Disclosures urged over Arch Cru redress, Alun Cairns
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In focus: Arch Cru
Leader of the Arch Cru all-party parliamentary group criticised Capita’s management as the authorised corporate director of the Arch Cru funds and said, in his view, “there had clearly been failures”.
In an interview with FTAdviser, Alun Cairns MP, co-chair of the Arch Cru all-party parliamentary group, said there were several reasons for the failure of the Arch Cru funds, which were suspended in March 2009.
Mr Cairns said: “The marketing material to IFAs suggested it was cautious managed so that was one issue but it then used the Channel Island Stock Exchange to use open-ended investment companies which the FSA doesn’t generally permit.”
He also highlighted that literature from the Guernsey Financial Services Commission stated Arch Cru was a product “targeted at sophisticated investors”.
In April, the FSA 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 £54m payment scheme announced last year, involving Capita Financial Managers Limited, BNY Mellon and HSBC. The FSA said at the time this was a “fair and reasonable” outcome, which is in the best interests of investors.
The £54m redress scheme has been a bone of contention within the industry, as the FSA said in August 2011 the deal should return about 70 per cent of investors’ capital, however, the law firm Regulatory Legal argued that the reality is that most clients can “expect losses of 50 per cent plus”.
Mr Cairns said: “They need to publish the reasons [behind it]. Why that percentage? It’s 70 per cent of the value of the fund when it was frozen but by the time the settlement came through they knew that the value of the retained assets were much less than they were at the time of suspension, so it didn’t make sense as to why use this number. There is a disconnect.”
The APPG met with Capita recently and Mr Cairns said that at the meeting, he urged Capita to publish the terms of the discussions, “the reason why £54m is deemed to be an appropriate sum”.
He said: “The FSA persists it’s a good deal...Capita persists it’s a good deal. So on that basis, I told them if they genuinely believe it’s a good deal to publish the information.
“Capita said they would look at it. They said the decision isn’t down to them only. I’ve urged them to reconsider to allow us to make a judgement on whether it is a good deal or not.”
Indeed, Regulatory Legal recently failed in its attempt to have a judicial review into why the £54m redress package was “fair and reasonable”. The High Court stated the application did not contain any “arguable grounds” for a review of the package offered to investors.