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FSA expects 'opt-in' to slash Cru redress and avoid FSCS bills

by Daniel Grote on Dec 17, 2012 at 11:28

FSA expects 'opt-in' to slash Cru redress and avoid FSCS bills

The Financial Services Authority has said it expects introducing a client 'opt-in' to its Arch Cru redress scheme will slash the adviser bill from £110 million to as little as £20 million and avoid large levies from the Financial Services Compensation Scheme (FSCS).

The FSA has amended its original proposals, which would have required advisers to review all their Arch Cru sales, to review only those where clients decide to opt in to the scheme.

The regulator said it expected around 15% to 30% of consumers to opt in to the scheme, leading to redress of between £20 million and £40 million, well below the anticipated £110 million cost to advisers of its original plans.

The FSA said the client opt-in 'responds to criticism that consumers may not wish to seek redress from their advisers and should reduce the cost of the scheme for the wider sector as a result of FSCS levies'.

It said it estimated between £3 million and £7 million Arch Cru compensation would come from the FSCS.

8 comments so far. Why not have your say?

Green Eyed Monster

Dec 17, 2012 at 12:22

If the FSA believes the claims against IFAs will fall from £110m to £20m it obviously plans to give the consumeer the option to claim redress from the promoters of Arch Cru products instead.

The FSA hardly expect the consumer to say ' Oh well it was just money!"

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David Craik

Dec 17, 2012 at 13:42

Eternally grateful?

Are we supposed to be thankful that those deceitful cretins have thrown us a lifeline?

Hopefully, some of these scumbags at the FSA will get called to a court case and get caught out. You lot can’t hide all of the time! You should be very afraid!

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Scrapheap2012

Dec 17, 2012 at 14:21

Re the article headline - I'm afraid I don't think it does expect that at all but merely wants to be seen as thinking that for PR / political reasons.

I hope they are 'right' but I don't expect so for a minute given the wording of the prescribed letters they are requiring re high risk investments.

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Dante

Dec 17, 2012 at 14:57

@David Craik; Hadrian was right!

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Bob Donaldson

Dec 17, 2012 at 17:24

Clients with any sense of decency will not claim against the advisor where they feel bad advice was not given however, if they are to recoup all their monies then surely they are left with little option.

Many wlll not want to claim against the advisor but will do so because they have to get their money from somewhere and as much as possible.

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Alan Smith

Dec 21, 2012 at 12:30

Quoted directly from the ACD’s Annual Short Report produced by CAPITA Financial Group every six months from June 2007 to June 2009 “There are no borrowings or unlisted securities of a material nature and so there is little exposure to liquidity risk” – yet the FSA and CAPITA would have the outside world believe liquidity issues caused the failure of the CF Arch Cru funds.

Quoted directly from the Prospectus produced by CAPITA Financial Group:-

“CF Arch Cru Investment Portfolio is suitable for those investors wanting to achieve consistent returns, wealth preservation and capital appreciation by investing in a broad range of collective investment schemes, transferable securities, both Corporate and Government bonds, money market instruments, cash, derivative instruments, forward transactions and other instruments that the investment manager considers to be appropriate from time to time.”

This is not a third party opinion as alleged by FSA and who are using Seymour V Ockwell as justification for the S404, rather it is a statement of fact from those legally responsible for the fund. I think the key words here are BROAD RANGE – nowhere does it say over 20% in one investment in a Greek shipping company.

Therefore there was clearly misinformation given by the ACD CAPITA Financial Managers and the ACD has legal responsibility for all affairs of the fund such as information provided by Arch Financial Products LLP and CRU Investment Management. Mr Addenbrooke of CAPITA Financial Managers Ltd stated this in 2008 in an interview with a trade paper.

Ironically just this week there has been reporting of a case that is almost identical to the CF Arch Cru debacle yet no client has had to wait for their money back (now nearly 4 years for CF Arch Cru Investors).

I refer to the Standard Life Sterling Pension fund that fell in value almost overnight by £100million in early 2009. Within a month Standard Life accepted the fund had been mis-marketed and injected £100million into the fund so no client lost money and informed every investor they had two months to get out of the fund penalty free after that date if still invested the client would be accepting they were aware of the extra risks the fund did have following production of correct marketing material.

Subsequently Standard Life went to their PI Insurers and recouped the £100million as the incompetence that had resulted in the mis-marketing which led to investors being invested in the fund was Standard Life’s incompetence and after all that is what PI is meant to cover.

Obviously Standard Life’s PI Insurers did not like this but their appeal to not pay has been unsuccessful.

Standard Life were fined (and paid) over £2million by the FSA.

Why therefore did CAPITA Financial Managers do exactly as Standard Life did – make up the investors losses immediately in 2009 and allow investors to leave if they did not like the risks when the true nature of investment operandi was provided to them.

CAPITA Financial Managers PI would have had to pay out and if subsequently the PI Insurers wanted to take the Legal Action currently being undertaken by Hugh Aldous against various parties then that would have been their prerogative. However these actions would have taken place behind closed doors and investors would not have suffered the loss for nearly 4 years.

The above behind closed door deals would have been much palatable than the sordid behind closed door deals that the FSA have obviously been undertaking with CAPITA, Guernsey Authorities and Government Ministers.

If anybody would like more information about the true goings on regarding CF Arch Cru they can request from the FSA a copy of my response to the Section 404 consultation which the FSA have to release to those requesting a copy, once having read that if they want to contact me further I will send them even more revealing information.

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Alan Smith

Dec 21, 2012 at 12:31

As stated in my post above I believe it is an absolute disgrace that investors have had to wait nearly 4 years for the FSA to put a scheme in place where investors will get their money back. Yet even after 4 years it is a scheme that is so perverse that many investors will not be covered such as those who were high risk, those who invested directly without using an adviser and those using discretionary fund managers.

Those investors that are covered will end up receiving compensation either from an IFA that they do not “blame” for the loss otherwise the investor would have just complained via FOS during the last three years or alternatively (and more likely) an IFA the investor does not even know because the claims will fall on the FSCS.

The FSA are living in cloud cuckoo land if they think only 15%-30% of investors will opt in to a redress scheme. Most investors have waited and not complained because it has been so obvious to them as to who and what caused the loss of money that they naively believed the FSA would eventually put a solution on the table where the true culprits paid out. Unfortunately this has not happened and they are faced with only one choice to complain against their adviser they will take it.

This is also true for advisory firms that have already gone into default over CF Arch Cru. The FSCS had until a few months ago received relatively few claims (around 600), this has now swelled to over 1800 as a deluge of investors thought they could wait no longer and accepted CAPITA’s compensation offer.

Once the compensation offer has been accepted the investors have basically accepted the FSA will not come up with an honourable solution.

The S404 implementation confirms to the investors of defaulted firms the FSA’s intentions and therefore the FSCS will be flooded with complaints from investors of departed firms who again have waited for the FSA to get them compensation from those they know caused the losses, however as this will now definitely not happen they are left with no choice but to go to the FSCS.

Therefore IFA’s should prepare for an FSCS bill next year of at least £100million from CF Arch Cru alone.

No doubt Connaught will also fall on the FSCS next year – another fund where CAPITA and FSA conspired on when changing operator of the fund in 2009 when they knew there was a problem but did nothing and allowed a new operator to launch further funds.

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Alan Smith

Dec 21, 2012 at 12:43

Whilst writing the last two posts I have thought of a plan so cunning you could stick a tail on it and call it a weasel – or the FSA if you prefer.

The FSA’s logic on who is responsible for CF Arch Cru compensation is so irrational if it were applied to the banking collapse then anyone who held a bank deposit and had an IFA should complain against the adviser for the loss they have suffered. After all the adviser’s should have been aware of the mis-management that was going on within the banks and their imminent collapse. All depositors have lost money but as it was not directly lost they cannot work out how much exactly!

The Government decided the banks were too big to fail just as the FSA decided CAPITA Financial Managers were too big to fail – although it is perfectly acceptable for 200 plus advisory firms to fail.

If you consider the actual bank bailouts and subsequent quantitative easing which has resulted following the bailout has cost over £1trillion pound which is more than £40,000 for each tax paying adult in the UK it is scandalous that only 1 banker – Peter Cummings – has been censured by the FSA.

But hey we are all tax payers in this together, or are we? When you consider that Mr Average on £25,000 per annum and a few thousand in the bank probably pays more tax than the likes of Sir Philip Green the notion of proportionality and responsibility are thrown out of the window.

Given the above logic here is the cunning plan.

CF Arch Cru has shown that any fund with CF in front of it will not have action taken against it for over 3 years and when there is action no fines will actually need to be paid. The FSA enforcement notice shows that CAPITA Financial Managers Ltd are ACD for 231 funds with just shy of £20 billion under management. The 231 funds are split between around 100 fund management groups.

5% of £20 billion gives £1 billion. Therefore why don’t the 100 fund managers just buy the 200 IFA firms for £1billion with no independent valuation on any of the 200 IFA firms – indeed just pay a flat £5million for each IFA firm regardless of size.

The 200 IFA firms who now have £1billion in the bank can repay investors the £100million leaving them £900million. Before buying the IFA firms the fund management groups would obviously have put an agreement in the purchase arrangement that stated that in return for not bothering to get a valuation on the business they were buying on behalf of investors then the fund managers would be entitled to a “transaction bonus” of £300million giving each management group £3million for a Christmas knees up.

Leaving £600million for the 200 IFA firms so they get £3million each to walk away into the sunset and enjoy a peaceful life without the FSA having to worry about them.

In 3 months time when the fund management groups admit there is no value in these IFA firms as all the staff are sitting on a beach in the Bahamas and Winterflood Securities the market maker says there is no secondary market, luckily the fund managers will have to report only a 5% fall in investors fund values but as this will have been within the investors capacity for loss as documented by all the advisers that recommended those 231 funds in the belief that the fund managers did not operate as Arch Financial Products did.

The above is obviously farcical, but no more farcical than the FSA’s handling of this disgraceful fiasco.

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