Financial Services Compensation Scheme  

FSCS admits thousands of Arch Cru claims mishandled

FSCS admits thousands of Arch Cru claims mishandled

The Financial Services Compensation Scheme (FSCS) has admitted to making errors in handling around 2,000 claims about failed fund range Arch Cru involving £1.5m.

In its latest Outlook report it said it has made under-payments of £814,000 to 1,075 customers and over-payments of £702,000 to 992 Arch Cru claimants in the five years since 2012.

The issue only came to light after a customer complained last year, following which the scheme reviewed its systems to rectify the issue, it stated.

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The FSCS said it has made good to those underpaid but could not guarantee it would be able to recover all of the amounts overpaid.

By June 2016 the lifeboat fund had paid a total of £58m to investors affected by the failure of Arch Cru.

Chief executive Mark Neale said: “I should acknowledge errors made by FSCS in handling Arch Cru claims.

“Over five years from 2012, we made under-payments of just over £814,000 and over-payments of just over £700,000. 

“Once these mistakes came to light earlier this year as a result of a customer’s complaint, we urgently established the cause of the error and reviewed our controls to reduce the risk of a recurrence.

“Inevitably, because of the time since settlement, some over-payments will be irrecoverable.”

The CF Arch Cru funds represent two Oeics, both of which were umbrella companies for six sub-funds which were substantially invested in a combination of 21 cell companies incorporated in Guernsey.

In March 2009 the then regulator the Financial Services Authority suspended the funds on the grounds of insufficient liquidity to meet redemptions.

At the time the net asset value of the funds was approximately £363m, though estimates of how much the underlying assets - including Greek shipping and student accommodation - were actually worth vary. After the suspension the funds were found to have significantly fallen in value, seeing some investors lose their entire capital.

Shares in the two Oeics were typically sold to investors through financial advisers, though some CF Arch Cru investments were sold as direct investments, while others are held via third party providers.

The FSCS began paying compensation to Arch Cru claimants on an interim basis in 2011.

From 2012, investors were paid compensation under a consumer redress scheme (CRS) set up by the Financial Conduct Authority, using the CRS calculator, which uses the net asset value (NAV) for each of the CF Arch Cru funds to calculate compensation. 

The FSCS wrote to investors in March last year inviting them to have their claims examined to try to reach a final settlement.

But after a customer’s enquiry in June about the calculation underlying his compensation money, the scheme realised the NAV had been incorrectly updated on four occasions, creating a cumulative error.

In addition to the calculator inputs, the FSCS identified a notable proportion of claims where the fund charges paid by Arch Cru customers had not been accounted for at the point the compensation amount was calculated, leading to over-payments.