FSA launches £100m Arch Cru redress scheme consultation
Regulator says it has gathered evidence of “widespread mis-selling” of Arch Cru funds to low-risk investors.
The Financial Services Authority has today launched a three-month consultation on establishing a consumer redress scheme for Arch Cru investors, which could deliver more than £100m compensation to investors who were mis-sold the funds.
The proposed redress scheme is in addition to the £54 million payment scheme announced last year, involving Capita Financial Managers Limited, BNY Mellon and HSBC.
The regulator said that it has gathered evidence which indicates widespread mis-selling of the CF Arch Cru Investment and Diversified funds. These were high-risk funds, sold unsuitably as low or medium risk, leading to significant consumer detriment, the regulator said.
The FSA’s proposed redress scheme is designed to put investors back into the position they would have been in had they received suitable advice, the watchdog said.
This is the first time that the FSA has used this power to implement a consumer redress scheme.
All firms which sold Arch Cru funds would have to contact their customers within four weeks of rules being made, indicating whether or not their case falls within the scope of the scheme.
Where redress is due, firms would be able to use an FSA online calculator to calculate each payment, taking account of how much money each investor is able to claim from the separate voluntary payment scheme.
Investors should receive notification of how much redress is due within six months of the scheme starting, and would receive payment within 28 days of accepting.
Last Friday (27 April), FTAdviser exclusively reported that the regulator had sent a letter to IFAs that sold Arch Cru investments requesting that they voluntarily ring-fence their assets, stating that it is “concerned” about their ability to pay any future claims for redress.
The letter, seen by FTAdviser, asks IFAs to voluntarily apply for a variation of their part IV permission, meaning they must give the regulator prior notice of any asset distributions, material changes to the capital structure or other significant alteration in their assets.
A spokesperson for law firm Regulatory Legal said: “We have seen a number of efforts by the regulator to prevent firms with larger CR Arch Cru exposure from moving capital assets. This looks very much like a pre-cursor to a full-scale review [consumer redress scheme].”
Clive Adamson, director of conduct supervision at the FSA, said: “Investing money can be one of the most important decisions that anyone has to make and investors need to be able to trust the advice they are given.
“The Arch Cru funds were high risk and they should only have been recommended to investors who fully understood and were willing and able to accept the risks.
“We have found significant evidence that investors looking for lower risk investments have invested thousands in these funds.
“This is the first time that we have used this consumer redress power and it is going to form an important part of our consumer protection tool kit.”