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FSA publishes legal basis for £100m Cru redress scheme
by Jun Merrett on Jul 13, 2012 at 13:29
The Financial Services Authority (FSA) has published the legal opinion it canvassed in support of its proposed £100 million Arch Cru consumer redress scheme.
The regulator has published a document, written by Charles Flint QC at Blackstone Chambers, which tests whether the FSA has applied legal standards in proposing the scheme.
Flint concluded that the scheme does comply with legal requirements of section 404 of the Financial Services Markets Act, which gives the regulator power to set up redress schemes.
In April, the FSA proposed the launch of the £100 million consumer redress scheme which aims to raise money from financial advisers who it sold Arch Cru investments to their clients. The scheme aims to put clients back in the financial position they were in when they took the advice.
The scheme is still in its three-month consultation process which will finish at the end of July.
When proposing the scheme the FSA argued that only 12% of Arch Cru sales had been suitable, and therefore it was appropriate to chase advisers in a bid to raise compensation for investors.
Flint’s report said the FSA was within its right to pursue advisers for compensation, rather than chase those behind the marketing of the Arch Cru funds, as advisers should only have relied on factual third party information, and not opinion.
'The firm cannot rely on any failure by another to have provided sufficient information to assess the risks...The firm which makes the personal recommendation takes responsibility for forming its own reasonable opinion on the risks implicit in the investment recommended.'
Flint said that while FSA rules were not explicit about how adviser should establish the features and risks of an investment, they did require advisers to ensure investments were suitable.
‘The suitability requirements require an adviser to match the consumer to a suitable investment’, he said. ‘That duty cannot be complied with unless the adviser has taken reasonable steps to ascertain and understand the relevant features and risks of the investment on which advice is being given.'
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