CF Arch Cru quantification process agreed

3rd April 2012

Levy likely to fall to life and pensions intermediation and investment intermediation sectors

FSCS has now decided how it will compensate consumers with eligible claims against independent financial advisers that are no longer trading in relation to CF Arch Cru funds.

FSCS has sought external expert advice on the residual value of the CF Arch Cru funds.  FSCS is obliged to take this value into account when determining levels of compensation.

FSCS is satisfied that the funds have been valued on a reasonable basis.  But, because of the nature of the underlying assets, there is uncertainty about the amounts investors will eventually get back through the wind-down process of the funds which is currently underway.

FSCS does not believe that investors should have to wait until that wind-down is complete to receive compensation. It will make interim payments now and then, if necessary, make top-up payments once the CF Arch Cru wind-down process is completed. It is currently expected that this will be in 2015. These interim payments will also take into account compensation due to consumers from the payment scheme administered by Capita Financial Managers Limited, announced in June 2011 (regardless of whether an investor has actually claimed or received this sum).

This approach means that, as soon as FSCS has assessed a claim and confirmed it to be eligible for compensation, claimants will receive a significant part payment to compensate them for their losses. Claimants may then be paid a further compensation payment in 2015 once their precise losses are confirmed.

Based on the expert advice FSCS has received, interim payments assume the value of a claimant's investment in a CF Arch Cru sub-fund on the basis of the most recently published net asset value for that sub-fund, plus a premium of 12%. This approach aims to maximise the immediate pay-out to investors while minimising the risk of FSCS paying too much compensation if the funds realise more than expected.

Following this decision, FSCS is now able to confirm it will be paying more compensation than it initially anticipated. In addition, FSCS is now expecting more claims against CF Arch Cru than it previously expected.

FSCS expects the levy resulting from CF Arch Cru to fall to the Life and Pensions Intermediation and Investments Intermediation sectors. FSCS will be publishing shortly its final levy decisions for 2012/13. Compensating CF Arch Cru claimants on the basis described in this update is expected to add around £38.3m to the indicative numbers published in the FSCS Plan and Budget 2012/13. This is spread across the two sub-classes mentioned. There are also other defaults that will impact on the levy.