Oral Answers to Questions

Debate between Jonathan Evans and Alun Cairns

Wednesday 22nd October 2014 Commons Chamber

[Alun Cairns]

I am surprised that the hon. Lady raises that question, given that the commitment to £8 an hour by 2020 has been somewhat derided by independent commentators—Alan Milburn himself said that it lacked ambition—because the current projection shows that the minimum wage will rise to £8.23 an hour by 2020.

[Jonathan Evans (Cardiff North) (Con)]

May I take this opportunity to welcome my hon. Friend the Minister to the Front Bench, along with the Secretary of State, and associate myself with the tribute to his predecessor? Is my hon. Friend aware of the work that has been done by the Mayor of London on the living wage, promoting the idea that public authorities themselves have powers when they structure their pay settlements to lift the position of those who are on the minimum wage and on their payroll? In that regard, perhaps he shares my disappointment that the trade unions in Wales have rejected the Welsh Assembly’s plan to do just that.

[Alun Cairns]

I am grateful to my hon. Friend for raising that issue. Of course, it is a matter for employers to pay the living wage. The national minimum wage is set by the Low Pay Commission, but obviously when an employer can afford to pay the living wage, we would encourage them to do so.

Arch Cru Compensation Scheme

Debate between Jonathan Evans and Alun Cairns

Wednesday 19th October 2011 Westminster Hall

[Alun Cairns (Vale of Glamorgan) (Con)]

It is a pleasure to serve under your chairmanship, Mr Owen. I want to congratulate and pay tribute to the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) on securing the debate and on the way in which he introduced it. He set an absolutely right tone to try to uncover the scandal and seek justice for many innocent investors.

This debate is the first opportunity to air serious issues that have cost some 20,000 people significant sums in respect of a fund once valued at £400 million. The title of the debate relates to the compensation scheme, which is the obvious priority of investors. However, there is also a need to interrogate the background, which raises questions about the scale, source, timing and conditions of the scheme.

The investors’ starting point in the financial scandal was to receive and consider advice from their independent financial adviser. As the hon. Gentleman suggested, the funds were clearly advertised and marketed as cautious managed. That would have sounded reasonable and fitted the risk profile of many private investors across the country.

[Jonathan Evans (Cardiff North) (Con)]

May I be the first on this side of the Chamber to pay credit to my hon. Friend for his tenacity in assisting people in bringing this matter before the House?

The point that my hon. Friend is making specifically relates to the decision made by investors. I have constituents who have invested, including one who wrote to me only yesterday to tell me that he invested £120,000—the totality of his pensions and savings—primarily because he wanted to be in cautious-managed funds that were safe. That highlights the regulatory failure to which my hon. Friend is alluding.

[Alun Cairns]

The cautious-managed issue is a common theme throughout regarding the Arch Cru funds. Cautious managed, from my time in financial services, would be argued as an investment category that fits the majority of people across the United Kingdom. However, investigation shows that the Financial Services Authority does not regulate the risk classification of funds, which is assessed by the Investment Management Association. I find that staggering, considering that that is a fundamental element in the decision-making process of any investor. The IMA is merely an industry managers’ representative body. The FSA has told me that classification is not a regulated activity, so it does not have the powers to amend the classification of funds. However, the FSA needs to be reminded of its statutory objectives, specifically the one relating to maintaining market confidence.

The reality of the investment was that it was not cautious managed. The open-ended investment company invested in unconventional investments, as we have heard. Cell companies were formed and floated on the Guernsey stock exchange, investing in private equity and shipping loans, among other high-risk transactions. As that was a recognised exchange, it circumvented the FSA radar, although FSA rules banned such illiquid investments in open-ended funds. Therefore, it was no surprise that in March 2009, almost three years after they were launched, the funds were suspended.

However, the situation is not that simple. The FSA identified issues with the funds in October and November 2008, but the funds were permitted to continue to trade. It conducted an advanced risk responsive operating framework test at the time, which should have highlighted the issues, particularly pricing concerns. Yet, the funds were only suspended four months later.

Capita became the authorised corporate director, and had failed to act. It had responsibility for corporate governance and daily pricing, and control over the underlying assets. It initially denied having control of the underlying assets, but the auditors’ report from Ernst and Young showed that it held more than 75% of the shares. I suggest that Capita mispriced the funds before suspension due to its failure to exercise control to value the underlying assets accurately. There was a breach of the investment mandate and a pursuit of a reckless investment strategy by Capita’s designated fund manager.

Clearly, that negligence led to Capita’s £54 million compensation offer—70% of the value of the funds at the time of suspension, together with the remaining assets from the valuation on 31 March. That has been criticised as unlikely to hold up. Investors are being asked to accept an offer without knowing what they will receive, as that depends on the value secured on the sale of the remaining assets, which will take years. That is an obvious disparity and injustice.

The auditor was Moore Stephens. It surely should have identified the issues, but it has still yet to offer any form of explanation, let alone compensation. The Guernsey regulators also have some explaining to do and have to accept their part of the responsibility and liability.