Other Citywire websites
Stay connected:

View the article online at http://citywire.co.uk/new-model-adviser/article/a646409

FSA plans ban for Arch bosses and £850k fines

by Daniel Grote on Dec 18, 2012 at 10:38

FSA plans ban for Arch bosses and £850k fines

The Financial Services Authority (FSA) has published decision notices against the bosses of Arch Financial Products, which ran the Arch Cru funds.

The FSA is planning to ban Arch directors Robin Farrell (pictured) and Robert Addison and fine them £650,000 and £200,000 respectively.

It said it would have fined Arch £9 million were it not for the firm's financial position.

The FSA said that Arch was 'reckless' as to the risks of conflicts of interest in its management of the funds. It pointed to one transaction where Arch received a fee of £3 million from the Guernsey-listed cell companies that made up the Arch Cru funds, but did not disclose that fee to the cell directors.

It added that Arch pursued an investment strategy which resulted in significant liquidity risks for the funds, investing the majority of the Arch Cru funds' assets in the Channel Islands cells, where there was a limited secondary market, even at times of market turbulence and illiquidity.

The regulator argued that Arch and its former compliance officer Addison adopted 'an informal, ad hoc approach to compliance monitoring with insufficient recording of the monitoring that was undertaken'. 

Arch, Farrell and Addison have referred their cases to the Upper Tribunal. The FSA added that Arch, Farrell and Addison had applied to the tribunal for an order preventing the FSA from publishing the decision notices, but that the applications were not successful.

Tracey McDermott, director of enforcement and financial crime, said: 'When making investment decisions, a fund manager should ensure that it puts investors’ interests ahead of its own and be able to demonstrate that it has managed conflicts of interest.

'Those with responsibility for managing authorised firms must ensure not only that the firm complies with regulatory requirements but also that they personally act with the highest standards of integrity.'

Arch said in a statement: 'We fundamentally disagree with every aspect of those notices and now look forward to the opportunity to set matters straight in the Upper Tribunal.' It added that delays in the FSA's investigation meant the regulator could be time-barred and not able to enforce its decisions.

47 comments so far. Why not have your say?

Arthur Schopenhauer

Dec 18, 2012 at 10:44

Where does this fine go? Who benefits and why?

report this

Jonathan Kirby

Dec 18, 2012 at 10:54

So they can't possibly blame most IFAs who sold the fund on the basis of this can they, unless of course somebody asked for a no-risk or high risk fund and was sold this which was rated cautious.

report this

Gillian Cardy

Dec 18, 2012 at 10:59

@Mr S : each time one of these stories runs and someone asks the question I answer it!! Fines levied on a firm or the related individuals are paid back into the sector in which the firm sits. So I'm guessing (cos I have other things to do today related to Arch cru which means this isn't highest on my list of priorities) this will go back into the fund management sector and will ultimately serve to reduce their levies for next year.

This is what happens to IFAs when IFAs are fined - and why everyone was so cheesed off about the banks' fines going back into the bank sector to reduce the levies on other ... umm ... banks.

I think from recollection the FSA does spell this out in their annual budget : costs minus fines received = amount to be levied in the following year.

report this

Bob Donaldson

Dec 18, 2012 at 11:18

The problem with all investment companies is that too often they don't do what they say on the tin! I have rattled on for years about opening a tin of beans and finding spaghetti. This was the case with Arch Cru they offered you one thing, but they gave you someting else. The fund was blatantly mismanaged and not in accordance with the remit as advised to financial advisors.

The same was the situation in the Splits debacle with cross shareholdings. How were advisors to understand such when the industry didn't have the tools to do such due diligence and analyse all cross shareholdings.

All investment firms want to learn from the Arch Cru debacle not just advisors. As advisors we should be much more sceptical of investment houses bearing products that promise this and that and then often failing to deliver. Maybe this accounts for the rise in ETFs.

Perhaps another such product is the absolute return sector or should that read no return sector in many cases. A bandwagon gets going and they all jup on it. Suddenly long only fund managers become good at shorting stock.

There is a lesson in the Arch Cru for all including the FSA.

report this

Michael Brown

Dec 18, 2012 at 11:50

It the company is bad then fine them and send them to the wall. That way in the future the companies know that a fine is a fine and it could close down the business.

report this

DG

Dec 18, 2012 at 11:54

Roughly speaking the Arch Cru funds were worth £400m at suspension.

Based upon payments made to date to investors by Capita through the realisation of the funds’ assets they have received about 24% of their original capital, according to my calculations. This would rise to 36% if they accepted Capita’s blood money from their £54m “voluntary” payment scheme. The residual value of the funds is.....God knows what but seemingly falling with each passing month. The last estimate I calculated from Capita’s unintelligible blurb in July was the equivalent of about 17% of the £400m. This would provide the investor with a total of approximately 53% of their original investment if they let Capita off the hook and accept their Offer before next December.

The FSA have dictated that Redress will necessitate placing the investor in the position they would have been had they never made the heinous mistake of believing that an authorised ACD/fund manager would actually do as they were supposed to – expectations that we have now had confirmed by the FSA over the last few weeks didn’t occur, not by a country mile.

Assuming a reasonably “balanced investor” would require the use of the IMA Balanced Managed Index this would lead to restitution of a further 28% (roughly and depending upon when the investors parted with their hard earned cash 4+ years ago) on top of their original capital.

So, taking the shortfall of 47% from para one and a further 28% to make good this equates to 75% of the original sum invested that IFAs are expected to repay if their clients elect to opt in to a review. Given that the FSA haven’t proposed any other method for these poor souls to get anything like their original investment back it’s not unreasonable for this to be the plight of many IFAs – no matter how good the relationship.

Of course if PII were to kick in it might only be the excess that needs to pay – let’s just forget about many IFAs reputation and desire to maintain a clean record when it comes to PII. Equally, taking a notional sum of, say £100,000 divided between five investments of £20,000 that’s still £25,000 in excesses or 25% of the original total sum invested.

These two Arch directors, however, get away with fines of £850,000 or 28% of just one fee the company received – a fee that was non-compliant!

Given the notional total investment of £100,000 for an IFA firm outlined above and potential compensation ranging between, say, £25,000 and £75,000 this would equate to between 833% and 2,500% of the fees/commission they received in total for the £100,000 they invested, assuming 3% initial was taken.

And yet this seems to be the way the FSA want this matter to be resolved – even though most of the remaining IFAs associated with this debacle acted in good faith and the other parties played fast and loose with their respective mandates.

Regulation at its best!!

report this

Julian Stevens

Dec 18, 2012 at 11:57

Sorry ~ I meant Jonathan Kirby.

report this

Nik Proctor

Dec 18, 2012 at 12:02

The Decison Notice states:

Were it not for AFP’s financial position, the FSA would have decided to impose on AFP a financial penalty of £9 million.

Why is it that the FSA is so concerned about Arch's financial position and is quite happy to see hundreds of firms of advisers go out of business, without ANY consideration for their financial position?

The FSA made the same statement about concern for Capita's financial position and that is why it did not fine them. What is going on?

The cuprit firms are being treated with "compassion" by FSA when it comes to financial penalties. Why? They got investors and advisers into this mess. The advisers who in the majority of cases are blameless are being penalised and put out of business and forced to subsidise any shortfall! Just in case any advisers are still "Live" the FSA is giving PI insurers a way out from meeting their liabilities. Why ? May be because it is concerned about insurers' financial position! Or may be it is calculated to remove any interest they may have had in challenging the whole disgraceful behaviour of the FSA.

report this

Phil Castle

Dec 18, 2012 at 13:01

Luckily I had no clients in arch cru and still have none, but I am inclined to agree with Nik Proctor, WHY are IFAs getting treated differently to the main offenders? It looks like preference of some kind.....

As DG says too and as with Keydata and otehr problems it "seems to be the way the FSA want this matter to be resolved – even though most of the remaining IFAs associated with this debacle acted in good faith and the other parties played fast and loose with their respective mandates."

report this

madmitch

Dec 18, 2012 at 13:32

Is there not a case for judicial review in this instance?

Natural justice should see that all parties to this episode are treated equally, depending on the degrees of culpability.

report this

Arthur Schopenhauer

Dec 18, 2012 at 13:35

Guys I have not done the Arch Cru or Keydata but where is the other side of the money lost?

report this

Arthur Schopenhauer

Dec 18, 2012 at 13:43

@madmitch

That does not work unfortunately as the losses created by bust IFA's and the lost capital in the fund ( where is it) are to be made up from those who did not know this had happened. The FSA think this is OK strange unfathomable logic

report this

Julian Stevens

Dec 18, 2012 at 13:48

A judicial review probably is in order ~ but it would cost a fortune and take years. The FSA knows this full well and is therefore not in any way concerned at the prospect. Ethics doesn't come into it (except for all the crap you have to learn for the exam ~ and I don't mean that ethics are crap, just that ethical behaviour, integrity and professionalism are states of mind that cannot be written down and learned from a textbook).

report this

Gillian Cardy

Dec 18, 2012 at 14:04

@madmitch : judicial review only challenges the basis on which the decision was made, not the decision itself. It doesn't have to take years, especially if there is a case for a quicker decision (and the deadline imposed here would I imagine be a good reason for requesting a quicker assessment).

There are two stages to applying for JR which are relatively inexpensive, especially if you can find a friendly lawyer to make sure all the relevant letters are worded correctly, for love or some other non-financial reward.

However, if you get through those first two cheaper stages you then present your case in court.

As Julian rightly predicts, the FSA will reject the rationale for JR and will hold out for the opportunity for their in house lawyers to explain their case in court.

Court + lawyers + judge = money.

Advisers do not pay.

There's only so much a person can do without the financial resources to take these issues forward (although now more advisers are realising that they are involved whether they advised on these funds are not there could be more support than there has been on previous occasions).

So we work on thinking about whether other strategies could work - hence my earlier question to @John Invest ... to which I would love an answer!!

report this

DG

Dec 18, 2012 at 14:35

Isn’t it ironic that, as Gill Cardy indicates, the FSA would just love to see an attempt at a yet another Judicial Review so that it could unleash its stupifyingly expensive lawyers to crush any opposition – making sure everyone takes note at the same time regarding the temerity of such an attempt. There have been two abortive attempts at JRs which were hopelessly underfunded but, back then, most comments were negative and self-serving (re potential FSCS bills, etc) and failed to look at the bigger picture – the true horror of which has gradually dawned. In fact the FSAs initial demand for legal costs at one of the JRs was reduced by the judge as excessive. Charming.

So here we have a regulator that pays not one jot of notice to any form of transparency, justice.....blah, blah, blah. They demand forward and backward vision, the ethics of a monk and the ability to jump through pointless burning hoops in a bid to offer professional financial services to the wider community. But in reality they slither from one shadow to the next, letting off the important folk that one day might be of assistance further up the greasy pole or are warned off by a whisper here and there. And yet we’re supposed to be the bad guys.....the self-centred pariahs who deliberately thought one morning – “let’s take a valued client’s money and stuff it into a useless investment because we’ve taken leave of our senses”. The ones that, when bleating for some sort of justice that could be expected in any other walk of life, are crushed beyond existence by a force that we are compelled to fund from our own dwindling pockets.

As Julian so rightly states – ethics on the part of the FSA are non-existent, an empty promise to the businesses it’s supposed to regulate and the investors it’s supposed to protect.

Shameful.

report this

Arthur Schopenhauer

Dec 18, 2012 at 14:43

But who is to shame them when all those who understand the market are gone... Kill the messenger long live the institution

Disgraceful I don't know how they sleep at night

report this

David Craik

Dec 18, 2012 at 15:46

Those at the FSA pushing this forward, whilst lacking in any advisory experience, are clearly not as thick as they make out. The evidence against Arch and ultimately Capita (and others) is overwhelming. So why continue to attach the 'mis-selling' tag. It can't be simply because Capita, if allowed to fail, manages so many other funds (which we should all boycott!!!) . Is it simply because the FSA have failed? Simply covering up their inadequacies! Having done a ridiculous deal with Capita, there is no-one else to pay. Someone must, so that just leaves the IFAs.

We need to get some of these FSA scumbags under oath!

Mind you - would that make a difference?

report this

Alan Lakey

Dec 18, 2012 at 15:48

To add to Gill's eloquent description of the methods that the FSA/FOS both use when brought before the courts.

Adviser Alliance attempted a JR against the FOS's ability to override statute and ignore the 15 year limitation on stale claims. A JR is not only potentially expensive but is not a right - a case has to be put before the court and the court then determines whether they believe it has merit.

AA spent £8,000 of its members money on QC, solicitor and court fees only to be turned down and then again at the appeal stage.

A number of points are clearly evident from an analysis of the various transcripts.

1. FOS QC, James Strachan, successfully made a case that the FSA/FOS is empowered by FSMA to do pretty much what it wants.

2. The Judges accepted this argument

3. The QC and the judge were old acquaintances and joshed amongst themselves whilst our out of town QC stood there like a gooseberry.

The good news for AA members is that the fees and court costs were covered by ATE insurance showing that there is a means of fighting the bottomless-pit might of the F-Pack. Next time it is likely to be different.

report this

Phil Castle

Dec 18, 2012 at 16:20

@ David Craik Dec 18, 2012 at 15:46

I suspect that

1. just because the FSA has done a deal with Crapita and BNY, it doesn't mean an individual consumer could not take Crapita to court directly.

2. There is nothing to stop a PII insurer paying out against the claims being made and encouraged by the FSA and then the PI company looking to recover from other parties in law, such as Crapita and BNY.

Anyone able to clarify whetehr my suspicions are correct?

The only people who cannot recover from the parties at fault are the IFAs who did not advise on Arch Cru as they will be forced to pay the FSCS when those who did advise cannot pay if their PII cover will not.

The FSA really is making a mockery of responsibility for loss being met by the prties responsible.

report this

Alan Lakey

Dec 18, 2012 at 16:25

@ David Craik.

And he/she/it/they would likely smirk whilst perjuring themselves.

report this

alan hughes

Dec 18, 2012 at 19:06

@Phil Castle - I'm not the Alan Hughes of Foot Anstey but yes an IFA's PI insurer could pursue Crapita for losses associated with Arch Cru. It's patently obvious that the cause of the loss is Crapita, Arch and the discredited wunch of bankers at Canary Wharf.

Yes a JR can be done but it has to be submitted in a timely manner within three months of the event so if IFA's are to mount a challenge - we had best get a move on.

@Gill Cardy I thought Miss whiplash Osborne was muttering about FSA fines going to the treasury.

report this

David Craik

Dec 18, 2012 at 20:07

If there is any legal challenge available against the FSA, at this stage, we need to pursue that. I am a member of a number of groups with legal representation - I will ask them for advice.

I am sure a lot of people regardless of involvement would like to see this sorted honestly!

Clients should be compensated. This was not of their making.

report this

Gillian Cardy

Dec 18, 2012 at 20:32

@alan hughes : I was going to mention this but decided against it - my mistake.

The Treasury got irritated, with some justification, with the thought that bankers' fines would go back into that sector's funding which would have the effect of reducing the regulatory costs of that sector - so the money would just go in one ludicrous circle (although good small banks might have liked to benefit from the fines acting to reduce the regulatory costs in their sector).

They have in fact decided, in a quite gross act of political posturing, to put the bankers' fines towards resources for wounded soldiers.

My letter to the Treasury when this was first proposed is on the IFA Centre website.

How could we possibly argue against funding resources for our real heroes??

Notwithstanding all that, the generality of my original response still stands.

report this

Andrew IFA

Dec 19, 2012 at 09:19

I have a few clients in the affected funds, not a fortune but enough to be a pain. My cients have all said that they do not consider me responsible for the loss, and overall they are making money across the portfolios that we arranged.

Whether they will jump on the free money campaign i do not know, but you know what people can be like if there is some thing for nothing.

One of these clients lost almost £200,000 when the RBS were part nationalised sorry i mean saved, i do not see the FSA lining up some one against the wall to compensate them on those losses, i know even though i never recomended that they take up these share options when working for RBS lets get IFA's that advised the clients on their finances to compensate those as well or force firms to pay those people out on their losses

The point is the next disaster like this could wipe this sector out.

I am up for a fighting fund. Its about time we stood up as an industry

How much would we need to put in £500 or £1,000 per firm might provide enough to get running.

If IFA's do not stand up now, we will role on into the next disaster, (Drawdown review anyone!) eventually we will all get wiped out by this lot.

Unless we all move to Execution only, or worse stll i suppose we could all sign up with SJP!!!!!

report this

David Craik

Dec 19, 2012 at 09:48

@Andrew IFA - well said.

Gillian Cardy has offered to speak to her legal connections and I will speak with Foot Anstey.

Even for IFAs with no clients involved there will be a substantial FSCS costs levied onto the IFA sector. Every client (100%) with no live IFA will claim against the FSCS and be paid. I am sure some clever people can tell us an estimate of those costs and the levy expected per firm. Furthermore, if the FSA get away with this PII for all will be difficult and certainly more expensive for our sector.

It is outrageous! All IFAs can help stop this sort of abuse being heaped onto us by the FSA.

report this

Arthur Schopenhauer

Dec 19, 2012 at 10:01

@David

Is there any IFA organisation that could take this case forward I am sure we would all join and contribute say £1000 each to a fighting fund to give us a chance of getting sense and justice out of this

report this

Ned K

Dec 19, 2012 at 10:05

You have to hand it to the FSA they have been very clever. They had to let Capita off the hook because with 231 funds and £19.9 billion under management they were simply too big to fail. Had Capita been a bank there would have been public funding to bail them out. There was no public funding available to bail out a financial institution that was supposed to manage investment funds. There must have been a stand off between Capita and the FSA and the FSA bottled it. The FSA has now released sufficient information for IFA's PI insurers to refuse to settle claims so the insurers that might have put up a challenge against Crapita and the FSA are sidelined. They have effectively isolated IFA's who despite what the FSA have said, are the victims. There is £90,000,000 in claims lodged with the FSCS and more to follow because many firms will breach capital adequacy requirements because of the FSA's actions and the FSCS bill is going to escalate way beyond the £7,000,000 estimate for the scheme.

I have always believed that the simplist way to bring down a government is for everyone to refuse to pay their taxes - without money they have no power. The same could be done with the FSA and the FSCS.

report this

Andrew IFA

Dec 19, 2012 at 10:35

Ned i totally agree, although i for one would not last long on what i have saved and the FSCS will be able to chase me as a failed partnership to the end of my days.

So Non payment does not appear to be an option, maybe we should lobby our MP's, ohh arent they the ones that have got us into this regulatory mess in the first place

What about the people at Regulatory Legal or getting back to Foot Anstey

As for Crapita (great name) we have other clients that hold funds where they are the ACD and i am wondering whether its time to sell them immediately.

It seems to me they are just taking money and not doing their job, i wonder then if the fund managers that have funds with them could put pressure on them.

The Crapita parent group could fund this without breaking into a sweat after all it is their operating copmpany that created this mess. Of course isnt there a Lord of the realm that owns that company, no chance there then!!!!

Perhaps the answer is for the IFA's to setle and then we sue every one at Crapita and Arch for negligence in a class action how would that work.

report this

DG

Dec 19, 2012 at 10:59

@ Andrew IFA

Dumping any and every CF fund would seem like a very sensible move - I have done just that. It might also put some pressure on those investment companies that use this useless ACD - it worked with Starbucks.

The reason why - very straightforward. You cannot believe ANYTHING that is stated as true by this ACD relating to these funds. And, you know what, if there were ever to be a fault lurking within any of these funds that, to date, is unknown, you as the IFA should have known about it (as would any "reasonably competent IFA", apparently) and will therefore, be in no doubt, liable. Precedent is a wonderful thing - espcially in the hands of this unscrupulous regulator.

report this

Ned K

Dec 19, 2012 at 11:03

I totally agree with DG and Andrew IFA I got all our clients out of CF funds about 12 months ago the risk of having CF in the fund name is too great for clients and oursevles.

report this

Gillian Cardy

Dec 19, 2012 at 11:39

I have been spending a happy (!) couple of days in considering options.

Essentially everyone "understands our dissatisfaction" but no-one thinks anything could be done about it.

Or at least nothing that wouldn't cost a lot of money and, given prior actions, fail to get anywhere beyond what has already been agreed.

Which is not to say that legal advice is always right and the financial services law firms are already acting for IFAs, networks, PI insurers, Capita, etc and potential conflicts of interest abound - which could mean that someone unconflicted could well take a different view.

What is saddest to me is that the various challenges took place before we had in writing the full glory of Capita's failings, and now the failings of Farrell and Addison. Before we were merely speculating - now we have detail - but the general view appears to be that not even having this evidence now would make a difference to the various court and legal judgements.

I'm trying to work out what the common approach that unites all parties to this saga could be ...

report this

DG

Dec 19, 2012 at 12:07

What I find the “saddest” aspect of this exercise is that the FSA knew all of this and kept it to themselves whilst vigorously quashing any previous challenges to get the dirty laundering out in the open.

At the same time NMA were writing stupid articles about chip shops and Maguire’s political leanings, Money Box was perpetuating the myth of widespread mis-selling with Bamford’s support and the whole issue, together with the horrendous ramifications for the entire IFA community, was being blanketed in obfuscation and misplaced accusations regarding due diligence.

In the meantime the real culprits have slithered away with the Establishment’s help and now there’s seemingly nothing that can be done.

That doesn’t just result in sadness – that’s an emotion those that aren’t going to lose their livelihoods can afford to endure – it results in fear and anguish.

And utter disgust.

report this

Ned K

Dec 19, 2012 at 12:30

@ Gill Cardy, Yes many law firms are conflicted acting for investors and advisers, whilst lodging claims with the FSCS. It would be interesting to get an analysis of the proportion of claims lodged with the FSCS by individual claims handling firms.

report this

Gillian Cardy

Dec 19, 2012 at 12:36

@DG : I am perfectly entitled to feel sad - but you would be wrong to assume that my sadness precludes any other emotional reactions or, more importantly, practical responses to the situation.

report this

Andrew IFA

Dec 19, 2012 at 16:25

Sorry every one but i think i am being a little bit thick here.

It seems to me that there is negligence all over the place, with these funds particularly at the ACD with this debacle. It is clear that it was the fund that failed, so my investing a client into the fund could not have contributed to his loss as i could not be aware that the fund manager was up to.

Surely as it was a regulated fund these things should not have been able to happen and some one should have been doing a better job.

WHy does the IFA sector have to pick up the pieces as it is a fund that has failed, or is it because the ACD has not failed then this is levied on us as the IFA's that sold the fund may have folded.

Surely the IFA sector can, when its losses are known, including FSCS levies take up a class action against the negligent parties, i know it will cost but can they defend themselves on a time bar from IFa's as our losses are not known yet or are they?

As for Capita maybe we should be approaching the investment houses that do use them to ask if they are moving away because of this debacle, i mean i would think twice about a fund if they were not considering doing so, and i do have more than a couple of holdings with quality managers where they remain the ACD.

report this

Ned K

Dec 19, 2012 at 16:43

The FSA are making releases to the press - the guardian, telegraph and mail to reinforce the unsuitability of the advice to justify the redress scheme to the politicians and the general public. As you can imagine the FSA fail to mention the roles of Capita and Arch in respect of the censures and fines. Our APFA only gets articles into the trade press so you can imagine most investors will read the guardian telegraph and the mail and so the majority of investors will opt into the scheme. This will leave IFA firms with little option but to go into liquidation because the PI is unlikely to cover the cost of CAPITA/ARCH failures leaving the IFA sector to pick up the bill via the FSCS.

@ Andrew IFA we did approach the investment houses that use capita as ACD and they couldnt give a t***! Though they may start to listen if all IFA firms ditch their funds.

report this

Gillian Cardy

Dec 19, 2012 at 17:00

IFA Centre gets coverage in trade and national press and other media.

I had a very interesting conversation with The Times yesterday and I await a conversation with Mail on Sunday.

report this

Gillian Cardy

Dec 19, 2012 at 17:14

@Andrew IFA : you will be pleased to learn you are not being thick - or at least no more thick than anyone else who doesn't see why IFAs should be carrying the can.

Sadly, the fact that many advisers gave poor / unsuitable advice has given the FSA the ammunition they wanted to argue that the "widespread mis-selling" was the fault of the advisers.

If more files had showed good quality, well-researched and evidenced advice then it would be considerably easier to point to an alternative cause of the loss.

I'm not saying it is right by the way, before everyone shouts at me - good advice, bad advice or poorly documented advice - everyone would be in the same place if the funds hadn't gone down the toilet, but the FSA is just not seeing it that way. The advice files were only reviewed because the funds went down the toilet - contemporaneous funds which haven't gone down the toilet are not being reviewed, nor are the advisers.

So, even though it's the funds going down the toilet which prompted all this reviewing it's still the unsuitable advice which is being held out as the primary cause of the loss.

And yes, advisers paying redress could have a case to make against Capita after the event for contributory negligence but - as with all of this - it will be costly - and there's some big guns out there.

I'm not giving up without a fight - but there's a limit to how much can be done on a wing and a prayer.

report this

Ned K

Dec 19, 2012 at 17:22

@ Gill Try this guy he is well aware of the issues regarding CF Arch - jeff.prestridge@mailonsunday.co.uk

report this

Gillian Cardy

Dec 19, 2012 at 17:44

Like I said Ned, I'm waiting to speak to Jeff / Mail on Sunday ...

Let's see what the weekend papers bring us ...

Any other press contacts who might assist the cause are welcome, if you have any other ideas ...

report this

Arthur Schopenhauer

Dec 19, 2012 at 18:19

@Andrew

This is rather like Equitable life The Department of Trade must have know about the failure. (I must check when the AVC scheme for the MP's bailed out) Tt is the innocent tax payer funding compensation for that fiasco so why a limited population of innocent tax payers suffering on FSCS

report this

Lyndon Edwards

Dec 20, 2012 at 11:43

So do I understand this correctly: investors in failed firms get up to £50k compensation from FSCS; investors going to their (still)active advisers under this ragbag arrangement will be able to claim right up to the full loss over and above £50k?

Or have I missed something?

report this

Gillian Cardy

Dec 20, 2012 at 12:11

FSCS covers up to £50k

An adviser (or their PI insurer) will usually be liable up to £150k (being the FOS limit)

If the complaint goes to FOS then FOS can award and require a firm (or its PI insurer) to pay up to £150k but it may "invite" (but not force) a firm to pay more where appropriate.

Issues :

Clients of firms already out of business will be limited to £50k

Clients of firms still in business but who fail as a result of, for example, their PI policy not paying out will see their potential claim fall to £50k as their case gets transferred to FSCS.

Clients with losses over £150k will be stuck with £150k unless they can find a lawyer willing and able to take a claim direct to the "offending party" (adviser or Capita depending on your view) rather then through FOS.

Clients of firms with a larger number of small exposures where the total payout through PI excesses may be several hundres od thousands of £s could still the firm go out of business.

Clients who were well advised or who were not advised or who were clients of discretionary management are looking at exactly the same losses from exactly the same actitvities now coming to light in the various Enforcement notices but they get nothing other than the Capita payment which seems to reprsent an ever-decreasing percentage of the investment made as time goes by.

report this

Alan Smith

Dec 21, 2012 at 12:24

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.

report this

Alan Smith

Dec 21, 2012 at 12:32

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.

report this

Alan Smith

Dec 21, 2012 at 12:38

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.

report this

Andrew Buchanan

Dec 27, 2012 at 11:25

@ Alan Smith

I would like to take up your offer of obtaining a copy of your response to the FSA, and then contacting you for further information. Only problem is there are 24 Alan Smiths on the FSA register and I don't know which one you are!

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

Opportunities emerge as production moves back home


As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.

Today's top headlines

A spotlight on Alastair Mundy


Alastair Mundy met Citywire's Daniel Grote at the London Stock Exchange Studios for a detailed interview about the Investec Cautious Managed fund.


Read more...

Saturday Newspaper Summaries

by Himanshu Singh on Aug 02, 2014 at 00:01

Sorry, this link is not
quite ready yet