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FSA says revised Arch Cru plans will slash FSCS costs

FSA Skyview 480

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.

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Comments

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

  1. Risible, laughable spin.

  2. Opt in?

    Hmm, I know…how about we have a system where if someone thinks they have been miss-sold a product they could complain to. We could call it….urm…Financial Ombudsman Scheme….

    Nah – to simple!!!

  3. I’m pretty much out of puff.

    These clowns keep inventing or re-inventing news methods of destroying the lives of financial services people and then applauding the results as a great triumph which will benefit us all.

    The FSA is a disgusting and vile ceature. Imbued with a deep sickness that can only be resolved by its total dissolution.

  4. Yes, but let us not forget that the letter advisers will be required to write to their clients is to be in a format prescribed by the FSA.

    Should the letter be along similar lines to the one that advisers were required to send out towards the end of the pensions review, the number of recipients who opt for a full review of the advice they were given to invest in ArchCru funds may well be considerably higher than the FSA’s conservative estimate of between 15 and 30%. As a result, more firms and individuals will go bust and more, not less, liabilities will fall on the FSCS.

    Clients must surely be aware of their right to complain if they genuinely consider the advice they were given was unsound. On what basis is the FSA assuming that those who consider a complaint to be justified haven’t raised one already? Why not leave it at that instead of continuing to stir the pot?

    Once received from the FSA, perhaps someone could post a copy of the letter here for all to see.

  5. Remind me what the FSA’s estimate of the total cost of the RDR would be? Around £600m I recall.

    I wouldn’t imagine their underestimate here is much more accurate.

  6. Total joke.If they only expect 30% to opt in. Then 70% must beleive it’s someone else that messed up? I wonder who? Must live on the same planet as FOS who award 8% as an interest rate if you are found against!!! La La Land… Give the boys a bonus

  7. I had a nightmare and thought I had been transported to North Korea. I could see their TV announcers full of glee proclaiming how the beloved regulator had saved them all from the Devilish IFAs who had dared to try and blame the FSA and Capita for not doing their jobs properly. They would now be made to pay.

  8. Can anyone name an occurrence when the FSA have come remotely anywhere close with any of their predictions/estimations?

  9. I agree with North Korea comments.

    Cannot see how these folks are now going to take a low profile because there is no forced review.

    Unfortunately I remember too well the envelopes with “R U Owed” on the outside that the PIA/FSA asked me to issue to certain pension clients in the past.
    That made folks call to ask whats going on!

  10. Julian, the prescribed letters are in the policy statement – pages 72-73.

    http://www.fsa.gov.uk/static/pubs/policy/ps12-24.pdf

    I wonder how many won’t ‘opt in’ when they see the FSA format letter and the high risk sentence in it?

    That’s why this is all spin and PR from the FSA to get headline numbers down and make the story become less ‘hot’….

  11. The FSA believes that 15% to 30% of Arch Cru investors will “opt-in” to the redress scheme. To arrive at this conclusion they must have tested the template letter with say 100 Arch Cru investors. If they didn’t then how could they have estimated the likely response?

    Why are the FSA estimates 100% apart 15%-30% £20m to £40m?

    Such guesses at outcomes give little confidence.

    FSCS estimated costs of redress now some £37m for those IFAs who didn’t sell Arch Cru.

    Happy Christmas but don’t expect a prosperous New Year

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