FSA Launches Redress Scheme Consultation for Arch Cru Investors
The Financial Services Authority (FSA) has launched a three-month consultation on establishing a consumer redress scheme, which could deliver more than £100 million compensation to investors who were mis-sold the CF Arch cru Investment and Diversified funds.
The proposed redress scheme complements the £54 million payment scheme announced last year, involving Capita Financial Managers Limited (CFM), BNY Mellon Trust & Depositary (UK) Limited (BNY) and HSBC Bank plc (HSBC).
The CF Arch cru Funds are two UK open-ended investment companies authorised and regulated by the FSA which invested in a series of Guernsey-domiciled investment companies which were listed on the Channel Islands Stock Exchange. Arch Financial Products LLP was the investment manager to the CF Arch cru Diversified Funds and CF Arch cru Investment Funds.
Early last month, the Financial Services Compensation Scheme sought external expert advice on the residual value of the CF Arch Cru funds after it decided how it will compensate consumers with eligible claims against independent financial advisers that are no longer trading in relation to CF Arch Cru funds.
Capita Financial Managers Limited is the Authorised Corporate Director and BNY/HSBC are the depositaries.
The power to implement a consumer redress scheme comes from Section 404 of the Financial Services and Markets Act, which was updated in 2010. It allows the FSA to make rules requiring firms to review their past business and pay redress where there has been: a widespread or regular failure; the failure has (or may) cause consumers loss about which they could go to court; and the FSA considers it desirable to make a consumer redress scheme, having regard to the alternatives.
Evidence gathered by the FSA indicates widespread mis-selling of the Arch cru funds. These were high-risk funds, sold unsuitably as low or medium risk, leading to significant consumer detriment. The FSA requires that authorised advisers must understand the product they are recommending, carry out their own assessment of its risks and only recommend products that match the customer’s risk appetite.
The FSA’s proposed redress scheme is designed to put investors back into the position they would have been in had they received suitable advice. This is the first time that the FSA has used this power to implement a consumer redress scheme.
Key elements of the draft scheme the FSA is consulting on include all firms which sold Arch cru funds would have to contact their customers within four weeks of rules being made, indicating whether or not their case falls within the scope of the scheme; where redress is due, firms would be able to use an FSA online calculator to calculate each payment – taking account of how much money each investor is able to claim from the separate voluntary payment scheme; investors should receive notification of how much redress is due within six months of the scheme starting, and would receive payment within 28 days of accepting.
Clive Adamson, the FSA’s director of conduct supervision, said: “Investing money can be one of the most important decisions that anyone has to make and investors need to be able to trust the advice they are given. The Arch cru funds were high risk and they should only have been recommended to investors who fully understood and were willing and able to accept the risks.
“We have found significant evidence that investors looking for lower risk investments have invested thousands in these funds. It is right that these consumers are put back in the position they expected to be in when they took the advice. We believe the proposed scheme is the best way to get the most money back to the greatest number of investors.
“This is the first time that we have used this consumer redress power and it is going to form an important part of our consumer protection tool kit. We will be working hard to reduce the number of large scale failures. But where they do occur it is imperative that we can get redress to consumers who have lost money through mis-selling as fast as possible.”
Since the suspension of the Arch cru Funds in 2009, the FSA has been working towards delivering the best possible solution for over 15,000 investors. Last June the FSA successfully negotiated the £54 million payment scheme comprised of voluntary contributions from three key parties involved in administering the Arch cru funds.
The FSA, CFM, BNY and HSBC announced the voluntary establishment of a £54 million package in June 2011. This will be used to make payments to eligible investors in the Arch cru Funds, and will assist the return of a substantial part of their investment to them. Investors have a choice whether to accept the offer of payment out of the payment scheme, which has been established by the firms. If they accept, it will be in full and final settlement of any claims or any remedies they may consider they would otherwise have against the firms.