The FSA says just 12 per cent of Arch cru sales were found to involve suitable advice, based on an external file review of a small number of cases.
Firms will be required to assess whether recommendations to invest in Arch cru were suitable, and if not, pay redress.
The FSA is looking to impose the redress scheme based on the results of an external file review designed by an external statistician.
The regulator says it has identified 795 firms it believes sold Arch cru funds.
A sample of 24 firms was drawn from the total, with 179 files reviewed from those firms to assess the suitability of the advice given.
The results showed 12 per cent, or 22 sales, of the files reviewed were found to be suitable. A further 10 per cent, or 17 sales, were rated as unclear, while in 78 per cent of cases, or 140 sales, the advice was found to be unsuitable.
Of the 24 firms reviewed, 20 were found to have missold in at least a third of their reviewed sales. 19 had missold in at least half of their reviewed sales and 14 firms did not have any sales reviewed as suitable.
Of the 22 sales that were deemed suitable, 14 of these came from two firms.
Many sales were rated unsuitable due to a mismatch between the risk the client was willing and able to take and the risks posed by the Arch cru funds.
Firms did not clearly disclose the nature of the underlying assets, or that the assets posed a greater risk than mainstream assets. Firms also did not provide a balanced description of risks.
The FSA says: “We believe the file review exercise clearly demonstrates a high level of unsuitable advice and inadequate disclosure by the firms reviewed, as well as a lack of apparent due diligence conducted into the Arch cru funds.”