Thursday, 3 January 2013

Arch Cru Scandal - the fight goes on

Last year's most depressing meetings for me were the times when I had to meet and advise local people who had suffered from the Arch Cru mis selling scandal. I have many constituents who are affected by this, although fortunately not as many as were affected by Equitable Life.
The scandal arises because normal people took their savings and invested in what they thought were "low risk" investments, when they were clearly anything but low risk. The funds have got into terrible difficulties and an administrator is trying to get back as much as is possible for the investors.
I am the secretary of the All Party Parliamentary Group on Arch Cru, and have joined forces with Labour and other members of parliament to try and seek redress for the victims. The limited good news is that there will be some recovery, but the reality is that such a recovery is going to be a fraction of the original safe investment, and the recovery is taking a long time.
I met with some of the local victims in the autumn in Hexham. All felt understandably very hard done by, powerless, and some were clearly struggling to survive. In the House of Commons we are doing what we can to keep the pressure up on the FSA, the administrator, and the various other organisations involved to see that our constituents recover as much as is possible.
The Mial on Sunday has worked tirelessly to highlight this scandal and I pay tribute to the Money Section editor Jeff Prestridge, who has attended parliamentary debates, met victims and helped fight the inadequacy
of the present system of compensation. Jeff wrote the following 2 articles before christmas:
People talk about the glamour of life as an MP but most of it is helping people through life's unfairnesses: the sad reality is that people only tend to come to see me for my help when all else has failed them. Arch Cru and its effects is just such a case. 2013 will be a good year if we can get some redress for the victims both locally in Northumberland and nationally.     


  1. Chris Gilchrist: Lack of supervision is real reason for Arch cru failure
    28 January 2013 8:00 am

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    When Oeics were introduced in the UK, the Treasury said regulation would ensure that Oeics were as safe as unit trusts. Experienced executives and commentators knew that the structure of Oeics, with a weaker supervisory role for the ACD than for the unit trust trustee, would only provide equivalent protection for investors if there was stronger regulatory oversight of Oeics. Naturally the FSA promised to provide this.

    In practice, the FSA has failed to exercise the oversight it needed to ensure the safety of Oeics in the simple terms that investors should not suffer losses from fraud and should be 100 per cent compensated for any such losses. Any level of protection less than this is sure to cause investor losses that erode confidence in the collective fund industry.

    .The unit trust trustee unequivocally remains on the hook with unlimited liability for any and all such losses and this fact has always been recognised by trustees and managers.

    In the case of the Oeic’s ACD, there is not the same degree of clarity. As we have seen in the Arch cru case, there is a blurring of responsibility. That has enabled the FSA to push through a partial compensation scheme which lands a large part of the cost of the failure of a fund on financial advisers.

    In the Arch cru case, I have always believed it was failures by the FSA itself in its capacity as regulator that lie at the root of the failure. The FSA should never have granted authorisation to the fund because of the illiquid assets which formed part of the cell companies of the Oeic.

    This is exactly the higher degree of supervision that the Treasury acknowledged was necessary to make Oeics as safe as unit trusts. And it hasn’t happened.

    The FSA was warned. It has yet to fess up to the warnings it received from several experienced unit trust bosses who raised serious concerns about the Arch cru range before it sank.

    The question of whether some advisers gave bad advice on Arch cru is entirely secondary. If the FSA had done its job, they would not have been able to advise clients about it.

    Another regulatory failure concerns the ACD. It seems remarkable to me that the FSA permitted it to operate on a capital base that would not provide investors with adequate protection. Standard Life’s PI insurers have just paid out £100m in respect of inadequate disclosure regarding the risk in a ‘cash’ fund. Yet the FSA allows ACDs to operate without such insurance?

    The FSA needs, as a matter of urgency, to address its regulatory failures and bomb-proof the investor protection within all authorised funds.

    Chris Gilchrist is director of FiveWays Financial Planning, edits the IRS Report newsletter and is the author of the Taxbriefs Guide, The Process of Financial Planning

  2. Alan Hughes: The FSA was asleep on the job
    21 February 2013 8:00 am

    The FSA must be hoping that the publication of PS12/24 setting out the final rules of the redress scheme on Arch cru marks the end of debate on that particular matter.

    This is a forlorn hope as there are already rumblings concerning various legal challenges to the scheme. You do not have to look very far to see why the adviser community is so angry about the s404 scheme and why they consider that the FSA has got things badly wrong - see full article at: