Arch cru redress scheme opt-in figures far higher than FSA estimated

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Almost half of Arch-cru investors have opted-in to the consumer redress scheme, pushing up potential adviser payouts from an estimated £20m to around £53m and raising the risk of more adviser defaults and FSCS claims.

In December, the FSA estimated that between 15 and 30 per cent of clients who were advised to invest in Arch cru would opt in, reducing the adviser redress paid out by the scheme from the proposed £110m to between £20m and £40m. At the time, advisers questioned the estimates and warned that far more clients would opt-in when offered the chance to.

Advisers had until 29 July to tell the regulator how many clients had opted into the scheme and so far 443 firms have responded. In April 2012, the FSA identified 795 firms which had sold Arch cru, although a sizeable number may now have wound-up.

An FCA spokesman says: “These firms reported that 7021 cases were within the scope of the scheme and 48 per cent of investors (3333 cases) had opted-in to the scheme. We have written to other firms, who do not appear to have met the deadline, requiring them to provide the report and explain why they have not complied with the scheme rules.”

Earlier this week, the FSCS’s August newsletter said advisers face a medium risk of an interim Financial Services Compensation Scheme levy this financial year due to additional costs associated with Arch cru and failed stockbroker Fyshe Horton Finney.

In a paper published in April 2012, the FSA warned that up to 30 per cent of firms which recommended Arch cru could default due to the redress scheme. As a result, it suggested up to £33m could fall on the FSCS.

Based on its low opt-in estimates last December, it then predicted that just £3m to £7m would fall onto the FSCS as a result of adviser defaults associated with the scheme.

These new opt-in figures indicate that adviser FSCS costs could be much higher. 

The FSCS has already factored in nearly £40m of Arch cru costs associated with firms which have already gone bust, to be paid for by advisers.