The Financial Services Authority (FSA) has criticised IFAs for trying to shirk responsibility for Arch Cru investors' losses, and has warned evidence of widespread mis-selling could trigger an industry-wide past business review of all recommendations to invest in the fund range.
Speaking yesterday at a closed meeting of 30 MPs on the fairness of the Arch Cru investors redress scheme, Margaret Cole, managing director of the FSA's conduct unit, expressed anger at some advisers' attempts to avoid any accountability to their clients.
She said: "It's not good enough that some IFA firms say that they have no responsibility for investor losses and that some of them seek to distract from their own possible responsibility by demanding that others pay more."
Cole hinted that the FSA is considering carrying out an industry-wide past business review of Arch Cru advice.
"If we find that IFAs are liable for mis-selling Arch cru investments, then we as the regulator have a number of options open to us, including the power to seek an industry wide past business review and redress if we find widespread failure.
"But that is complicated, it requires certain process and will take time to sort out."
Cole dismissed the argument put forward by some advisers that they had advised low-risk investors to put money into Arch Cru because the Investment Management Association categorised the funds as cautious managed.
"[IFAs] have to apply sound professional judgment and be clear that what they are selling is right for this customer. They have to examine and apply their judgment to the promotional materials.
"They should know what the descriptor "cautious managed" means, and know that it's not a risk classification, and make sure the people they are advising don't think it is," she said.
Two judicial reviews - one investor led and the other brought by a group of IFAs - are awaiting decisions at the High Court on whether the £54m payment scheme set up by Capita, HSBC and BNY Mellon can be legally challenged. Cole said the FSA will fight the cases if they go to court.
"We don't believe it is in the interests of investors for the scheme to be struck down. It removes the certainty. Because let's be clear, striking down the payment scheme doesn't mean these three parties will have to pay more. "
She said a recent Financial Ombudsman decision which ruled an IFA gave unsuitable advice to two Arch Cru investors and must now pay redress, less any amount the couple receive from the payment scheme, means advisers are likely to be worse off it either judicial review succeeds.
If the payment scheme is withdrawn the IFA will have to pay the investors the full amount.
"As we can see from the Ombudsman's decision, it's not even in the IFAs' interests for the scheme to be struck down as they could well find themselves picking up a bigger bill if they have given unsuitable advice," she said.
The FSA believes there are about 900 IFAs who recommended Arch Cru investments.
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