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MM leader: Is the FSA being too optimistic on Arch cru redress?

It is encouraging to see the FSA taking on board the views of Arch cru investors in its revised redress plans but questions remain about the validity of the first scheme of its kind.

The regulator has amended its proposals with investors now having to opt in to the scheme to assess whether the advice was suitable.

It estimates just 15 to 30 per cent of Arch cru clients will opt in, reducing payouts to between £20m and £40m, compared to original estimates of £110m.

This assumption is based on investor sentiment with around 400 writing to the FSA to say they did not want their adviser to be forced to pay them compensation.

If correct, this would reduce the effect of the redress scheme on the Financial Services Compensation Scheme – with an extra £7m falling on the FSCS, compared to the original estimates of £33m. Including claims already paid, this still leaves an overall FSCS Arch cru liability of £37m, higher than the £33m the fund range’s ACD Capita paid out as part of an earlier payment scheme.

Clients may not blame their adviser but if faced with the choice of potentially receiving more compensation or not, as everyone else appears untouchable, then some may reassess their view. It is therefore too early to predict whether the FSA is being too optimistic in its assumptions.

Although the regulator’s amended scheme may soften the blow for advisers involved, and the whole sector, it failed to make the case for “widespread” misselling needed to trigger a move of such significance.

Advisers have been left with the feeling that they are the easy targets of a regulator who, for whatever reason, did not have the appetite to battle those with bigger pockets.

Merry Christmas from MM

Rising regulatory costs, uncertain charging rules, RDR media-hype, perhaps a dose of the Norovirus. There is plenty to exercise the mind ahead of the biggest regulatory change of a generation. Wherever you are with your RDR planning and whatever your views on the new rules we hope you find some time to relax this festive season and spend time with those most important to you.

Merry Christmas and a Happy New Year from everyone at Money Marketing.


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. What would be the effect if something like 45% to 60% of investors were to go down the opt in route?.

    (Said with some certainty.)

  2. With whatever respect the FSA think they are due, Their success rate at predicting figures, costs and impact on advisers and the industry is at best woefully bad. Look at their estimates of costs over TCF & RDR as two classic examples. Like most things they do or estimate it is likely to be miles off the mark. The fact is the FSCS bill will increase dramatically as this Arch Cru debacle continues as more and more adviser firms go out of business and this WILL happen as sure as night follows day. As oft sadi before Last one out turn off the lights and close the door

  3. I assume MM and others wil be reporting on the number of individuals dropping off the FSA Register from say 1/12/12 to 1/1/13 so we see the immediate impact of RDR?

    I’ve checked my old network and their AR’s numbers have fallen nearly 24% in the space of a week.

  4. From what I heard, the prescribed letter that intermediaries were ordered by the FSA (or was it the PIA?) to send out towards the closing stages of the Pensions Review more or less asked the question: Are you ABSOLUTELY, 100%, TOTALLY certain that you don’t wish to make a formal complaint about the suitability of the advice with which you were provided? The implication, of course, was that anyone who hadn’t yet done so should think again and the result was that many recipients then decided that they probably should. It was tantamount to (the FSA/PIA) forcing advisers to invite complaints that otherwise wouldn’t have arisen.

    If the format of the letter that intermediaries are now to be compelled to write to all their ArchCru clients is along similar lines then, again, the result may be many complaints arising that otherwise wouldn’t. Until we see the letter we cannot know its likely impact, but my guess would be that it may very well be very similar to the Pensions Review one.

    Again the question arises: Why has the FSA taken it upon itself to intervene in and short-circuit the normal complaints process? By having instructed the FSCS to get a firm of lawyers involved, the FSA has (whether by accident or design we know not) already given PI insurers the opportunity to invoke invalidation clauses in their policies. One might reasonably expect the FSA to leave it at that and resist causing yet more damage to the already punch-drunk IFA sector. Sadly not, it seems As usual, the FSA has abrogated all responsibility for the ArchCru debacle and appears to be determined to heap on IFA’s yet more pain, misery and financial destruction. This isn’t justice, it’s a witch hunt.

  5. Julian, I think you areconfusing the Keydata & Arch cases. FSCS instructed sols Herbert Smith for Keydataclaims, NOT Arch.

  6. @Chris an increase in investor reviews from the FSA’s dubious estimates will result in an exponential increase in IFA firms breaching capital adequacy requirements. The FSA know this and that is why they have come forward with such a low estimate. The FSA board expressed concerns about the advisers going out of business and the FSA’s figures were used to gain support from in the boardroom.

  7. In the space of a few days we here that Hector has lined up a 3 million a year job with a bank he fined in the summer. We then hear, Capita were at fault but cant afford any more money so it is Ok to to shut between 1-200 IFA firms creating financial misery for hundreds of family’s.

    And the government has the audacity to lecture China and Russia on corruption and abuse of state power. I am moving to North Korea, i will stand a greater chance of justice!!

  8. Call me cynical if you want but I suspect the criteria for a file to be compliant for Arch Cru will be so severe that none of them will pass. This coupled with the fact that the 15-30% estimate is a joke (more like 75-90%) means that the FSA will have achieved its aim of shutting down 100’s of IFA’s via the back door whilst protesting its innocence!!
    So, who’s next? Come on, those of us out here now who didn’t use Arch Cru or Key Data etc, etc, what will the next witch hunt be? Drawdown, Mortgages, Long Term Care, Equity Release?? Who knows, one way or another the FSA/FCA (cos nothing will change in their remit) will continue to walk all over the industry and use it as an easy get out clause unless we start to stand up against this sort of injustice NOW!!!!!!!!

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