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.