also does not take into account sums from the separate £54m payment scheme agreed with Capita, BNY Mellon and HSBC in June 2011.
The regulator originally estimated that 795 adviser firms had sold Arch cru, and has now revised this down to between 550 and 600. It estimates around 110 firms who sold Arch cru have already cancelled their permissions, and expects up to 100 more firms who sold Arch cru to default as a result of the opt-in scheme.
Announcing its censure of Capita last month, the FSA revealed the firm has paid £32m towards the voluntary £54m payment scheme to investors.