MPs question ‘complex’ £100m Arch Cru redress scheme

Consideration needs to be given to the “wider context” of the regulator’s new £100m Arch Cru redress scheme, which is “complex” and does not acknowledge broad culpability for mis-selling of the funds, Alain Cairns MP, leader of a parliamentary group looking into the affair, has said.

In a statement issued in the wake of a meeting between the all-party parliamentary group and an Arch Cru Steering Group on 1 May in London, Mr Cairns said the aim of the APPG was to get as much money back for investors as possible, which would be best achieved through a “negotiated settlement with all parties [that] contributed to the funds’ failure”.

Mr Cairns went on to say that the FSA’s three-month consultation on a £100m ‘section 404’ consumer redress scheme needs to be looked at in “greater detail”, as the “complexity of the scheme... made it less straightforward for a financial adviser to fully comprehend”.

Mr Cairns also stated that the “key to obtaining a solution” was discussions with both the Financial Services Authority and the Guernsey Financial Services Commission.

The importance of the Guernsey regulator to discussions was highlighted following the revelation during the meeting that while the Arch Cru funds were marketed in the UK as ‘cautious managed’, they were marketed in Guernsey as ‘only suitable for sophisticated investors’.

In the Arch Guernsey ICC Ltd scheme particulars for SPL funds, dated January 2007, the marketing material says: “Such investment is only for sophisticated investors who understand the risks involved and who have no need for liquidity of investment.”

In an interview with FTAdviser, Clive Adamson, director in the FSA’s supervision division, said that IFAs who gave ‘unsuitable’ advice on Arch Cru often relied too heavily on Investment Management Association categorisations to determine if the funds were suitable for clients.

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.

Mr Adamson said: “We would expect people who are providing advice on these products to understand the products being sold a bit more and not just rely on the IMA rating.

“You could understand quite a lot more about the nature of the product and its suitability to clients and that is a key responsibility to providing advice. That is not a new requirement but is an existing requirement.”

The meeting between Mr Cairns and the steering group was to “ascertain” what went wrong with the Arch Cru investments and why investors have lost money.

Mr Cairns urged investors to take several steps to achieve a negotiated settlement, including putting pressure on senior cabinet ministers including the prime minister and writing “the numerous other parties involved to make them realise that they... should in all fairness contribute financially to a negotiated settlement”.