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FSA should consider consumer impact of Arch cru redress scheme

FSA building 480

Advisers are calling on the FSA to ensure any decision to push ahead with its proposed £110m Arch cru redress scheme is in the interest of all consumers, including those who could be left without an adviser if it forces firms out of business.

The FSA published its consultation on the scheme on 30 April. If implemented, it will require IFAs who recommended Arch cru funds to review their sales and pay redress where appropriate. The consultation closed this week.

Minutes from the FSA’s board meeting on April 26 showed concerns were raised about the cost pressures of the scheme on the Financial Services Compensation Scheme and IFAs. 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.

Hudson Green & Associates principal Ian Hudson says the FSA needs to consider whether the risk of firms going out of business is a price worth paying to secure redress for Arch cru investors.

Hudson says: “Whatever decision the FSA ends up making on this, it has to be in the best interests of the consumer. Advisers have to be seen to be treating customers fairly and so should the FSA. If treating customers fairly on balance is doing nothing then that is what the regulator should do.”

Investment Quorum chief executive Lee Robertson says: “It is a tough question because to benefit a relatively small number of clients you could potentially disadvantage a far greater number by leaving them disenfranchised from advice.

“I would lean towards protecting clients rather than firms, but there is a real hazard the scheme could tip a lot of firms out of business.”

Facts & Figures Financial Planners managing director Simon Webster says: “The FSA did not step in when the funds were given a low-risk badge and it now wants large sections of the industry to pay, some of which had nothing to do with Arch cru whatsoever. The FSA is ducking responsibility.”

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There are 2 comments at the moment, we would love to hear your opinion too.

  1. The FSA doesn’t really care what destruction it inflicts on the IFA sector. Under its now very torn and tattered flag of consumer protection, collateral damage without limit is quite okay. We can see through all the holes that you’ve failed and failed mightily, but still you won’t admit it. It’s always everybody else’s fault, so everyone else must pay. But never the FSA. And even if it did, the costs would be dumped on the rest of us by way of a corresponding increase to next year’s levies. So it’s heads we have to pay this year or tails we have to pay next year.

    PI insurers are withdrawing from the market left, right and centre. More and more IFA firms are being left high and dry, up the proverbial creek without a paddle. Why? Because the FSA reviews everything by hindsight and admits no culpability on its own part.

    One wonders how many PI insurers would be prepared to contemplate even for a second an application from the FSA for PI cover of its own. They’d laugh the FSA out of the door and down the road.

  2. Do you think all the advisers who sold their client Arch Cru as a “safe investment” or went after the 1% renewal (eg doubling up) did a good job ? Cannot blame FSA for that.

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