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FSA pushes forward with Arch Cru redress plans

by Daniel Grote on Dec 17, 2012 at 10:48

FSA pushes forward with Arch Cru redress plans

The Financial Services Authority (FSA) has announced that it will proceed with its controversial Arch Cru redress scheme.

The FSA has been consulting on the scheme, which will be funded by advisers found to have mis-sold the funds.

The regulator said it had found evidence of widespread mis-selling of the funds, and that advisers must contact clients to ask if they want their case reviewed.

If clients opt for a review, adviser compensation will help bring them back into the position they would have been in had they not invested in the funds. This is a change from the plans outlined in its consultation, which would have required advisers to review every Arch Cru sale.

Advisers will now have one month from 1 April to contact clients about the scheme, and will be required to let clients who opt in know the outcome of their case by 9 December. The FSA has mandated the wording of a letter advisers need to send to clients.

FSA director of supervision Clive Adamson 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.

'It is important that when mis-selling occurs that consumers can be redressed. The vast majority of advisers maintain very high standards and mis-selling by a few only further erode trust in the market which harms the whole sector.'

33 comments so far. Why not have your say?

DP's IFA

Dec 17, 2012 at 11:27

So the fact that the FSA have stated Capita did not understand what they were doing & thats ok. Yet Advisers are supposed to understand whats going on when the regulator & the corporate directorate were clueless! Hows that work. To conclude then- As long as the funds were not sold as low risk & relevant warnings in place investors are stuffed? As we all know the funds failed because of advice to invest!!!!! Must get some of those drugs the FSA are on as may wish to visit the planet they are living on.

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John Invest

Dec 17, 2012 at 11:37

So what about those clients that invested directly not using an IFA? I have recently had a new client referred to me who has previously managed his own SIPP. He invested £140,000 into the Arch Cru Investment Portfolio. I suppose I will just have to tell him that he was stupid to believe the marketing material produced by the fund managers and approved by the FSA.

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Gillian Cardy

Dec 17, 2012 at 11:54

And those not advised - like those who were invested through discretionary mandates ...

The fact that the written material, such as the propsectus, was / is written primarily for the investor and that advisers were supposed to have noticed everything that Capita (as another authorised firm) had failed to do, has completely passed the FSA by.

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Julian Stevens

Dec 17, 2012 at 12:01

Why does CityWire continue to report that the redress scheme "will be funded by advisers found to have mis-sold the funds"? It won't be.

The FSA's pernicious strategy of directing the FSCS to appoint Herbert Smith to pursue all advisers who recommended ArchCru funds has enabled their PI insurers to invoke an invalidation of cover clause in their policies.

Without PII, many of the IFA's concerned will be unable to meet the liabilities decreed by the FSA/FSCS. Either their businesses or they personally will go to the wall and they'll be declared by the FSCS to be in default. As a result, the costs of the redress scheme will be dumped on everybody else who DIDN'T recommend ArchCru.

And all the while, the FSA refuses to admit any responsibility of its own. Yet Hector Sants would have us believe that the FSA has no prejudicial agenda against small IFA's. I for one don't.

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Financialplanner2012

Dec 17, 2012 at 12:02

This is nothing more than a disingenious political fix.

First of all, if faced with requiring the adviser to review their investments or suffering a loss, I can't see any client not opting for the review - even if they consider their adviser to be blameless.

Secondly, the FSA are now claiming that the total IFA contribution will 'only' be in the region of £20 - £40 million; ie, not dissimilar to Capita's contribution of £32 million.

The reality will be that the majority of clients will opt for review and, if compensation is assessed on the FSA's view that the funds were high risk, then the total payment may well exceed £110 million - particularly if markets continue to rise.

So the FSA can know claim that they have listened to the consultation response and still ensure that IFAs take the fall for the FSA's and Capita's incompetancy.

They cannot be allowed to get away with this blatant abuse of power.

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Man in Black

Dec 17, 2012 at 12:30

Actually, I think that firms that advised but have survived may well have a lower incidence of clients asking for reviews, simply because of their client relationship...By contrast, for departed firms (the ones whose bills are funded by FSCS and hence other advisers), there will be no such relationship and hence a higher incidence of claim...

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Julian Stevens

Dec 17, 2012 at 12:30

Not that I was ever directly involved in the Pensions Review (an earlier hindsight witch hunt instigated by the PIA), but one wonders just what format the FSA will stipulate for the letters that all these advisers are now going to have to write to clients effectively inviting them to complain.

The format of those stipulated by the PIA in respect of the Pensions Review elicited the response from the PI insurers that they'd invalidate the policyholders' cover. Now, of course, having ALREADY buggered the PII cover of all the poor souls who recommended ArchCru in all good faith, such a consideration no longer applies, so the FSA has a very dangerous free hand to impose on these letters, without accountability, whatever content it feels like.

Those receiving the template (and I do feel really, really sorry for them), may consider the almost certain consequences and decide they may as well pack up without even bothering to issue them. Or they might band together to form some of legal challenge to the FSA on the grounds that what it's now instructing them to do amounts basically to a directive to commit commercial suicide.

Bastards.

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Man in Black

Dec 17, 2012 at 12:32

@FinancialPlanner2012

No, they cannot be allowed to get away with it.

So who is prepared to step forward and put their names (and their cheque books) to a challenge before the Upper tribunal?

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Scrapheap2012

Dec 17, 2012 at 13:09

I agree with FinancialPlanner 2012 - this is all about politics and PR spin. The FSA guessed amount is now conveniently below the Capita sum and I've had a read of the template letter p.72-73

http://www.fsa.gov.uk/static/pubs/policy/ps12-24.pdf

Basically says the FSA say these funds were high risk, would you like to have your file reviewed given that as you might get all your money back and more.

More generally there's some text in there that says the FSA does not view volatility as a reliable means of assessing more generally as it is a backward looking measure.... this could be worth noting more broadly I'd suggest for any investment portfolio recommendations / model portfolios etc especially with those concerned about fixed interest !!

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Scrapheap2012

Dec 17, 2012 at 13:11

sorry - should say 'a reliable means of assessing risk'

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Ned K

Dec 17, 2012 at 13:23

@ Man in Black

When Joe Egerton tried to get a judicial review there was insufficient funds to pay for a barrister at the hearing. I suspect that even now many firms and individuals facing financial ruin will not offer financial support for a challenge,

I completely agree that what the FSA is doing is nothing more than framing IFA's, for the wrongdoing and negligence of others, but most IFA firms will stick their head in the sand and do nothing - the FSA know that so that is why they are going ahead with the S404 and they will get away with it. Most firms with CF Arch exposure are likely to fold rather than fight the injustice and the FSA know that too and they know the bulk of the liability will fall on the FSCS.

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Green Eyed Monster

Dec 17, 2012 at 14:28

Too logical Julian.

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Lorne

Dec 17, 2012 at 15:09

It doesn't help me much as an investor to read these articles, but I am sure you can appreciate that as yet another year of suspension passes any information is better than none. That said, this news today seems a total contradiction of last weeks article about the FSA censure of Capita - and I have also lost track of who is suing who for what and who didn't do what they were meant to do when they meant to do it! To date I have taken no action against anyone. Neither have I accepted Capita's offer. I suspect many other investors are in the same boat and until we receive some believable, truthful guidance we are at a complete loss. I for one am still at a loss as to whom the blame, if any, rests with. The whole matter has been dealt with in a very underhand and inconsistent manner by the FSA and it is now very difficult to have faith in any of their prononcements. Get set to face another year of doubt, worry, uncertainty and confusion for all.

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Alistair Hinton

Dec 17, 2012 at 15:22

@ Lorne:

Well, while sympathising with you, I must say that it is welcome to note that all those complaining about this situation and how it is being handled are not all IFAs!

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Green Eyed Monster

Dec 17, 2012 at 16:03

@ Lorne

The FSA will require your adviser to invite you to complain against it. Apparently you will not be offered a choice of targets to complain to, so if believe your loss was due to fraud rather than mis-selling there is no protection in the FSMA2000 for you. It would appear that you may have to go to the police.

You are unlikely to be the ony one so I would suggest you try to set up an action group and approach Regulatory Legal, or some other firm of solicitors who know their way around the financial services environment. The police are more likely to take notice if there are a number of claimants.

I also sympathise with you. This situation should not be allowed to prevail, and perhaps would not if we had a decent regulator and /or government control over the regulator. .

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Financialplanner2012

Dec 17, 2012 at 16:04

@ Lorne

I'm sure that you have the sympathy of all the IFA's involved in this debacle. However, unlike the FSA, we have nothing to hide and would welcome the active participation of investors to help keep this shoddy affair in the public spotlight.

To summarise:

1. Arch cru engaged Capita to be ACD of the proposed funds.

2. With Capita's assistance, the FSA approved the funds.

3. The funds were marketed as 'low risk' and categorised as cautious managed.

4. According to the daily share prices issued by Capita, the funds' performances were as promised in the marketing material, and even won an award for their low volatility.

5. In late 2008, an FSA ARROW visit uncovered evidence of mispricing and inappropriate investment; ie, using 25% of one of the funds to buy second hand oil tankers!

6. The funds were suspended in April 2009, and the assets were subsequently found to be worth far less than the values prior to suspension.

7. For the next 3.5 years, the FSA did very little. Capita appointed PwC to investigate and promised to publish the findings - although on completion, they decided not to!

8. In October 2011, Capita and the two depositary banks offered investors a 'no-blame' Payment Scheme valued at £54 million. Not only did the FSA wholly heartedly endorse this generousity, but used its powers to handcuff the independent Financial Ombudsman Service from awarding higher payments to investors who complained directly. It should be noted that this scheme was approved despite the FSA not having formally reported on the cause or liability of the loss; or without any explanation as to why the amount involved was fair.

9. As it became apparent that the Capita scheme would not fully cover investors, the FSA announced that it would fund the missing £110 million by requiring IFAs to review why they 'missold' these 'high risk' funds.

10. The FSA has recently concluded that Capita have been very naughty, but as they cannot afford any further money, no fines or additional compensation will be required.

11. Today's announcement will require IFAs to write to affected clients, using a prescribed FSA letter; asking them if they wish to the adviser to review the recommendation of these high risk funds and and pointing out that they won't get another penny unless they do. As far as we can tell, the FSA is not limiting IFAs' liability to what they can afford ......

It should be borne in mind that when a Morgan Grenfell fund went bust in 1996, in similar circumstances; the regulator at the time sorted it all out in a year and required the company to make good 100% of the loss.

Finally, if this matter was heard in Court, liability would be decided on the facts of how the loss was caused, rather than a unaccountable regulator's opinion.

I would encourage you, and any other affected clients, to write to your MP about this ...... in fact, write to everyone you know.

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Alistair Hinton

Dec 17, 2012 at 16:26

@ Financialplanner2012:

That seems to me to be a thorough and well-balanced summary of events in this absurdly protracted débâcle; the only two questions that spring immediately to mind arise from simultaneous consideration of your second and third points, namely

2. With Capita's assistance, the FSA approved the funds.

3. The funds were marketed as 'low risk' and categorised as cautious managed.

Firstly, did FSA specifically approve these funds as being marketable as "low risk" and categorisable as "cautious managed", or did it either fail in its duty or have no duty to do either one or other or both of those things? - if it did the former, it has surely exposed itself as having issued inappropriate approvals and, if it did the latter, it should have approved or refused to approve them or is not charged as it should be with having to take such responsibilities.

Secondly, precisely what "assistance" and in what form did FSA seek and/or receive from Capita and why, given its wide-ranging powers, did it need to seek and/or receive such "assistance" in the first place?

Whilst these question may seem to some rather like a pedantic splitting of hairs, the answers to them are surely of fundamental importance in understanding the extent, if any, to which FSA fulfilled its statutory rôle in regard to the manner and matter of its approval of these funds.

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Lorne

Dec 17, 2012 at 16:46

I have read the comments with great interest and thank you FP2012 for the succint summing up, it does help to have it all laid out like that.

Alas I have already tried writing to my MP, who merely forwarded my letters to Mark Hoban, I am sure you can all guess how helpful his input was! I have been in touch with other MPs who have expressed an interest in this case but as I am not their constituent they are unable to help. I have also complained to Capita and subsequently the FOS - the former wins no prizes in the plain english competition and also seemed unable to give very simple answers to very simple questions - no wonder they were unable to follow the complex machinations of all the parties involved in Arch Cru.

I seem to remember back in the early days that the SFO knocked back an attempt by investors to have this situation investigated as a fraud.

I have already donated/paid to the Foot Anstey Arch Cru Fund.

In short I have done a great deal more than the IFA who advised this investment who has now ceased to trade (not sure if this completely as a result of Arch Cru). I did expect that the markets would go up and down, not that my money would become all but totally inaccessible overnight and be returned to me in pitiful dribs and drabs over the years.

Despite the suspension being nearly four year old (four years!) - I distinctly rememer their being very little interest or sympathy for the plight of investors or IFAs in the first couple of years. There was plenty of gubbins from IFA's who hadn't invested and were very keen to let the world know how stupid we all were and who they had seen straight through it. No wonder the FSA got the impression that they could sweep the whole sorry mess under the carpet and get away with it.

This whole Arch Cru situation has been a game from the start - if only there had been this kind of interest right from the start then I sincerely doubt the FSA would have set off down this path they have taken, one which they cannot back away from now without tremendous loss of face.

I liked my IFA, as did the other customers he accumulated over 30 years with no complaints against him. One less IFA to offer tailor made, independent advice is nothing short of disaster as far as I am concerned.

Rant over - I don't even care if it doesn't make sense - it felt good!

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Financialplanner2012

Dec 17, 2012 at 16:57

@Alistair Hinton

Thank you for your considered comments. My responses to your queries are:

1. "With Capita's assistance, the FSA approved the funds." I did not mean to suggest that Capita assisted the FSA, but that they assisted Arch Cru in achieving authorisation.

2. As regards the FSA's duty of care in respect of authorisation, I must make it clear that I am not an expert in this regard. However, I understand that the FSA would have provided specific authorisation in respect of Arch cru as fund manager (in the interest of brevity, by "Arch cru" I mean the entity to which Capita delegated its managment responsibility.

In addition, the FSA would have approved each of the funds.

Either no-one was responsible for confirming the veracity/suitability of the marketing material (as a 'financial promotion') and it should not have been relied upon (which is what the FSA has said today), or someone (and I would expect Capita) should have raised a concern that fund investing in private equities could not represent itself as lower risk.

Presumably, Capita as ACD was responsible for checking the accuracy of its daily prices, as well as controlling the investment activities of its appointed manager.

Finally, should the FSA have authorised the final Arch cru fund in late 2008, having uncovered mispricing concerns in its ARROW visit of October 2008?

My final observation is that today's decision makes it quite clear that IFA's are no longer advisers, but underwriters with ultimate responsibility as dictated by the FSA.

My advice to any IFA wishing to continue in business, would be to rename yourself "Capita", as you can then practice with impunity.

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Alistair Hinton

Dec 17, 2012 at 17:03

@ Lorne:

Rant of no rant, the only unfair aspect of it is your observation about "IFAs who hadn't invested and were very keen to let the world know how stupid we all were and who they had seen straight through it"; not all IFAs who refused to sell these products boasted how clever they were or how stupid other IFAs were to sell it and, far from seeing "straight through it", some IFAs declined to recommend these products to clients precisely because they couldn't see through it and would therefore have nothing to do with it!

Even if it is indeed, as you then suggest, "no wonder the FSA got the impression that they could sweep the whole sorry mess under the carpet and get away with it", one can hardly ascribe to IFAs the responsibility for such arrogant complacency in this regard!

I nevertheless sympathise with you and hope that you can obtain due redress.

That said, any risk that IFAs who have never sold these products be penalised indiscriminately for the actions of those who did is one of plain gross injustice and sends all the wrong messages about the regulation of the industry to any clients who follow the affair with a wider interest than just their own.

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Alistair Hinton

Dec 17, 2012 at 17:07

@ Financialplanner2012:

Thank you for your clarification of what you meant by those two points. What remains unclear, however (and I appreciate your observation that you are not an expert in such matters) is whether FSA approved these products as marketed and, more importantly and specifically, whether their approval included the products' risk classification.

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Lorne

Dec 17, 2012 at 17:07

Forgot to say my works pension is managed by Capita, which I have no choice over. Suspect the only way to have a decent retirement is win the bet on how small the pot they leave me to p@@s in will be.

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John Invest

Dec 17, 2012 at 17:40

so what would be the situation if the IFA recommended Arch Cru to one of their clients who was say a "balanced" investor and let's say that they only recommended that the client invest 1 or 2% of their investable assets into such a fund. If the rest of their funds were say medium to lower risk then the overall portfolio would still be balanced. This would effectively be investment blending in the same way that many DFM's or Multi managers / IFA's already do. Are the FSA only going to look at the Arch Cru fund in isolation and ignore the principals of investment blending as have been preached in level 4 exams that we have all had to take?

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DG

Dec 17, 2012 at 17:51

@ Lorne

I think you have a point in raising the issue of there “being very little interest or sympathy for the plight of investors or IFAs in the first couple of years. There was plenty of gubbins from IFA's who hadn't invested and were very keen to let the world know how stupid we all were and who they had seen straight through it. No wonder the FSA got the impression that they could sweep the whole sorry mess under the carpet and get away with it.”

Had there been an outraged response from the IFA community as a whole, and not the initial reaction that you so correctly highlight above, I think the FSA may well have stalled in their actions – although the outcome would probably have been the same given their cosiness with the ACD.

Thankfully those comments have now stopped as the arms length commentators have become more familiar with this disgraceful act of regulatory negligence.

In either event we will ever know and an opportunity has been lost to speak with one voice.

@ Alistair Hinton

I appreciate that “some IFAs declined to recommend these products to clients precisely because they couldn't see through it and would therefore have nothing to do with it!”

That stance, in itself, does not condone the blinkered statements that have been made in the past as highlighted by Lorne which, I believe, have done nothing to help this case over the last four years and may well have contributed to this shameful outcome.

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Gillian Cardy

Dec 17, 2012 at 18:34

@John Invest : the CP offered a very black and white assessment of a piece of advice - summarised - if the client had said they were anything but a high risk investor, or hadn't specifically asked for this investment then it was bound to be a mis-sale, regardless of what else was in the portfolio as they were looking at the fund sale in isolation.

I argued that this was errant nonsense and totally failed to acknowledge the role of portfolio construction on client advice, exactly as you have pointed out.

Their position has mellowed and allows for a more "realistic" analysis which does allow the reviewing firm to take a view that a small part of the client's assets invested as part of a balanced portfolio or with the purpose of providing exposure to other asset classes could be assessed as a suitable piece of advice.

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Gillian Cardy

Dec 17, 2012 at 18:46

@FinancialPlanner2012 : I refer to the case of the Standard Life Sterling fund as precedent for what we should all be aiming for in this case - and I have no satisfactory explanation for why Capita is not being invited / required to restore investors in the same way that Standard Life did when their very similar failings (in regulatory rule terms) came to light.

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Gillian Cardy

Dec 18, 2012 at 10:24

@ John Invest : has your new client who invested directly taken any action or made any complaints yet? If not, can we talk??

020 7193 5393 / 07966 756655

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Alan Smith

Dec 21, 2012 at 12:25

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 12:33

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 12:40

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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Julian Stevens

Dec 24, 2012 at 13:24

And another thing (well, a few other things actually):-

1. With just whom has the FSA been consulting?

2. What was the purpose of this consultation? Was it to determine whether or not the FSA's decision to classify, carte blanche, virtually all recommendations to ArchCru funds as defective?

2. What questions has it asked those whom it's consulted?

3. What opinions has it received?

4. Just what notice (other than the usual bugger all) has it taken of those opinions?

5. Why is the FSA not prepared even to respond to accusations that the FSA itself is at least partially to blame for the situation that has now arisen?

6. And, of course, is there the slightest prospect of the FSA answering any of these questions?

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Robin Hood

Mar 23, 2013 at 19:49

I see a lot of merit in Alan's plan, on the assumption that some or all of the 200 firms bought out may make a profit for the fund managers, the plan would be self financing. The problem would be every remaining IFA firm would wish they invested in Arch cru funds. This is a prime opportunity for IFAs, clients, insurance companies, banks and so on to get together and take on the regulator and the government, because they've not done a great job, we could keep an eye on the banks, because of regular reporting, and perhaps the judicial system might wake up and not send burglars, etc. on holiday. Oh what a perfect world. Well they couldn't put us all in jail could they!! How about it?

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Gillian Cardy

Mar 23, 2013 at 21:09

May I suggest advisers (including those above who I've previously invited to get in touch and who haven't yet) contact me on enquiries@ifacentre.org.uk to discuss where we are going with this action.

Investors who have not already accepted the Capita scheme offer (and others who have had rights under the investments assigned to them as part of complaint settlements)n should contact Harcus Sinclair.

A letter explaining our action is available on the IFA Centre website : www.ifacentre.org.uk

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