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Mark Hoban rejects MPs’ calls for Arch cru inquiry

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Treasury financial secretary Mark Hoban has rejected calls for an inquiry into the Arch cru scandal and the failures of the FSA and Capita Financial Managers.

There was cross-party support for an inquiry into what went wrong at Arch cru at a parliamentary debate this morning on the £54m Arch cru compensation package agreed by the FSA in June between Capita, BNY Mellon and HSBC Bank.

MP for Rutherglen and Hamilton West Tom Greatrex, who secured the Arch cru debate, said the compensation package appeared to be an “admission of defeat” by the FSA that it could not work out what went wrong and why.

He also led the calls for an investigation into the regulatory failures in not preventing what happened with Arch cru, and into Capita’s role as authorised corporate director of the funds.

But Treasury financial secretary Mark Hoban defended the compensation deal, saying it allows investors to receive a payment by the end of this year rather than having to wait several years for an uncertain outcome.

Hoban said there was a “trade off” to be made, and a decision needed to be taken on whether investors who have lost money invested in Arch cru funds receive money sooner or later.

On whether he would take forward calls for an inquiry, Hoban said: “I am yet to be persuaded that a section 14 inquiry is appropriate. It would certainly not be appropriate to announce one whilst enforcement action is being taken against any party to this.

“It is not the role of the FSA to ensure no firm ever fails, nor is it the role of the FSA to approve the investment strategy of each and every OEIC operating in the UK or to ensure its investments are sound. They are responsibilities that rest elsewhere.”

But Hoban admitted there were lessons to be learned from how the collapse of Arch cru has unfolded.

He said: “It is vital that everyone engaging in this does reflect on the lessons that are learnt from this, that is the regulator, industry players, IFAs, and others. Many issues have emerged from the complexity of the scheme, the need for consumers to have better quality of advice and better financial education. We look very carefully at every lesson learnt from cases like this and it is reflected in our thinking on the FSA.”

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Comments

There are 24 comments at the moment, we would love to hear your opinion too.

  1. The FSA decision does not allow “a trade off to be made…to receive money sooner or later” as it denies investors the right to take further action against the guilty parties.

  2. So whats the point of the FSA here?

    They have basically admitted they failed in their duty – but it will the Adviser which picks up any shortfall in the compensation!

    I don’t often think the FSA is poor in what they do – but this is one of those times…..

  3. “It is vital that everyone engaging in this does reflect on the lessons that are learnt from this..”

    And would he care to expand on precisely what lessons HAVE been learned?

  4. I watched the whole debate and it was so obvious at the end that Hoban wanted the clients to pursue the IFAs.
    This guy is a joke he should be working at McDonalds!!

  5. This is one of the most ridiculous outcome’s I have ever heard! Surely an inquiry wont cause harm or any further losses to the client, it would be in the clients best interest for an inquiry to be made. Its bad enough clients have had to wait over 2 and a half years to reach this far, so I’m pretty sure if you ask all Arch Cru investors if they wanted to wait a little extra time for the opportunity to regain the whole of their monies, they will all agree and want to pursue this matter further.

    I believe the FSA & Capita know they are in the wrong, and they are clearly trying to “Worm” their way out of this drastic situation. If the FSA were confident that they have nothing to fear, then why are they not getting to the bottom of why this whole situation ever occurred in the first place…

  6. This Govt appear to be even worse than the last one if indeed it is possible.

  7. ‘This guy is a joke he should be working at McDonalds!!’

    I have to ask, “Why should McDonalds have to suffer this guy’s ineptitude”.

    Our studies have told us the the FSA is responsible to the Treasury and by default therefore, the Treasury would be well advised to hide it’s failings in the FSA

  8. Peters comment – “should be working at MacDonalds” – no one would employ him as he has not got the appropriate NVQ qualifications, he is after all only an MP with very little knowledge of our industry, how it works, what consumers want from it and how advisers should work, what could he put on his CV “worked as an MP shafting the IFA sector “???

  9. Was Hoban listening to his I-pod throughout the debate or simply asleep? It is obvious he did not take any notice of the intelligent debate held by the MP’s (all oftheir comments and effort so far are most welcome in trying to obtain the truth)

    Hoban, had a pre prepared statement that was not going to be altered whatever was said. I think there will be a highly paid position waiting for Hoban at CAPITA when he leaves his role as an MP which based on his performance since becoming Financial Secretary to the Treasury will hopefully be sooner rather than later.

    This whole affair suggets coruption at the highest level and as many of the MP’s alluded to needs the Serious Fraud Office to investigate

  10. I too watched the full debate this morning online and MPs slated Capita & the FSA mercilessly

    Only to hear Hoban once again spouting off his obviously prepared statement which ducked the issues and basically passed the buck to IFAs.

    Although I have to ask why any IFA would suggest client’s invest 100% of their savings into one fund or was this a DFM portfolio? Didn’t we slate Barclays for doing the same with an AVIVA fund? Fortunately I only ever glimpsed Arch Cru’s Africa fund…because of it’s supposed ethical aims. Then the rumours started about dodgy investments & I thankfully chucked the prospectus in the recycling bin.

    Unfortunately THIS brushing under the carpet ain’t going to work this time Mr Hoban –

    Regulatory legal have this morning delivered warning notices to 3 parties including the FSA that they intend to legally challenge the FSA’s effective limit on FOS claims for consumers because it is against a certain section of the FSMA.

    This could get even more interesting!

  11. Hoban should join Fox

  12. What angers me is the truth of a comment that another IFA made on one of the articles…..That we are now expected by the FSA to underwrite all of our clients.

    That’s simply ridiculous and NOT why any of us came into the industry for.

  13. Was Hoban asleep throughout the debate or listening to his I-Pod? Because he certainly did not listen to anything said by the MP’s.
    Many of the MP’s made very sensible and valid statements about the debacle that the CF Arch Cru affair has become.
    I listened to some of the horror stories of investors and have to say the advice in many cases sounded dubious, but we do not know all the facts as to how the advice was documented etc.
    However, in the case of Arch Cru the standard of advise and what actually caused the loss are very different things, and as one MP said anybody who has not done so already should read the SPL Private Finance Fund report and in particular the comments of chairman Hugh Aldous before criticising the advice. If only half of what Mr Aldous states is true then the request for the Serious Fraud Office to become involved is essential.
    If the FSA wish to conduct a review of the standard of advice provided by advisers after CAPITA have paid investors 100% compensation for allowing the fund manager and the marketing company CAPITA delegated duties to to run amok then that is fine.
    It is a complete red herring for Hoban (ventriloquist’s dummy for FSA) to say the issue is complex. The simple fact is CAPITA as ACD has 100% legal liability for those it delegates duties to. If the allegations of Mr Aldous are true CAPITA can take legal action against the other parties it believes have caused the losses that CAPITA should be suffering after paying 100% compensation. After all if the fund had produced true valuations from 2007 onwards, there would not have been £422 million invested into the fund.
    Furthermore the ventriloquist’s dummy said the structure was complex, I have sent joe@justiceinfinancialservices.org (if you contact him he will give you a copy) a flowchart of the structure and apart from a lot of co-directors of companies that were supposed to be independent it is not very complex at all. Even if it was complex the FSA should have known the structure including the links with Guernsey before authorising as an OEIC suitable for retail investment, again there would have been a fraction invested of £422 million had the funds been marketed as unauthorised and unregulated.
    Finally the FSA have supreme power they could simply have ordered CAPITA to pay 100% compensation and if CAPITA did not like it there would have been nothing they could have done except liquidate the subsidiary CAPITA Financial Managers Ltd and let the claim fall on the FSCS (levy on fund managers as opposed to IFA’s which is how this debacle may yet turn out) and leave 320 other funds without an ACD.
    Anybody who has recommended a fund with the CF name in front of the fund manager has been warned by this affair, the CF stands for nothing.
    I hope Hoban and Sants have long and happy days on very large salaries at CAPITA when they finish in their current positions as there is no other explanation for their actions.

  14. Ben Serajian-Esfahan 19th October 2011 at 2:52 pm

    Can everyone please sign this e-petition? Let’s push for an inquiry! http://epetitions.direct.gov.uk/petitions/19621

  15. If this is allowed to stand it will be an absolute disgrace and you do wonder whose vested interests are being looked after in this whole debacle.

    If consumers will be barred from taken action against Capita, HSBC or BNY Mellon if they accept this cobbled together settlement, then I’m assuming any IFAs caught up in all this may still be able to take Capita to task at law over all this??!

    I think if it was me & I was convinced I’d given correct advice that’s what I’d be considering – some kind of class action.

  16. correction to above email address regarding flowchart of Arch Cru structure – sent to joe@justiceinfinance.org

  17. There’s an e-petition on the govt website if you search for ‘arch cru’

  18. Capita didn’t market the funds in any way – Cru marketed the funds and as such i don’t see where capita have acted fraudulently in that respect?

    why shouldn’t IFA’s be the ones to blame here. Many of the clients had there ENTIRE savings invested in one fund range!! IFA’s where chasing big initial + trail comm payments and this is the reason so much of their clients money was piled in.

    If you are going to be as stupid as to invest all your money in one place when rule 1 of investing is to spread your risk then why should we waste taxpayers money on a government inquiry?! your never guaranteed 100% of your money back in the 1st place, as is the nature of investments – sounds like you’ll get 70% of it back & if you want more then chase your IFA who told you to put all your money in the fund in the 1st place and taking commission for their hard work – I’d say that’s lesson learnt

  19. I watched the debate and was heartened until Mr Hoban opened his mouth. Put simply so even he can understand, what a load of tosh and how insulting to investors and IFAs alike. Smacks of people in high places, connections and cover-up for how ealse can such a debacle go unpunished;quite what are regulators for?

  20. @anonymous 3:58 pm are you really Mr Hoban writing and do not want to say as you appear to know as little as him.

    The duties of the Authorised Corporate Director (ACD) can be summarised as follows:–

    The ACD is responsible for managing and administering the Company’s affairs in compliance with the COLL Sourcebook. The ACD may delegate its management and administration functions, but not responsibility, to third parties, including associates subject to the rules in the COLL Sourcebook.

    The Depositaries And Trustees Association defines the role of an ACD as follows:-
    ACD and Depositary
    “The depositary safeguards the property and assets of the OEIC whilst the ACD operates the OEIC and, most significantly, makes all the investment decisions. The separation of the management of the OEIC property from the possession and ownership of it is an elementary form of investor protection. As with unit trusts, the depositary has a duty of oversight.”

    CAPITA in their response to the complaint by over 2,000 investors made via Regulatory Legal LLP, confirm the above when they state:-
    “Until 4 December 2009, the investment management of the funds was delegated by CFML (CAPITA Financial Managers Ltd) to Arch Financial Products LLP (“Arch”) (although CFML remained ultimately responsible under COLL for this investment management activity).”

    This is further backed up by the statement made by Chris Addenbrooke the CEO of CAPITA Financial Managers in an interview with Stephen Wilmot of Investment Adviser in September 2008. When asked about the CF logo before a fund name.
    “It is there because Capita looks after the entire administration and compliance needs of any CF fund. Only stock selection and sales remain with the manager. Within this structure, Capita assumes legal responsibility for the assets, and subcontracts management back to the fund house. In the jargon, Capita becomes the “authorised corporate director” or “ACD”. Under FSA rules, the fund name therefore has to include the Capita brand –otherwise investors would not know to whom they are entrusting their savings.”

    Given the above facts CAPITA (as ACD) have to take responsibility for allowing Arch Financial Products LLP (the investment manager they delegated to) to invest in the Guernsey Cells and therefore responsibility for due diligence in investing in the Guernsey Cells. Indeed Ernst & Young said CAPITA failed in its duty to incorporate the accounts of the Guernsey Cells into the UK OEICS accounts.

    The marketing material produced by Cru was also the legal responsibility of CAPITA.

    If you then read the Hugh Aldous statement in the SPL Private Finance Funds financial statement available on the CISX website, then you will see that investors bought into the fund at incorrect prices, and those prices allowed Cru to produce the marketing material.
    Normally I would agree no investment is guaranteed but these investments were null and void from outset as people were persuaded to invest by massaged figures that held the funds out to be something they were not.
    No amount of due diligence that a normal adviser could carry out would uncover what Mr Aldous has reported, after all it has taken him nearly two years working with the new fund managers every day to uncover the facts.
    Is an adviser really expected to ask a fund manager to send a copy of all the contract notes for the buying and selling of assets within the fund every day and then check with the stockbroker that the transactions actually took place, if you don’t do that how do you know the fund manager has not just put the fund on the 3.15 at Kempton. Of course they don’t because the investment house is meant to have checks and balances in place so that the fund manager is investing funds as per their prospectus and remit. That role in this case fell to CAPITA.
    If your theory held up Standard Life could have avoided repaying £100 million to investors in the Sterling Pension fund which had inaccurate marketing material, by simply saying it was Jeff and Bob in the printing department that produced these brochures so it has nothing to do with them.
    It is not the investors or advisers fault if CAPITA did not know the full responsibility entailed in being an ACD which they obviously didn’t as when they found out after the CF Arch Cru affair they tried to sell CFML arm of the business.
    I agree that nobody should have 100% of their investments in one fund, but that is a separate inquiry to be had after CAPITA have returned 100% of the amount initially invested.

  21. People who attended have been in contact this morning, who spoke to MPs after yesterday’s debate…. and MPs were not well chuffed with Mr Hoban’s response and are determined to rank up the pressure on Capita to do the right thing.

    None of the Arch Cru debacle directly involves me or any of my clients, however just like RDR there are fundamental issues at stake here, which all of us should take an interest in.

  22. anotherfemaleifa 21st October 2011 at 5:04 pm

    If you think back to the Split Capital Investment Trusts debacle in 2002 this is much the same thing over again. The FSA at that time had Split Caps down as low risk on their own website but blamed IFAs when a so called ‘magic circle’ was later uncovered. And lo and behold Exeter Fund Managers were allowed to ‘go down’ without paying any compensation when the other companies involved were fined.
    How can the FSA NOT be to blame for these failures and how can the IFA not be allowed to believe in the product information provided to them by the providers?
    Its a little like when the brakes fail on your new Toyota the dealer who sold it to you is to blame!!

  23. I don’t have any clients invested in Arch Cru. I am not going to get holier than thou as there but for the grace of god go I….
    What I have decided is that there is actually a sginificant advnatage to both teh adviser and consumer of stating the restrictions of your advice. This does not mean you do not give best advice, just what you are goingf to look at within the cost the client wishes to pay for your research.

    As to Mr Hoban. Yes thank you very much, I think I and many MPs have learnt some very important lessons. The first being not to trust Mark Hoban any furtehr than you can throw him.

    If I am asked (as a non investor/adviser in Capita), just as with the Keydata debacle, I will demand to know WHY I am paying towards the levy. I paid the Keydata levy willingley as I had a few clients invested, but I may not with Arch Cru unless or until their is an investigation.

  24. Mr Hoban the Finantial compensation scheme will not compensate me for my loss over and above the capita offer one will offset the other so I will not be compensated as my ifa provider has gone to the wall ,no actually asset stripped his business and moved employees to relinquish their responsibility this whole saga stinks.

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