Arch Cru Compensation Scheme

Sammy Wilson Excerpts

Wednesday 19th October 2011 Westminster Hall

[Tom Greatrex]

The hon. Gentleman is right to say that Capita group is involved in a range of businesses across the world. Capita Financial Managers, however, was regulated by the FSA and was supposedly in a position to provide assurance in this case. That is where questions need to be asked.

[Sammy Wilson (East Antrim) (DUP)]

The hon. Gentleman makes the important point that whatever management inadequacies there may have been in Capita, it was regulated by the FSA. It oversaw what was supposed to be a prudently managed fund. Money was being put into totally illiquid assets and very dodgy assets, yet that was never identified. Was there not a regulatory failure in that regard?

[Tom Greatrex]

The hon. Gentleman makes an important point. I want to come on to the role of the FSA as the regulator and I particularly want the Minister to respond on the potential role of the Financial Conduct Authority in the future as the FSA is wound up.

--- Later in debate ---

[Alun Cairns]

I pay tribute to my hon. Friend for the role he has played in uncovering many of these issues. I will come on to the Serious Fraud Office in a moment.

[Sammy Wilson]

I accept the hon. Gentleman’s defence of the independent financial advisers. None the less, the only interface that many investors have is with an independent financial adviser. Is there not an obligation upon them at least to check out the funds on which they advise? Is there not some responsibility there?

[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.