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Stats report undermines case for Arch cru redress scheme

FSA Financial Services Authority 480

Aifa has attacked the FSA’s justification for its £110m Arch cru consumer redress scheme, saying its misuse of a statistician’s report fundamentally undermines its case.

In April, the FSA published a consultation paper proposing plans for the redress scheme. It said it had identified 795 firms that sold Arch cru funds.

However, a statistician’s report the FSA commissioned to establish the scale of misselling estimated only 321 of those 795 firms sold Arch cru funds on an advised basis. The report, which was included in the consultation, estimates 83 per cent of those 321 firms had “substantially missold” the products, based on a sample of just 24 firms.

Aifa policy director Chris Hannant says: “The FSA’s misuse of numbers suggests it wants a redress scheme and is trying to find the numbers to support this. It needs to have a hard look at this and think again.

“Even if all of the 795 firms had missold that would not represent widespread misselling, a requirement for a redress scheme.”

Foot Anstey head of financial services Alan Hughes says: “It looks like the FSA decided what it wanted and worked back from that.”

An FSA spokeswoman says the regulator will review Arch cru adviser numbers in light of the consultation. She says: “It has emerged some firms sold them on an execution-only basis or not at all, while we found other firms not on the list were selling Arch cru products.”

Anand Associates managing director Bhupinder Anand says: “This is typical FSA, picking out random figures to suit its own ends rather than going on the facts.”


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. The FSA has a clear choice here: to either accept that the grounds for a review are fundamentally flawed and withdraw it; or be regarded as a conflicted and self-serving regulator whose maxim is, “do as I say, and not as I do”.

    Of course, this latest development will not be a surprise to anyone versed in the Arch cru saga.

    Throughout this shameful episode, the FSA’s actions, and omissions, have been shocking. Why did it authorise Arch cru to start with, and approve the final fund in Nov 2009, even though an ARROW visit had uncovered evidence of mis-pricing.

    Furthermore, we are almost three years down the line, and the FSA has still yet to report on what actually happened! However, it has sanctioned a no-blame deal with the funds’ ACD, that is woefully inadequate in terms of covering investors’ losses.

    To cap this, and in spite of any causal link, the FSA is blatantly trying to fill the compensation gap by passing it on to IFAs and their insurers.

    Yes, the advice in hindsight may have been poor, however, parties such as the FSA and Capita also have some serious questions to answer.

    Therefore, this review should be abandoned and no further action taken until an independent body has determined what actually happened and who should be held liable for those actions or omissions.

    The problem is that such a simple solution may not give the FSA the outcome that it is hellbent on achieving ……

  2. It will be a very surprising outcome if the FSA backs down from this for 2 reasons. 1 It now sees itself as the peoples champion. The people should never lose out no matter what. Secondly, like the RDR if they back down out of this one, they will see it as a loss of face and that just wont do. It will mean that future “ideas” they have will be challenged at every step and that there will be too much work involved in having to try to justify these to industry and TSC. Noone will ever convince us as an industry that the the FSA pick the numbers from their surveys and reports to suit the course of action that they want to happen. End of.

  3. The average advice is “low risk” rated. These funds were never low risk. Any half competent adviser would have known that.

    If the advice is good, then no one should have any problem.

  4. “It looks like the FSA decided what it wanted and worked back from that” pretty much says it all. Standard operational procedure it seems, and now even the FSA appears to have been forced to admit that its data is a mess. What a shambles. But then, as we’ve seen so often, so much of what the FSA does is shambolic, with no admission of its own failings and the costs dumped on somebody else’s doorstep, usually the already punch-drunk and beleagured IFA sector.

    Which points yet again to the urgent need for an Independent Regulatory Oversight Committee with the unassailable authority to say to the FSA: This is wrong and you aren’t going to do it.

    The same goes for the way in which the FSA has dumped onto the IFA sector responsibility for the investor losses suffered as a result of the failure of LifeMark the provider, by having declared KeyData to have been an intermediary. Never mind that KeyData wasn’t the custodian of investors’ money, other than as a conduit via a ringfenced client money account, the contents of which, to the best of my knowledge, weren’t subject to any sort of misappropriation.

    No wonder it’s somewhat difficult to believe Hector Sants’ claim before the TSC last year that “the FSA has no prejudicial agenda against small IFA’s”.

  5. As an investor, I would argue strongly that the FSA should be demanding Capita and all the other parties who were supposed to risk-manage the Arch cru investments contribute properly to the restitution pot.

    Presently they have contributed a miserable 20% of the losses they all oversaw, and Capita in particular are having a very profitable financial year.

  6. As regards Sants, one can only hope that he will, utimately, be judged by his actions and omissions, rather than his words.

    It is an open secret that the FSA has it in for IFAs. I suspect that we would have more respect for it, if it was honest about this agenda.

    As for Capita, one can only hope that, before too long, questions will be asked as to why the FSA did a deal before reporting its findings and why the scheme amount was so pitifully low.

    Any competent, even-handed and transparent regulator would have conducted a truly objective investigation and issued a report into its findings. Furthermore, compensation payments would be demonstrably linked to causal liability.

    Instead, we have a ridiculous scenario, where the organisation responsible for the management of the fund pays only a fraction of the liabilty, with the rest being funded by IFAs, their insurers or the FSCS (which in turn is funded by totally innocent IFAs).

    Today’s news is to be welcome and one can only hope that this pressure can be maintained.

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