The Financial Services Authority (FSA) has launched a three-month consultation on establishing a consumer redress scheme which could deliver more than £100 million compensation to investors who were mis-sold the Arch Cru funds.
Funding for the scheme would come from firms found to have mis-sold the Arch Cru funds. Firms would be required to review their sales of the funds, identify those that were unsuitable, and pay redress where required.
The proposed redress scheme is in addition to the £54 million payment scheme announced last year, involving Arch Cru authorised corporate director Capita and depositories BNY Mellon and HSBC .
The FSA’s proposed redress scheme is designed to put investors back into the position they would have been in had they received suitable advice. This is the first time the regulator has used this power to implement a consumer redress scheme.
The regulator said the evidence it gathered indicated widespread mis-selling of the Arch Cru funds and that they were high-risk funds, sold unsuitably as low or medium risk, leading to significant consumer detriment.
It has estimated that around £110 million in redress could be paid out, and that it will be payable to the vast bulk of Arch Cru investors, with between 15,000 and 20,000 likely to be in line for payments.
Clive Adamson (pictured) FSA director of conduct supervision, said: 'Investing money can be one of the most important decisions that anyone has to make and investors need to be able to trust the advice they are given. The Arch Cru funds were high risk and they should only have been recommended to investors who fully understood and were willing and able to accept the risks.
'We have found significant evidence that investors looking for lower risk investments have invested thousands in these funds. It is right that these consumers are put back in the position they expected to be in when they took the advice. We believe the proposed scheme is the best way to get the most money back to the greatest number of investors.
'This is the first time that we have used this consumer redress power and it is going to form an important part of our consumer protection tool kit. We will be working hard to reduce the number of large scale failures. But where they do occur it is imperative that we can get redress to consumers who have lost money through mis-selling as fast as possible.'
The key elements of the draft scheme the FSA will consult on includes that all firms which sold Arch Cru funds would have to contact their clients within four weeks of rules being made indicating whether or not their case falls within the scope of the scheme;
- Where redress is due, firms would be able to use a FSA online calculator to calculate each payment taking account of how much money each investor is able to claim from the separate £54 million voluntary payment scheme
- Investors should receive notification of how much redress is due within six months of the scheme starting and would receive payment wihtin 28 days of accepting.