Watchdog gets tough as it seeks further £100m over mis-selling

The Financial Services Authority (FSA) said it has used a power obtained under a 2010 law for the first time to introduce a consumer redress scheme that will force advisers who mis-sold a product to pay compensation.

The FSA launched a three-month consultation on setting up a redress scheme for an estimated 15,000 investors who were mis-sold the CF Arch cru Investment and Diversified funds by several hundred financial advisers.

The FSA said investors had wanted a low-risk product but the Guernsey-domiciled Arch cru funds comprised high-risk assets such as shipping and venture capital.

“These sorts of assets are hard to price and there is not an immediate market for them.

“It’s not good enough for an adviser to rely on a marketing pamphlet to say it’s low risk,” an FSA spokesman said.

The consultation proposes that firms would have to contact their customers within four weeks of the scheme coming into force.

The firms would have to work out, using an FSA calculator, how much money each investor should receive within a few months, taking into account any money already awarded under a separate scheme agreed in 2011.

Last June three groups involved in administering the funds – Capita Group, Bank of New York Mellon and HSBC – agreed voluntarily to contribute £54m to recompense investors in the Arch cru funds.

“The two schemes will be operating independently but we advise applying to both,” the FSA said.

Requiring firms to proactively review mis-sales rather than, as in the past, wait for complaints or require customers to ask for a review, will be the new face of investor protection, said Simon Morris, a lawyer at CMS Cameron McKenna.