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Legal experts raise concerns over Arch cru redress scheme

Legal experts have questioned the FSA’s decision to force IFAs to pay up to £110m through an Arch cru consumer redress scheme, compared with its treatment of other players in the debacle and recent misselling scandals.

The regulator published a consultation this week on plans to set up a consumer redress scheme for Arch cru investors, the first time such a scheme has been created under new FSA powers granted in 2010.

IFA firms will have to review all cases and pay redress where appropriate. The regulator expects a large number of firms to default as a result, with up to £33m passing to the Financial Services Compensation Scheme. A large proportion of the £124m already due to be paid by investment and pension intermediaries in FSCS levies this year is down to Arch cru.

A law firm representing over 400 Arch cru investors is calling on the FSA to justify how it is apportioning blame for the Arch cru saga between advisers and other parties. Last year, the FSA agreed a £54m compensation scheme, funded by the authorised corporate director Capita and depositories BNY Mellon and HSBC, with all payments in final settlement.

Foot Anstey Solicitors associate Alan Hughes says: “The glaring omission is there is no explanation as to why they were asked to put in £54m and why it is fair and reasonable for IFAs to pay the rest. It looks like the FSA is not prepared to take on the bigger players but is prepared to come down on IFAs like a ton of bricks.”

Aifa policy director Chris Hannant (pictured) says: “The big names that stood behind this seem to be paying a small fraction of the total redress, which does not seem right. At the moment, it looks like redress is falling disproportionately on advisers.”

Compliance consultant Adam Samuel says it is inconsistent for the FSA to apply its consumer redress scheme powers in the Arch cru case but not for other misselling scandals such as PPI. He says: “There will always be a suspicion the involvement of heavily lawyered-up banks explains why such scandals were excluded from this kind of redress scheme.” An FSA spokeswoman says: “This is a complex issue and it involves a lot of different parties. The redress scheme consultation is based on evidence of misselling. We will be publishing a finding in relation to Capita as soon as possible.”



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There are 13 comments at the moment, we would love to hear your opinion too.

  1. Everyone knows whats going on…but how do you get through the great wall of lawyers Herbert Smith (representing Capita and FSCS and may be FSA!) and get some positive action??

    It may be complex…but the FSA have managed to arrive at a conclusion of miss selling with IFAs in a matter of weeks but havent arrived at any decision about Capita etc roles and they have had three years for that…strange…

    Also where the ‘advice’ is deemed correct, as it was in some files…what happens there…the IFA has done everything they should have but the funds still look terrible…..

    The FSA have and continue to be a disgrace…jobs for the boys and girls and the merry go round continues….

  2. Once again the FSA has shown itself to be incompetent at doing what it is charged to do. Why on Earth can the Government not act quickly to change legislation so that the FSA is fully and totally accountable to Parliament and can be hauled over the coals when they make stupid errors and can then be forced to undo any given situation and redo it but only after having done cost benefit analysis which has been approved by parliament. These incompetent baffoons are getting away with blue murder at crippling our profession and it looks as though the same rules will apply to FCA as applied to FSA. This simply is not good enough and needs changed NOW

  3. Ken Bannister 3rd May 2012 at 10:17 am

    This is a clear case of dropping a liability on those that have actually been coned by Cru, BNY Mellon and HSBC. They have promoted a low risk product, had it categorised as low risk under IMA, duped IFAs to sell the product (all promotional literature shows it as cautious) and then walk away when it all goes wrong.

    You can’t blame the IFA. The FSA are destroying this industry and the lives of many people while sitting in their Ivory Towers.

    This is clearly a case of the big boys having good legal departments with lots of money and IFAs not having enough to defend a case. Take the easy way out!

    Spineless and foolish!

  4. This is an issue that the FSA cannot be allowed to continue to abuse its powers in respect of.

    In the real world, legal concepts such as causation, liability and quantum are relied up to ensure fairness. That is; what happened, who is responsible and what is the financial loss?

    It doesn’t take a legal genius to conclude that the circumstances of the action need to identified, before liability can be shown (and, if necessary, divided between multiple parties) and compensation payments awarded.

    However, the FSA considers itself to be (and in many ways is) above the law. What other conclusion can we reach, when we consider its actions in respect of Arch cru?

    Despite having still not finalised its investigation, or even published interim findings in respect of the ACD or the investment managers’ actions, it has agreed a ‘no fault’ payment scheme with Capita, tied the hands of the FOS and sought to pass the bulk of the liability onto IFAs who relied on statements and financial information provided by Capita and Arch cru – having already decided that the funds were “high risk”. A case of “bring in the guilty party”.

    Not since Stalin’s time have we seen such abuse of power, and Kafka’s masterpiece, “The Trial” could be updated and set in Canary Wharf.

  5. Although 3 years have passed since the suspension of the fund, it is glaringly obvious that from the outset the blame lays at the door of Capita/BNY Mellon/HSBC and the FSA. This is reflected by the fact that only 250 investors have made complaints against their IFAs, and probably a high percentage of them had little choice due to their financial situation. As an investor I feel I am being forced to pursue a blameless party and find it shocking that people like Mark Hoban, David Cameron are unable/unwilling to see the truth of the matter. Of course I realise that a position on government is a stepping stone to a cosy directorship, but MPs should do the job they are elected to do for their constituents and not just consider their future career prospects. If Capita etc had done the right thing in 2009, it may well have been a distant memory by now. In reality the whole fiasco has clearly shown how investors are pawns in the game and our regulators, majority of MPs are more concerned with working within an elitist framework that does not p**s off their old school mates/future employers/drinking partners, and SO blatant too!

  6. @anonymous
    You say that you are being ‘forced to pursue a blameless party’.

    If your IFA IS blameless, then I would suggest you DON’T pursue them. If his duty to you was discharged in a non-negligent manner, then decency would point you in the another direction.

    However, I sympathise with you very much. You have lost out due to the alleged misrepresentation/bad product design/management of the provider. That is a bitter pill to swallow.

  7. Old Dog

    The IFA is going to have to compensate anyway now whether there is a complaint or not, FSA orders!

  8. OK, not anon here.

    I have no clients with Arch Cru. But one of my employees used Keydata Life Settlement Plans in 2006 and I did in 2007.

    No clients have complained about my advice, hence no involvement of FOS as clients complained directly to the FSCS initially about the failure to structure the plans correctly for ISA eligability. FSCS paid out. Then the proverbial hit the fan with the missing SLS money (no clients in SLS plans), then the proverbial hit the fan with insufficient cash to meet regular payments for the Life plans to continue (contrary to the statements in Keydata’s brochures) and clients were reimbursed according to the FSCS limits. No clients took issue with the FSCS limit (yes I know that is moral hazard, but that is what the FSCS is supposed to be there for)
    Two days ago I received the same letter that over 500 firms have received over the last 6 months from Herbert Smith acting on behalf of the FSCS implying professional negligence.
    I have offered to go to alternative dispute resolution and spoken to the FOS who quite rightly have stated that they can only look at a case if a client complains. The problem is, no client has complained. I have asked Herbert Smith to accept the FOS as my choice of ADR system, but they have declined stating it is inappropriate.
    Having never had a complaint go to the FOS (I have only had one complaint in 14 years as an IFA, which was rejected by us and the decision accepted by the clients solicitor), it is a little galling to pay for an ADR system for all this time and then be denied the use of it…..

    Under the circumsatnces, I would appreciate it if anyone wishes to criticise me publicly, that they either use their real name OR contact me at my office if they wish to post anon critical comments and if MM can censor any critical comments that do not use their real name or call me to disclose it.

    Thank you.

  9. Julian Stevenms 3rd May 2012 at 2:20 pm

    The shame is that even if the FSA is, by some quirk of chance, forced to change tack, by the time it does so the damage will already have been done ~ another few hundred IFA practices obliterated.

    Still, it’s all part of the FSA’s Grand Extermination Plan (the one that Hector Sants denies even exists), so what can be done?

  10. Sufferin Succotash 3rd May 2012 at 2:37 pm

    Quickly coat with Without Prejudice
    Pardon me o liveried lawyers, but wasn’t it reported some time back that Capita had a very lucrative contract with HMR&C, another body wholly and exclusively owned by HMG.
    Cornflakes of affluence perhaps. This would explain how the FSA is in the land of milk and honey and the IFAs are splashing about in the river of Acheron.

  11. With regard Keydata, don’t forget that an FT journalist (Debbie Harrison) and consultant to the FSAs Consumer Panel (according to her CV and the DWP and other government bodies wrote a report on the Keydata Life Settlement Plans which influenced advisers thought making processes (including mine) as to the suitability of these products for a proportion (not 100%) of a clients portfolio.

    Added to that, the marketing material of early plans included KPMG and HSBC in them, which was holding out their involvement at least in the early stages and they did NOTHING to dispel this belief to anyone who read the early versions ( I read the early version and used the later). If that was on a partnerships headed paper and was not corrected, it would be deemed “holding out”.
    KPMG only contacted Keydata and the FSA about this and they remained the only parties who knew about this (alleged) misrepresentation until after the collapse of Keydata. The FSCS and Herbert Smith are trying to fry the wrong fish. Mind you don’t you think they all smell a bit fishy?

  12. Julian Stevens 4th May 2012 at 10:18 am

    The bottom line in all this is that a small number of POSSIBLY inappropriate sales of ArchCru products isn’t what caused ArchCru to fail. The FSA has just twisted it all round by way of another hindsight review so as, yet again, to dump the bill for cleaning up another mess at the door of the intermediary sector. Yet Hector Sants would have us believe that the FSA has no prejudicial agenda against the IFA sector. The evidence suggests otherwise.

  13. In the consultation document the FSA stated that IFA’s could rely on ‘statements of fact’ from the ACD. The ACD in their short report of the fund states that the fund objective is ‘capital preservation and capital appreciation’ which by any reasonable standard equates to cautious in this context. The ACD also states in the short report that they have ‘policies for managing the risk’. These are statements of fact on which according to the FSA, the IFAs were entitled to rely. How therefore, can IFA’s be accused of presenting this as cautious when clearly the fund objective, as stated by Capita states wealth preservation. No on has yet answered this. Surely if Capita have failed to ensure that the fund objective is followed they are 100% responsible. Indeed, the fSA have stated that capita, as ACD, are responsible for managing the fund. Although they delegated the management, as ACD they surely cannot delegate the responsibility. The only conclusion is that this is a scandal and cover up to protect the interests of CApita, FSA et al. when will justice prevail?

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