The FSCS will not compensate investors in the ARM Asset Backed Securities fund who were invested in the Luxembourg-based life settlements fund by Rockingham Independent.
The compensation scheme has begun assessing claims from clients of Rockingham, the defunct adviser firm which was placed into liquidation in March 2012.
But advisers are unlikely to suffer a significant levy bill as a result of Rockingham’s collapse after the FSCS decided that advice given by the firm did not cause investor losses.
A statement from the FSCS said: “In order for FSCS to pay compensation, it must be satisfied that a firm owes a civil liability in respect of a claim. This means the claimant would have been likely to win a court case against Rockingham if it was still trading.
“While we accept that Rockingham may potentially have given bad investment advice to some investors in respect of ARM investments, we do not consider that such advice can properly be said to have caused the losses which investors may have suffered.
“Therefore, FSCS does not consider that Rockingham owes a civil liability in respect of losses that claimants may have suffered in relation to ARM investments.”
ARM bonds were sold by Rockingham primarily as part of its Retirement Income Tri-Investment Account product. The adviser firm was fined £35,000 by the FSA in August 2011 for inappropriate sales of unregulated investments, including ARM products.
The FSCS has taken the view that any losses suffered by investors in ARM products - losses which have yet to be quantified as the fund is restructuring - have been caused by ARM’s failure to gain authorisation to trade by the Luxembourg regulator, the CSSF.
ARM has been in regulatory limbo since 2009 when the CSSF refused to let the fund trade in Luxembourg. It has also been refused a licence in Ireland in spite of having taken on more than £76m in investor money through its UK distributor Catalyst Investment Group. The FSCS said Rockingham was not “legally responsible for warning investors” about this development.
Earlier this week ARM’s board published an investor update which claimed that it may be forced to pay £2.5m in legal costs in an attempt to resolve the legal ownership of more than £35m earmarked for investment in bonds which were never issued. The FSA froze the money in UK bank accounts in November 2011.
