Arch Cru investors to be offered more compensation

The mis-selling of Arch Cru funds has been one of the biggest recent financial scandals

Thousands of investors who were mis-sold investment funds called Arch Cru may receive more of their money back.

<link> <caption>The Financial Services Authority (FSA) is proposing</caption> <url href="http://www.fsa.gov.uk/library/communication/pr/2012/044.shtml" platform="highweb"/> </link> to set up a £100m compensation scheme specifically for the 15,000 people affected.

Several hundred independent financial advisers will have to compensate clients.

They were told the funds were low-risk, when in fact the money was invested in private equity and riskier ventures.

The Arch Cru funds, worth £363m, were suspended in March 2009. The funds, which are being wound down, are now worth only about £83m.

The FSA stressed that the investors were not going to be compensated for their investment losses, but for the fact that the funds had been mis-sold on a wide scale.

Clive Adamson, the FSA's director of conduct supervision, said: "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," he added.

High risk

When investors were persuaded to put their money in the funds they were told they were low to medium risk.

In fact they were high risk and the money was being channelled into private equity and venture capital investments.

Some investors have already had some, or all, of their money back.

The Financial Ombudsman Service (FOS) has resolved some complaints that have led to settlements.

Also, last year the FSA arranged a deal in which the professional firms that provided administration services to the funds, such as Capita, BNY Mellon Trust, and HSBC, contributed £54m to a voluntary payment scheme for investors.

However the FSA has now decided that the independent financial advisers who were largely responsible for selling the investments should now compensate their clients.

Redress

Under the FSA's plan, which is now out to consultation, the IFAs will have to go through their records, establish who was not properly sold the funds, work out how much compensation is owed using an FSA calculator, and then pay up.

"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," said Mr Adamson.

People who have accepted money from last year's payment scheme will not be able to use the forthcoming FSA scheme to pursue those firms any further, as the payments were in full and final settlement of any further claims against them.

However the clients will still be able to claim against their IFA if they can argue that their investment was mis-sold in the first place.