Arch Cru steering group mulls redress scheme challenge
Campaign group and law firm disagree about what constitutes prejudicing PI cover for IFAs.
An Arch Cru investors steering group is considering challenging the Financial Services Authority’s £100m Arch Cru consumer redress scheme, claiming it is “highly unlikely” that the compensation figure can be achieved from professional indemnity insurers.
The three-month consultation, launched by the regulator, aims to establish 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 £54m payment scheme announced last year, involving Capita Financial Managers Limited, BNY Mellon and HSBC.
The steering group, led by law firm Regulatory Legal, wants to produce evidence to the regulator to demonstrate that the £100m it has suggested to recover is “highly unlikely”.
The steering group believes that professional indemnity insurers will attempt to not pay out on claims, saying that it has evidence that many have exclusions in place including specific Arch Cru exclusions or exclusions on FSA past business reviews.
The group wants IFAs to contact their PI insurers to ascertain if they will pay out to ascertain if the £100m suggested is achievable, but they find it “highly unlikely” it will be the case. Regulatory Legal said it will supply IFAs with a letter template to send to PI insurers.
However, campaign group Justice in Financial Services has sent a letter out to IFAs warning them that if they contact the law firm they could prejudice their insurance.
Joe Egerton, campaigns director for JFS, said: “It is by no means infrequent for policies to contain provisions prohibiting disclosure of any information about the PI policy, including its existence, to third parties.
“Any communication with the law firm, unless Regulatory Legal represents the insured and this means an agreement with R Legal Limited, would breach the condition.
“Second, you must not do anything to solicit a claim and communicating with the law firm could be construed as this.
“Third, there is a requirement to clear communications with underwriters in many cases. That means not making comments without clearing them with underwriters. All of this could cut across underwriters’ activities and bear in mind that every underwriter will be looking for an exit route.”
A spokesperson for Regulatory Legal said: “We have received lots of messages of support from IFA firms and investors
“Ironically, we face one obstacle from our own side in Justice in Financial Services. They do not want to do this analysis; they are concerned that any such approach would invalidate PI cover.
“We entirely disagree. IFA’s need to understand where they stand. If they have no insurance then they face trading insolvently.
“The King Canute approach guarantees both IFAs and investors lose out.”
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