Arch Cru investors offered chance for redress by regulator

The City regulator has told financial firms that advised consumers to invest in Arch Cru funds that they must contact their clients and tell them they may be eligible for compensation.

For the first time the Financial Services Authority (FSA) is using its statutory power to force companies to contact clients. The advisers must ask clients invested in the CF Arch Cru Investment and Diversified funds if they want their case reviewed to determine whether they were mis-sold.

Consumer may also be eligible for redress and the FSA will ensure the advice company puts the client back into the position they would have been in if they had received suitable advice and not been invested in the Arch Cru funds.

The implementation of this scheme follows the FSA conclusion that there was widespread mis-selling of Arch Cru funds by firms who failed to assess the funds as high-risk despite the fact that they were invested in risky assets such as private finance and private equity, including Greek shipping vessels.

The funds were marketed as low risk, and even deemed as risky as cash, despite the high-risk investments. The funds were suspended in March 2009 due to liquidity problems and investors saw the value of their assets plummet 40%.

What happens now?

Advisers will have one month from 1 April 2013 to contact their clients. They will have to send a letter that has been mandated by the FSA to ensure they are clear and straightforward.

Investors will then have to fill in a short form to confirm whether they want their case reviewed or not and advisers will have to let customers who opt-in to the review to know the outcome of their case by 9 December 2013.

Any redress that is due will be calculated by reference to what would have been a suitable investment for the investor.

The amount of money that is claimed will be deducted from the amount that the investor is eligible to claim from a separate £54 million payment scheme that is being paid for by the Arch Cru fund counterparties Capita Financial Managers, BNY Mellon and HSBC. This scheme runs until 31 December 2013 and investors must put in a separate claim to recoup money.

Clive Adamson, FSA director of supervision, said: ‘Advisers have to accept and understand that ultimately they are responsible for making sure their customers’ interests are protected. If they don’t understand a product or haven’t done the due diligence on it, they are in no position to recommend it to their customers.’