Arch Cru review could leave IFAs liable

A law firm has claimed a recent Financial Ombudsman Service (Fos) provisional decision, finding in favour of an Arch Cru investor couple, is likely to deter IFAs from carrying on with a judicial review against the Financial Services Authority (FSA).

On 31 August 2011, the FSA announced a £54m package for CF Arch Cru investors who were invested in the CF Arch Cru Investment fund and the CF Arch Cru Diversified fund on 31 May 2011.

On 31 August, the Financial Services Authority announced a £54m redress package for Arch Cru investors after reaching agreement with Capita, BNY Mellon and HSBC.

On 22 November 2011, the Fos published a provisional decision relating to a couple that had complained about the advice they were given by their IFA in relation to an £8,000 investment into the CF Arch Cru Investment portfolio.

The ruling was found in favour of the clients and the IFA has been ordered to pay redress, with many speculating that the decision to publish the decision will prompt more to complain, or to pursue a legal case against their IFA.

In the provisional decision, Tony Boorman, an ombudsman of Fos, stated the couple will get back their original capital invested plus a return on the amount by way of capital growth of 1 per cent more than the Bank of England base rate compounded yearly from the date of investment to the date of his final decision.

However, from this total figure, the encashment value at the date of the final decision will be deducted as will “the compensation they are entitled to and could obtain via the redress scheme for investors in the Arch Cru fund”.

According to law firm Regulatory Legal, the deduction of the Capita, BNY Mellon and HSBC payment scheme amount and any prior distributions means that the award would be funded partly by IFAs and part Capita scheme.

Gareth Fatchett, director of Regulatory Legal, said: “This judgement positively creates a penalty to IFA firms if either of the judicial reviews overturn the Capita payment scheme.

“The conclusion being that a win at a judicial review in the cases brought against the FSA by Coull Money Limited will penalise live IFA firms.

“With the judicial reviews, there is a potential for the payment scheme to be quashed but there is nothing stopping the FSA from awarding 70 to 80 per cent of the payment scheme whereas if they offer 100 per cent, then IFAs will not have to pay any redress.

“If IFAs win the judicial review and that scheme disappears altogether then IFAs will have to pay all of the redress. It is an odd situation for IFAs to be in as it’s a catch 22 as they will be winning and losing.

“The Fos provisional decision offers a poison pill if one of the judicial reviews win. That is not a good reason for the FSA /Capita deal not to be examined fully.”