The FSA has amended plans to implement its Arch cru consumer redress scheme for consumers to opt in to the scheme to assess whether advice was suitable.
The regulator estimates that 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.
Firms who advised on investments in the CF Arch cru investment and diversified Funds must contact all their clients asking if they want their case reviewed to determine whether they were missold the funds and may be eligible for redress.
The FSA says if clients who invested in Arch cru opt for a case review and receive redress, it will put them back into the position they would have been in had they received suitable advice. This is the first time that the FSA has used its powers to implement a consumer redress scheme of this type.
The regulator received over 230 responses to its April consultation proposing the redress scheme, with most submissions opposing the plans. The FSA says it has “received no new evidence” that a redress scheme would be inappropriate, but says it has amended its plans over concerns the scheme could lead to higher Financial Services Compensation Scheme levies and increased professional indemnity insurance costs.
The consumer redress scheme will start on 1 April, 2013, and firms will have until 29 April, 2013 to identify and write to all clients that fall within the scheme and outside the scheme’s scope. The letter will either explain to the consumer that if they decide to opt in the firm will review the advice given, or it will explain that their case falls outside the scope of the scheme. Consumers that do not respond will receive up to two reminder letters following this first letter, and will have until 22 July, 2013 to opt in.
Firms will have until 9 December next year to advise clients who opt in the outcome of the review.
The amount of redress will be calculated based on what would have been a suitable investment for the individual investor, the current value of the funds, and less any amount an investor is eligible to claim from the separate £54m payment scheme agreed with Capita Financial Managers, BNY Mellon and HSBC in June 2011. Investors have until 31 December next year to apply for the payment scheme.
FSA director of supervision Clive Adamson says: “Advisers have to accept and understand that ultimately they are responsible for making sure their customers’ interests are protected. If they do not understand a product or have not done the due diligence on it, they are in no position to recommend it to their customers.
“It is important when mis-selling occurs that consumers can be redressed. The vast majority of advisers maintain very high standards and misselling by a few only further erodes trust in the market which harms the whole sector.”