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MM leader: The FSA’s unconvincing Arch cru arguments

Since the FSA published proposals to implement an Arch cru consumer redress scheme in April industry concern over its implications has grown steadily.

Advisers are not alone. FSA board minutes from April reveal worries over the impact of the £110m scheme and state a “convincing case” needs to be brought to the board.

Reading many of the responses to the FSA’s consultation paper it is difficult to conclude that a persuasive or overwhelming argument has been made by the regulator. Quite the opposite.

Evidence submitted by Aifa and others casts doubt on whether the requirements for such a redress scheme, the first of its kind, have been met. Worryingly, there is concern that data gathered on a small cross-section of firms which sold Arch cru has been misused by the regulator in an attempt to justify a scheme that requires “widespread or regular failure” to proceed.

The FSA’s headline figures suggested 795 firms may have sold Arch cru, with up to 20,000 investors affected. However, a statisticians report, published alongside the proposals, estimated only 321 of these firms sold Arch cru with 11,800 missales.

Aifa says the research also indicates a concentration of the majority of Arch cru missales among a small group of firms, despite the FSA denying this.

It appears this data exaggeration was driven by a desire to portray “widespread” misselling which does not stand up to scrutiny.

The FSA’s view that all Arch cru sales were high risk suggests a dangerous use of hindsight regulation which fails to take account of concerns about the quality of disclosure material and possible outcomes of ongoing legal action against those managing the range.

The regulator has so far failed to explain the rationale behind its voluntary £54m capped redress package, funded by Capita, HSBC and Bank of NY Mellon, and why it was agreed before a decision on the redress scheme consultation and with investor losses still uncertain.

There are also major concerns about the wider impact of this scheme on the IFA sector as a whole through extra FSCS costs and a hardening of the PI market.

The redress scheme proposals appear to be a rushed and heavy-handed response to political pressure, supported by shaky statistics, which threaten to destabilise the entire IFA sector. In other words, a convincing case has not been made.


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Yes, this is a political gesture, policy handed down by HMT to the FSA for implementation. The RDR. MMR and all other initiatives have been politically motivated.

    The courts have often said that the injustices of the FSMA 2000 were clearly the result of the intention Parliament.

    Did Parliament know that the regulators was not going to be independent of government? Parliament is a bunch of MPs, yours and mine, is this what those MPs intended?

    The buck stops with your MPs so ask them.

  2. My study module on Regulation & Ethics describes the FSCS as “the UK’s statutory fund of last resort for the customers of firms authorised by the FSA”.

    I imagine that an appendix will shortly be arriving from the publisher, augmenting this description along the lines of “except when the regulator decides arbitrarily and unilaterally, without either industry consultation or reference to any outside party or body, to make it a fund of first resort”.

    For that, surely, is what has happened here, is it not?

  3. When considering an application for authorisation the FSA requires;

    “Honesty, integrity and reputation (the FSA must be satisfied that the individual will be open and honest in his dealings’

    The industry should receive reciprocal levels of behaviour from the unelected, unaccountable hordes that populate Canary Towers.

    How can the FSA possibly command even the vbarest vestiges of respect when it is all stick and no carrot?

    If I was a regulator I would be ashamed to admit it.

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