Advisers who sold Arch Cru funds may be forced to make redress payments to their clients following a consultation from the Financial Services Authority (FSA).
Professional indemnity insurance (PII) providers are watching developments carefully – making independent PII broking advice even more essential for IFAs.
“The FSAs consultation on using its redress powers to compensate Arch Cru investors will have an impact on all IFAs, whether or not they advised on the failed Arch Cru funds,” said James Burgoyne, Director, Brunel Professional Risks. “PII insurers are already asking more questions about risk management and exposure to potential miss-selling claims, which means that all IFAs need independent market advice if they are to secure appropriate professional indemnity cover.”
The FSA consultation, which runs until 31 July 2012, is proposing “to make a consumer redress scheme that requires firms that made a personal recommendation to consumers to invest in these (Arch Cru) funds to review relevant sales, identify the sales that were unsuitable, and pay redress to consumers where required.” The regulator estimates that the scheme could deliver £110m in redress to between 15,000 and 20,000 consumers. A copy of the consultation document is here.
The FSA believes there was widespread mis-selling of the CF Arch Cru Investment and Diversified funds. “These were high-risk funds, sold unsuitably as low or medium risk, leading to significant consumer detriment,” the regulator said in its press release.
The redress proposal is controversial, The Association of IFAs’ (AIFA) Policy Director Chris Hannant, said: “We have deep concerns about the proposed redress scheme and this apparent retrospective application of standards. The FSA must also explain why a redress scheme is necessary and why it has dismissed the other options for consumer redress.” The AIFA press release appears here.
The proposed redress scheme follows a £54 million compensation package for investors agreed by the FSA with the Arch Cru funds range’s authorised corporate director Capita as well as BNY Mellon and HSBC. See Brunel Professional Risks news article.