The Financial Services Authority (FSA) has failed to make the case for its planned Arch Cru redress scheme announced earlier today, according to the Association of Professional Financial Advisers (APFA).
Chris Hannant, policy director at APFA, said the body was glad the FSA had listened to the profession and made the scheme operate on an opt-in basis. However, he said the regulator had not properly demonstrated widespread mis-selling had taken place.
He added the opt-in model should reduce the financial burden for advisers in general, and will help Arch Cru advisers who sold the product as ‘high risk'.
"However, we are still not satisfied that the regulator has made the case for a s404 redress scheme. We do not believe the FSA has demonstrated ‘widespread or regular failure' the condition required by Financial Services and Markets Act.
"Nor has it shown that the cause of losses is attributable to advice rather than the significant mismanagement of funds, on which the FSA published its findings recently."
Hannant explained: "The problem with this reactive regulatory approach taken after a failure is that it means unintended consequences are often overlooked. As a result of the redress scheme hanging over the profession, many advisers have seen their PI premiums increase substantially.
"The FSA must recognise that regulation cannot simply be delivered through the benefit of hindsight."
The FSA policy document released this morning said the regulator was "not relying on hindsight" and advisers had to face up to their responsibility.
Clive Adamson, FSA director of supervision, said: "Advisers have to accept and understand that ultimately they are responsible for making sure their customers' interests are protected."
The policy document also revealed that 110 firms have already cancelled their permissions as a direct result of Arch Cru, and another 100 could follow their lead.
However, the watchdog expects that between 15% and 30% of consumers will opt in, which would equate the scheme delivering £20 to £40m in redress - a reduction from the expected £110m.
The FSA redress scheme will operate alongside to the payment scheme involving Capita Financial Managers Limited (CFM), BNY Mellon Trust & Depositary (UK) Limited (BNY) and HSBC Bank plc (HSBC). Consumers have until 31 December to make a claim to this scheme.
Advisers will have one month from 1 April 2013 in which to contact their clients about the FSA scheme. The watchdog said it would monitor their progress in implementing the scheme.
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