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MM leader: Arch cru scheme shows FSA was right to listen to advisers

With the Arch cru scandal appearing to be drawing to a close there are plenty of lessons to be learnt for all involved.

The FCA this week published the results of its Arch cru redress scheme and calculated that firms who advised on the range will pay around £31m in compensation.

There are plenty of things about the regulation of the Arch cru range and the subsequent regulatory action and compensation that leave a sour taste in the mouth. Not least the fact that the advice sector paid out more through the Financial Services Compensation Scheme than the £32m that Capita, the range’s ACD, paid out as part of an FSA arranged payment scheme.

However, the final results of the FCA’s separate adviser redress scheme are at least a huge improvement on the original proposals and show the results of the regulator introducing some welcome pragmatism to its policymaking.

The original plans would have seen advisers forced to pay out £110m with the regulator’s own estimates suggesting this would drive 30 per cent of advice firms which sold the Arch cru range into default and lead to an extra £30m of claims falling onto the FSCS. Experts warned such a move would also lead to a hardening of the PI insurance market for advisers.

These plans were then amended so that clients would have to opt-in to the redress scheme. This followed feedback from lots of clients to the regulator that their adviser was not to blame for the losses.

The final results show that 48 per cent of clients opted-in to the scheme, among them were probably some who did not blame their adviser but saw this as the easiest way to get some compensation.

The FCA has given an “all clear” to certain advice firms with very low opt-in rates, less than 20 per cent, after it found nothing of concern in the way they communicated the potential benefits of the redress scheme to clients.

This is a big vindication of the FSA decision to significantly reform its original plans following heavy pressure from the advice sector, led by Apfa, which ensured that lots of good firms with decent client relationships were not hit by a broad brush regulatory approach.

With the Arch cru scandal appearing to be drawing to a close there are plenty of lessons to be learnt for all involved.

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