Hoban backs £100m Arch Cru redress consultation

In a letter to MPs, Mark Hoban, financial secretary to the Treasury, says government “welcomes” the FSA’s continual attempts to achieve further payments for investors.

The CF Arch Cru funds were suspended in March 2009 on the grounds of insufficient liquidity.

In August 2011 the FSA launched a £54m payment scheme for investors that the regulator agreed with Capita Financial Management, BNY Mellon Trust and Depositary (UK) Ltd and HSBC Bank plc.

Mr Hoban wrote in the letter that the three firms contributing to the redress package “are not solely responsible” for investor losses and the FSA is considering the positions of other parties who may also hold responsibility.

More recently, the FSA has launched a consultation on establishing a consumer redress scheme, which has the potential to deliver more than £100m compensation to investors who were mis-sold the CF Arch Cru funds.

This public consultation will close on 31 July 2012.

Mr Hoban confirmed in the letter, dated 15 May, that the FSA considered the funds to be high risk, and the regulator has gathered evidence which indicates widespread mis-selling of the funds.

They have found the “main cause” of mis-selling appears to be IFAs selling the funds as low risk, to cautious investors, Mr Hoban said.

The letter stated: “IFAs are there to provide investment services to their client. The FSA expects IFAs to fully understand the products they are selling and when giving investment advice, this advice must be suitable for the client’s individual needs and circumstances.

“If IFAs fail to do this, it is reasonable to expect them to be responsible for the advice they give and, where that causes consumer detriment, to offer redress.”

However, in an email seen by FTAdviser, David Davies, MP for Monmouth, said: “It (government) believes IFAs should have been more aware of the risk level of Arch Cru and there may be grounds for seeking financial redress from some of them.

“I realise many investors do not accept blame should be apportioned towards IFAs and feel further compensation should come from Capita for its management of the funds.

“I will continue to work with the All-Party Parliamentary Group on Arch Cru to intensify pressure on Capita as trustee.”

Last year, the Financial Ombudsman Service upheld an investor’s complaint against an IFA for recommending an investment in a CF Arch Cru fund.

The Ombudsman made this decision on the basis that it should have been apparent to an experienced IFA from information that was readily available that the CF Arch Cru fund was not suitable for inexperienced investors.

The Ombudsman was satisfied “the Arch Cru fund as described in 2007/08 was not a low risk fund or one suitable for a cautious investor”, Mr Hoban said.