The Financial Services Compensation Scheme (FSCS) is to review the issues raised by the Financial Services Authority's (FSA) Arch Cru redress scheme for the purpose of deciding claims.
In December, the FSA ruled that firms who advised on investments in the CF Arch Cru Investment and Diversified funds must contact all their clients asking if they want their case reviewed to determine whether they were mis-sold the funds and may be eligible for redress.
If clients who invested in Arch Cru opt for a case review and the advice is found to have been unsuitable, firms must put investors back into the position they would have been in had they received suitable advice.
However, it is unclear what will happen to those Arch Cru investors who opt out of the FSA scheme but try to get redress via the FSCS at a later date.
This is because it is understood the FSCS will consider claims on the same grounds as the FSA; an investor may weaken his case for redress via the FSCS if he has effectively denied he received poor advice by not opting-in to the FSA scheme.
The FSCS has confirmed it is looking into the issue.
A spokesperson for the FSCS said: "The FSCS is reviewing the issues raised by the consumer redress scheme for the purposes of claims."
The FSA said it expects between 15% and 30% of consumers will opt in to the scheme. Based on this assumption, it said this could mean somewhere between £20m to £40m in redress is paid out.
However, this figure is likely to be much higher if the FSCS declares that those who do not opt into the scheme are excluded from claiming at the FSCS.
Claims can only be made at the FSCS when a company is in default. However there are fears that many companies will be pushed into default by the cost of the FSA's redress scheme, through paying out thousands in excess to professional indemnity insurers (PII), and by PIIs refusing to pay out on claims.
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