Arch Cru Compensation Scheme

Duncan Hames Excerpts

Wednesday 19th October 2011 Westminster Hall

[Alun Cairns]

I am grateful for that valid point. Clearly, IFAs cannot be excluded from all responsibility, but we need to bear in mind the context in which they are working. If they are looking at the strategy and pricing of a fund classified as cautious managed, we need to recognise the context in which that advice is being given. Therefore, the failure of the FSA to set the right context in which an IFA can make recommendations is fundamental to the issue.

There is another conflict. The FSA regulates the authorised corporate directors and Capita acts as the authorised corporate director for more than 300 firms. Taking action against Capita could create difficulties, leading to panic in the marketplace. The FSA has powers under section 166 of the Financial Service and Markets Act 2000 to instigate an independent investigation into organisations that take such responsibilities. Will the Minister tell us whether any such action has been taken by the FSA?

The Arch Cru affair is a minefield of accusation and counter-claim. My hon. Friend the Member for Hexham (Guy Opperman) referred to the Serious Fraud Office. I was alarmed to discover that two of the three main directors or partners who established the Arch Cru funds—Robin Farrel1 and Robert Addison—are still operating, albeit under a new name of Arch Global. Allegations have been made to the Serious Fraud Office about how Arch funds were invested in a property company with common directors. Student accommodation was bought on the open market at one price, only to be sold to the Arch investors shortly afterwards for an inflated sum. I have no knowledge of whether or not those points are true, but they clearly need to be investigated.

As for compensation issues, the auditors and the Guernsey Financial Services Commission certainly need to be pursued by some authority, be it the FSA, the Minister or other parties.

Finally, in view of the FSA’s actions and the associated conflicts, I am troubled that section 404 of the 2000 Act can bind the financial services ombudsman to the FSA’s judgment on the level of compensation. The FSA has made its view of the 70% figure quite obvious in its statement. Therefore, even if investors seek to make a claim involving the financial services ombudsman, or if they follow other routes, the FSA can limit the compensation to 70% at a later stage.

[Duncan Hames (Chippenham) (LD)]

Clearly, my constituents will wonder what the point of a financial services ombudsman is if they cannot seek redress through it to get a better deal than Capita is already offering.

[Alun Cairns]

I am grateful to the hon. Gentleman. He underlines the power of the FSA to limit compensation, rather than to uncover and to provide just compensation for people who have been ill-advised and ill-treated throughout this whole process.

These issues need to be reconsidered in an equitable way and without conflict.

--- Later in debate ---

[Duncan Hames (Chippenham) (LD)]

I shall certainly be brief, Mr Owen, as I, too, look forward to the Minister’s speech about cleaning up the mess of financial scandals that arose long before he took office. I am not alone; it is worth reiterating that we have heard this morning from MPs from six political parties, and 5% of all MPs have turned up for a debate lasting only 90 minutes, knowing full well that barely a fifth of them would get to make speeches. My first point to Capita and all the bodies involved is that there is a lot of interest in this House and that their reputation in all parts of the United Kingdom is therefore at stake. I hope that they do not wish their companies to become the household names that others have in disputes that this House has unfortunately had to deal with.

Officials in the building across the road will have urged the Minister to bat questions away to the Financial Services Authority, and will have suggested that he speak of the FSA’s independence and of how this matter is for that authority and not for the Government. Our collective presence here this morning will have made it clear to him that the public interest is too strong to accept that. In addition to the complaints about the companies involved, many of our constituents are asking: who regulates the regulators? They do not trust the regulators’ handling of the matter. This morning, we have come here with reasonable questions that have not been answered in our correspondence with the FSA on constituents’ behalf. How did the FSA authorise the fund in the first place? Why did it not respond sooner to the informed criticism of experienced fund managers? Does the scope of the FSA’s investigation extend to questions about its own conduct, and does the review team have the independence to do that effectively? Even clearer are our constituents’ concerns about how the payment deal is being agreed, and about how the FSA is able to bind the Financial Ombudsman Service so securely to Capita’s proposals.

When such questions are being raised about the regulator, it falls to the Minister to reassure Members that he is totally on top of their concerns. I hope that he addresses the plea for a full inquiry that has been made across the House this morning, and I look forward to him throwing his weight behind the demands for a section 14 inquiry.