FSA letter demands IFAs’ PII details over Arch Cru

Outspoken IFA Terence O’Halloran, speaking on behalf of many advisers who have received letters, warned the regulator may be sizing up the pots with a view to raiding them and setting up a consumer redress scheme.

The chartered financial planner for Lincoln-based O’Halloran & Co, said although he had not received the letter, some of his colleagues in other firms have.

Mr O’Halloran said: “The FSA has no other funds from which to draw this sort of money. It is seeking to fund compensation for its own mistakes. The individual cost for advisers to provide this information is huge. They have to go through all their files.”

He claimed the regulator used the same practice when determining compensation for the pensions review in the late ‘90s.

The letter, seen by Financial Adviser, is a notice under section 165 of the Financial Servies and Markets Act. In it, James Barcroft of the City watchdog’s supervision division, requests that a select number of firms supply a copy of their current PII policy, and a copy, if different, of any previous policy that covers or might cover liability in respect of any Arch Cru complaint.

The letter warned advisory firms to maintain their resources so they can keep up with any liabilities. It said: “We highlight the obligation for firms to maintain adequate financial resources and to ensure that there is no significant risk that liabilities cannot be met as they fall due. Until we have concluded our enquiries satisfactorily into the distribution of Arch Cru funds, you should not take any steps that are likely to reduce the level or quality of your firm’s assets if this would undermine your ability to meet any liabilities in respect of the sale of the CF Arch Cru funds that you may have, or may arise.”

It warns it is a criminal offence to give misleading information and claims failure to comply could result in a contempt of court-style charge.

The document, dated 6 January, is a follow-up to a letter dated 13 December regarding the sale of Arch Cru funds between July 2006 and March 2009. It is seeking responses by end of play on 13 January, giving advisers just a week to comply.

An FSA spokesman said: “We have sent some letters to firms who have sold Arch Cru products as an information-gathering exercise.”

When asked if this was a sign of a consumer redress scheme being set up, she said she could not provide any more detail.

Arch Cru funds were suspended by the FSA in March 2009 on the grounds of insufficient liquidity to meet redemptions. They are in the process of being wound up.

The FSA announced a £54m compensation package in June 2011 under a payment scheme funded voluntarily by the authorised corporate director of the funds, Capita Financial Managers Limited, and the CF Arch Cru funds’ depositaries, BNY Mellon Trust & Depositary (UK) Limited and HSBC Bank Plc.