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FSA responds to Tyrie over Arch Cru

by Daniel Grote on Dec 13, 2012 at 13:46

FSA responds to Tyrie over Arch Cru

The Financial Services Authority (FSA) has written to Treasury Select Committee chairman Andrew Tyrie over the Arch Cru funds scandal, outlining the reasons behind its censure of authorised corporate director Capita and plans for a redress scheme funded by advisers.

FSA director of supervision Clive Adamson (pictured) said that the censure of Capita marked the end of its action against the group, but that it could not comment on any further disciplinary action related to the funds.

He added that the FSA had been co-operating with the Guernsey Financial Services Commission as part of its Arch Cru work. 'While we have no legal or other power over the Commission, we have been liaising with them with regard to the Guernsey-based firms involved in the funds,' he said.

Adamson also outlined the FSA's plans for a £110 million redress scheme funded by IFAs found to have mis-sold the funds. He added that while the regulator was consulting on the measures, investors were still able to submit complaints about the advice they received to the Financial Ombudsman Service.

20 comments so far. Why not have your say?

DG

Dec 13, 2012 at 14:33

I don’t understand why there is this continued adherence to the term “mis-sold” when there is now documentary evidence (the censure) to support the fact that the funds were not as they should have been.

If it transpires next week that, let’s say, another of the CF funds suffers a catastrophic loss (and there are several of these funds out there which have pretty good - true? - performance) presumably it will be the IFA’s fault too.

If a fund, any fund, is not managed and administered in accordance with the mandate/FSA rules how can it subsequently be found to have been “mis-sold”.

Turning this on its head, if the Arch Cru funds had been administered in such a hopeless way but, miraculously, made a decent profit we wouldn’t all now be in such a mess. Or would IFAs be blamed for making a client a profit too? Therefore, if it’s the loss that is driving the accusation of mis-selling how was the loss caused? Not by the advisers, that’s for sure.

Equally, if it’s not the loss but the advice in isolation (irrespective of performance - although I can't recall a complaint arising after someone has made a decent gain) how can this ever be judged rationally.

Profit – advice must have been good or OK at least.

Loss – advice must have been bad

What nonsense!

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Nick

Dec 13, 2012 at 14:59

well said DG, I totally agree

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madmitch

Dec 13, 2012 at 15:00

They really need to edit:

Remove Mis-sold

Insert Sold

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Martinifa

Dec 13, 2012 at 15:01

Whilst I do not have any claims as I did not use these funds, I find it an insult to my intelligence to try and blame the advisers, given the information freely available. Yet again my clients will land up paying for regulatory failings, regulation which has cost the clients more over the last 20 years than any miss selling.

This is like saying had the banks failed in 2008, that every adviser that had recommended a deposit investment was liable as there research did not notice what the regulator could not see. The research, literature provided stated differed from the actual product and most important the non-action taken by the regulator and the censure of Capita has resulted in the main to the clients losses.

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Julian Stevens

Dec 13, 2012 at 15:21

For Mr Adamson to refer to the FSA's plans for a £110 million redress scheme funded by IFAs found to have mis-sold ArchCru funds is disingenuous in the extreme. The FSA maliciously instructed the FSCS to appoint Herbert Smith to write to all IFA's who recommended ArchCru funds accusing them, with no proper evidence, of having mis-sold, thereby short circuiting the normal complaints process and invalidating their PII cover.

As DG points out above, if a fund, any fund, is not managed and administered in accordance with the mandate/FSA rules how can it subsequently be found to have been “mis-sold”? To my knowledge, neither the FSA, or the FSCS or Herbert Smith have put forward any answer to this question.

I hope that, in the absence of such an answer, at least a few IFA's have rejected outright Herbert Smith's blanket accusation against them and have stated that they will not pay a penny unless or until a convincing answer is presented, supported by the opinion of a credible and disinterested third party.

Without being able to claim on their PII policy, many recipients of such a letter from Herbert Smith have insufficient resources to meet the sum/s claimed, so either their businesses will go bust or they personally will be forced into bankruptcy. As a result, a large proportion of the £110m redress bill will be met not by IFA's who recommended ArchCru funds/products but will instead fall on the rest of the IFA community.

The whole business appears to be yet another example of the FSA's manifestly prejudicial agenda against the IFA community.

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Bob Donaldson

Dec 13, 2012 at 15:26

The last line of this article says it all. Complain to the Ombudsman.

What client who has lost money in such a scheme regardless of whether or not they blame the advisor, the advice or the fund managers would not complain. They are looking to get back what they can from where they can.

This is what is wrong. Surely the client should have to prove their case and just as the advisor should have to prove theirs.

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Jonathan Kirby

Dec 13, 2012 at 15:52

Although I have had nothing to do with Arch Cru, I do have to say that there is a lack of natural justice here and all IFAs should fight this as who knows where the FSA will choose to pick next time?

In any other industry this would not happen.

If you buy the proverbial tin of beans and it is found to contain dog food, you don't sue the shop, you complain to the manufacturer, although the shop may well do this on your behalf.

So why is it deemed to be the IFA at fault here?

The whole thing stinks.

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Knowledgable insider

Dec 13, 2012 at 16:18

Tyrie will no doubt get the usual waffle that the FSA spews out when its in a corner..I suggest he casts his mind back to the disgraceful manner in which his committee were treated when questioning the speed and rationale of the implementation of RDR. As I recall, the FSA point blank, and after a few hours, turned down any question of criticism stating that all would be well. In other words they didn’t even bother to read the TSC's response. That should give him a clue as to the utter contempt these people hold the TSC, and anybody elses opinion other than their own

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Phil Castle

Dec 13, 2012 at 16:44

I agree with Jonathan Kirby. How can the FSA agree a £110m redress scheme when the complaints haven't been looked at yet? What happens if the total for incorrect advice only comes to say £50m, can the client then make a complaint about Capita? I suspect not as the FSA has done a deal circumventing the FOS for complaints against capita BNY etc.

Surely the issue of fault on each case should have been looked at and quantom or whatever it is called for the cause of loss BEFORE deciding on who pays what rather than doing a behind closed doors back room deal with the big boys.

The words preference come to mind as does a mispelled version of Sigmund Freud (a instead of e).

Investment managers didn't follow theri stated mandate, IFAs who advised and then pillored will go to the wall and then thsoe remaining IFAs will have to pay through their section of the levy rather than the investment management section of the levy. With some many banks having pulled their advisers, will they be being any part of the advisery levy or will it fall to an ever decreasing number of advisery firms?

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David Craik

Dec 13, 2012 at 16:47

I doubt Mr Adamson will point out the omissions from the Capita final report to the Treasury select committee. I doubt he will also admit to the regulatory failings of the FSA in this fiasco. I doubt he will also admit that the whole Section 404 is based on an incorrect assumption of very high risk.

I assume when the truth is out people like Adamson, Gibson, Geale, Percival etc will fall on their sword and resign without a pay-off. They are digging themselves further into the mire.

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DG

Dec 13, 2012 at 17:16

As the saying goes, "when you're in the s**t stop digging". And yet what is the FSA doing?

The truly sad aspect of this is that the FSA constantly drone on about ethics, culture, honesty, TCF and all the other platitudinous nonsense that we have come to expect these days from Canary Wharf/Whitehall. After all – what’s RDR all about if not these and numerous other supposedly beneficial “outcomes for the stakeholders”. Yuck!

And yet they behave in such a blatantly contradictory manner - as if we somehow won't notice. Where are the clients in all of this.....other than four years out of pocket and feeling massive frustration and disillusionment. Of course the main reason for this outrageous prevarication, as we all now know, has been the time it’s taken for the FSA to trump up charges against advisers and let the ACD off the hook.

The only conclusion that can therefore be drawn from this is that they don't believe in ANY of the hogwash that they spout - they, like so many others in power, are only interested in covering their own backsides until a better opportunity comes along from their friends in the City.

Just as well we, as advisers, don't live by the same rulebook - schmucks that we are.

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Dolores Chimichanga

Dec 13, 2012 at 17:38

I recently consulted a client that had been advised to invest with Arch Cru.

They were cautious investors. When the funds failed they complained to the national IFA that sold them the fund.

The IFA concerned turned down their complaint as they argued the investment matched their stated attitude to risk. The client accepted this until........12 months later, the FSA confirmed the fund was a high risk fund.

As a result they wrote to the IFA again requesting they reconsider their complaint once more based on the FSA not agreeing with the IFA's argument for turning down the original complaint.

The IFA concerned then replied that the client's latest request was outside the 6 month complaint response window and could not therefore reassess the compalint.

The client complained to the Ombudsman Service and they concurred with the IFA that as 6 months had elapsed there was nothing they could do.

So in summary the IFA used false information to defend their position and are now protected by the 6 month limit on the complaint even though the logic for their defence was totally flawed based on the FSA's assessment of the fund.

Needless to say the client is dismayed!

Investor protection...??!!!

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DG

Dec 13, 2012 at 18:05

@ DC

"12 months later, the FSA confirmed the fund was a high risk fund."

Well..... that'll be true then won't it? Just like everything else the FSA have stated about this debacle.

Clearly these clients have had a rough time of it (like almost all Arch Cru investors) but I think you're missing the point here.

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David Craik

Dec 13, 2012 at 18:06

@Dolores - Your clients may be out of the frying pan.........

Don't you read anything!!!

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Dolores Chimichanga

Dec 13, 2012 at 18:24

@ David

Other than being rude I do not understand the point you are trying to make?

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Martinifa

Dec 13, 2012 at 19:27

Each case has to be looked at separately.

Dolores Chimichanga, I do understand your anger, but consider what the advisers file stated and what evidence there is to support the rejection.

The supporting research, brochures, illustrations and how the IFA came to the conclusion the fund was low risk needs to be seen. In 2006 through to 2008 Rating agencies Low Risk, Brochures Low Risk and Life and Pension companies all stating low risk. If these are on file then why should any IFA accept any claim, unlike the regulator we cannot use hindsight as a defence and the above are able to gain far greater access and information to the fund management then any IFA will ever gain.

The fact that many National Life Companies stated it was low risk and would only allow it the fund on their offerings once they had done their own extensive due diligence (as they put it).

So rating agencies, Life and Pension Companies, the regulator, Capita all get it wrong and all IFA’s clients have to pay! Judged, Jury and Executioner!

This is yet again a case of the regulator using hindsight to protect and deflect their failings. You cannot change the ratings after the fact.

Some of us did have concerns and we did not use the funds, but no one could have seen that due to poor accountability by the regulator and Capita that the fund would fail as it did. There is a difference between high risk and out and out miss management deflected by the parties concerned.

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Jimmy via mobile

Dec 13, 2012 at 19:33

Dolores

You are a popular commentator!

I see and understand your point, don't see why the others don't! I take it this was a genuine client complaint that was actually twisted by the ifa.

The while saga is an absolute shambles for all concerned. Amazing you can just dump your crap on all of us and then set up as a new co as so nothing has happened!!!!

@ dc to dolores what festive comment happy Xmas to you too

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David Craik

Dec 14, 2012 at 09:21

Dolores - I apologise.

Martinifa has summed it up nicely.

Arch Cru was never a substitute for cash but given the timing, could, if managed as promised, have a part to play as an alternate asset class in every portfolio. This is regardless of client risk tolerance, the percentages held balanced to suit the client. However, the FSA are saying, after the event, that it was clearly very high risk and not suitable for anyone other than those with a very high tolerance to risk. A point missed at the time by many thousand IFAs, all the investors, the FSA, Capita, the IMA, many experts and every financial journalist!

Most IFA's who introduced clients are working hard to achieve compensation for their clients. Quite rightly. However, we fully believe those responsible for the losses or those at the helm should be responsible for that compensation, not the IFAs.

The FSA has covered up their incompetance from the off and continue with this farce to the detriment of those investors but even more importantly to the long term detriment of our industry. They have no ethics. That is the disgrace!

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Ned K

Dec 14, 2012 at 10:29

Andrew Tyrie is astute, you only have to look at his track record with the FSA and the banking collapse. He is going to be able to see through the smog of lies and deceit spouted by Adamson. Adamson has made a grave error of judgement in trying to mislead Tyrie.

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Gillian Cardy

Apr 23, 2013 at 17:52

@Dolores - as your client (having already complained unsuccessfully) is not eligible for the s404 redress scheme you may wish to draw their attention to the legal action being put together for investors to pursue Capita for their losses ... check out www.ifacentre.org.uk for more information.

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