ARM and Catalyst Investment Group Limited
- What is the Financial Services Compensation Scheme (FSCS)?
- What is ARM Asset Backed Securities SA and what has happened to it?
- What is Catalyst and what has happened to it?
- What is FSCS's involvement in matters concerning ARM?
- What types of claim is FSCS able to deal with against Catalyst?
- How did Catalyst promote the ARM bonds?
- How do I make a claim against Catalyst with FSCS?
- How will FSCS determine whether I am eligible for compensation?
- Will FSCS treat claims relating to “pending investors” differently from other types of claim?
- How quickly will FSCS deal with my claim and when can I expect to receive compensation?
- I am suffering financial hardship and need to be considered urgently; is there anything that can be done?
- FSCS previously dealt with my claim against my IFA; do I need to submit a new claim against Catalyst?
- I previously registered a claim with Catalyst which was referred to the Financial Ombudsman Service (FOS); do I need to submit a new claim against Catalyst?
- How will compensation be calculated?
- What is the level of protection provided by FSCS?
- Who is eligible for protection from FSCS?
- If I am paid compensation, is it correct that my legal rights are transferred to FSCS? What does that mean?
- I have invested in more than one bond/tranche through Catalyst; should they all form part of my claim?
- What will happen to any money that is recovered by FSCS in the future?
- I would like to pursue a claim with ARM's Provisional Liquidator before making my claim with FSCS, or accepting compensation from FSCS; can this be done?
- My ARM investment is held in a SIPP; am I able to make a claim to FSCS?
- Does any compensation that I am paid by FSCS need to be paid into my SIPP, and what are the tax implications?
- My IFA is still trading; can I still register a complaint with that firm now that Catalyst has been declared in default?
- If my claim against Catalyst is accepted by FSCS, can I still pursue a complaint with my IFA?
- My IFA is no longer trading; can I still register a claim with FSCS against that firm now that Catalyst has been placed in default?
- I have previously submitted a claim to FSCS against an IFA; what now happens with that claim?
- I invested in ARM bonds following advice from an adviser who was not authorised in the UK; can I still make a claim against Catalyst with FSCS?
- Are there time limits for claiming compensation?
1. What is the Financial Services Compensation Scheme (FSCS)?
FSCS is the UK's compensation fund of last resort for customers of authorised financial services firms.
We may pay compensation if a firm is unable, or likely to be unable, to pay certain claims against it. This is usually because it has stopped trading and has been declared "in default". We are independent of the government and the financial services industry, and were set up under the Financial Services and Markets Act 2000, becoming operational on 1 December 2001. We do not charge individual consumers for using our service.
The protection provided by FSCS is governed by the Financial Conduct Authority's (“FCA”) Compensation ("COMP") rules, which can be seen at the "Redress" section of the Financial Services Handbook.
Further information about the FCA is available on its website.
2. What is ARM Asset Backed Securities SA and what has happened to it?
ARM Asset Backed Securities SA (ARM) is a company organised under the laws of Luxembourg whose bonds were promoted and distributed to various Independent Financial Advisers (“IFAs”) and consumers in various countries, including the UK.
Catalyst Investment Group Limited (“Catalyst”) was the primary distributor of these bonds, marketing them to investment intermediaries and independent financial advisers who in turn promoted and sold them to retail investors. Catalyst was regulated by the FCA in the UK.
There were two main types of bond issued by ARM:
- the ARM Assured Income Plan, and
- the ARM Capital Growth Bond.
Both types of bond were sold in various tranches (which were numbered 1 to 11) between 2006 and 2010.
We are aware that, for some investors, ARM’s bonds formed the underlying investment in a Self Invested Personal Pension (SIPP) or an Individual Savings Account (ISA).
ARM has never been authorised by the Luxembourg financial services regulator, the Commission de Surveillance du Secteur Financier (CSSF), but had applied to the CSSF for authorisation. ARM was never authorised by the FCA (or its predecessor, the Financial Services Authority) in the UK.
Following the CSSF’s decision in 2009 not to allow ARM to be authorised in Luxembourg, ARM’s business was suspended. ARM appealed against the CSSF’s decision but, on 21 August 2013, its appeal was rejected by the Luxembourg Administrative Court of Appeal.
On 9 October 2013, Mark Shaw and Malcolm Cohen of BDO LLP were appointed as Provisional Liquidators of ARM Asset Backed Securities SA by the English court.
FSCS has been liaising with the Provisional Liquidators since their appointment. The Provisional Liquidators provide updates on their work, including ‘Frequently Asked Questions’, on BDO’s website.
3. What is Catalyst and what has happened to it?
Catalyst was the primary distributor of ARM’s bonds in the UK, marketing them to investment intermediaries and IFAs who in turn promoted and sold them to retail investors.
On 4 October 2013, the FCA announced that Catalyst had been declared in default. On the same day, the FCA announced that it had censured Catalyst for breaching regulatory principles when promoting and distributing bonds offered by ARM. Further information about FCA’s involvement in this issue is available on its website.
The default declaration means FSCS is now able to consider claims against the firm in relation to the ARM bonds.
4. What is FSCS's involvement in matters concerning ARM?
FSCS is currently aware of two categories of potential claims where it has a role to play:
- Claims against the distributor of the ARM bonds, Catalyst, and
- Claims against UK IFAs which were authorised by the FCA (or by its predecessor, the FSA) but have now gone bust and are not able to meet claims against them. The largest such firm is Rockingham Independent Limited which was declared in default in 2012. Claims against IFAs are dealt with from question 23 onwards.
5. What types of claim is FSCS able to deal with against Catalyst?
FSCS is able to deal with claims in relation to Catalyst’s role in distributing and promoting ARM bonds to IFAs and consumers.
Following an analysis of Catalyst's role as distributor of the ARM bonds and the financial promotions for which Catalyst was responsible, we have reached the view that Catalyst may be liable for losses in many cases. FSCS started inviting claims against Catalyst in March 2014.
In addition to claims in relation to ARM investments, FSCS can also consider claims against Catalyst in relation to other investments which Catalyst was involved in. An investor who wanted to make such a claim would need to set out to FSCS Catalyst's precise role in relation to those investments and why they considered Catalyst was liable for any financial losses which they may have suffered. If an investor considers they have a claim against Catalyst in relation to an investment other than ARM bonds, they should contact FSCS’s Initial Contact Team on Freephone 0800 678 1100 or 020 7741 4100.
6. How did Catalyst promote the ARM bonds?
Catalyst was the primary distributor of ARM’s bonds to investment intermediaries and IFAs, and it was also responsible for producing the brochures which were used to promote the bonds to IFAs and consumers.
Examples of some of the ARM brochures which Catalyst was responsible for are illustrated below:
7. How do I make a claim against Catalyst with FSCS?
Since Catalyst was declared in default in October 2013, FSCS has sought to gather details of ARM investors from various third parties, including ARM’s Provisional Liquidators and organisations such as SIPP operators and investment custodians.
With the benefit of this information, FSCS contacted all known ARM investors in March 2014 with an FSCS application form to complete and return.
The application form asks the claimant to set out key information to support their claim, such as details of the bonds invested into, the firms which the investor dealt with in connection with that investment and why they decided to invest. The claimant will also be asked to send further evidence to support their claim, including:
Original versions of documentation relating to the ARM investment (e.g. a contract note, investment certificate or statement) plus a bank statement detailing the sum invested in the ARM investment(s).
Photocopies of other documentation relevant to the claim (e.g. correspondence with Catalyst, ARM or an IFA).
Original versions of important documents requested in the application form, if applicable (for example, Grant of Probate, Letters of Administration or a Will).
This evidence is required by FSCS in order to verify the individual’s claim against other evidence held by FSCS.
If an ARM investor has not been sent an FSCS application form by the end of April 2014, they should contact FSCS’s Initial Contact Team on freephone 0800 678 1100 or 020 7741 4100.
8. How will FSCS determine whether I am eligible for compensation?
Once FSCS has received a completed FSCS application form, it will proceed to assess the claim to determine whether it is eligible for compensation under FSCS’s rules.
These assessments will be carried out on FSCS’s behalf by Deloitte LLP, which has been appointed by FSCS to assist it in processing claims made against Catalyst. Accordingly, claimants may subsequently receive correspondence from Deloitte LLP regarding their claim.
All claims will be considered on a case-by-case basis, based on the information presented in the FSCS application form along with any accompanying evidence.
9. Will FSCS treat claims relating to “pending investors” differently from other types of claim?
ARM’s bonds were marketed in several tranches. Bondholders made investments in bonds in tranches 1-8, sold between 2006 and 2009. There is also a group of pending investors for tranches 9-11, purchased from 2009. While these pending investors gave money to ARM or their IFA, it is not clear whether the bonds in tranches 9-11 have been issued. This is explained more fully on the Provisional Liquidators’ website.
FSCS’s claims process for pending investors will be the same for other categories of claimant but the nature of such claims will be different.
10. How quickly will FSCS deal with my claim and when can I expect to receive compensation?
FSCS expects to process the majority of claims and pay compensation to eligible investors within six months of receiving a completed application form.
11. I am suffering financial hardship and need to be considered urgently; is there anything that can be done?
Once a claim has been submitted to FSCS, if any claimants believe that their case should be treated as a priority because they are facing immediate financial hardship, they should let FSCS know as soon as possible. Where there is evidence of immediate financial hardship, we will do what we can to accelerate the handling of the claim.
12. FSCS previously dealt with my claim against my IFA; do I need to submit a new claim against Catalyst?
Yes. As claims against Catalyst are different to claims that may have been made in the past against other firms, once FSCS is in a position to start inviting claims against Catalyst, a new claim will need to be made against Catalyst by completing a Catalyst application form. However, any supporting evidence which you sent with your previous claim will have been retained by FSCS, so you will not need to send it again with your Catalyst application form.
13. I previously registered a claim with Catalyst which was referred to the Financial Ombudsman Service (FOS); do I need to submit a new claim against Catalyst?
Yes. You will need to complete an FSCS application form. However, the evidence you previously submitted to the FOS in support of your claim has been forwarded to FSCS, so FSCS will consider this information along with your application form.
14. How will compensation be calculated?
If a claim is found eligible for compensation, FSCS will typically calculate loss by accounting for all amounts invested less all monies returned to the investor to date (e.g. income payments, distributions or other amounts paid).
15. What is the level of protection provided by FSCS?
For claims against Catalyst relating to investment business regulated by the FCA, FSCS can pay compensation to eligible claimants up to a maximum of £50,000 per person.
16. Who is eligible for protection from FSCS?
The protection provided by FSCS is governed by the FCA’s Compensation (COMP) Rules, located in the Redress section of the FCA’s Handbook. The COMP Rules set out who is eligible to benefit from the protection provided by FSCS. Generally speaking, we can only accept claims from individuals and small companies. Overseas financial services institutions and large companies are excluded. We comment below on overseas individuals at question 27.
Full details of who is eligible to benefit from FSCS protection can be found in the Financial Services Handbook found in subsection 4.2 of the COMP Rules.
17. If I am paid compensation, is it correct that my legal rights are transferred to FSCS? What does that mean?
Yes. Under FSCS’s rules and the terms set out in the application form, when FSCS pays compensation, claimants in effect transfer or “assign” all of their legal rights to their claim against the firm in default and/or any relevant third parties to FSCS. In other words, FSCS then "stands in the shoes" of the claimant. Once a claimant has transferred their rights to FSCS, they can no longer claim directly against Catalyst and/or any relevant third parties. Additionally, FSCS controls the claimant’s claim in, for example, the provisional liquidation of ARM.
Relying on the rights transferred to it, FSCS may seek to recover all or part of the cost of paying compensation, and therefore reduce levies on financial services firms, which are raised to fund FSCS. FSCS’s rules provide that, in certain circumstances, FSCS must pay some, or all, of the money it recovers using a claimant’s transferred rights, back to the claimant (see question 19 for further details).
18. I have invested in more than one bond/tranche through Catalyst; should they all form part of my claim?
Yes. Claimants should include all investments in their claim to FSCS, and claimants should not make “partial” claims (i.e. whereby the claimant makes a claim for some funds that they hold but not others). This is because the terms and conditions within our application form mean that all your rights in investments through Catalyst will be transferred to the FSCS if we pay compensation, whether listed on your application form or not. FSCS is under a duty to try to make recoveries using your transferred rights (where FSCS considers it reasonably possible and cost effective to do so). Therefore, FSCS needs to know about all your investments properly to pursue those recoveries (see question 19 below for details of how this might affect you). If you do not want to transfer rights in certain investments to FSCS, it is important that you discuss this with us when you submit your claim for compensation.
19. What will happen to any money that is recovered by FSCS in the future?
FSCS’s rules require that if we recover any money from Catalyst, ARM, or any other party liable for a claimant’s losses using their transferred rights, we would have to consider whether some or all of that money should be paid back to claimants.
The rules say that, where FSCS makes a recovery using transferred rights (under a claim other than for a protected deposit), it must consider whether:
- The amount recovered exceeds the amount of compensation paid in any case; or
- (Notwithstanding that the amount recovered is less than the compensation paid) the claimant is at a disadvantage for their prompt acceptance of FSCS’s offer of compensation when compared with an individual (with the same losses) who delayed their acceptance of FSCS’s offer.
Where either of these circumstances exists, FSCS is obliged to make certain payments to claimants.
We expect that, if FSCS recovers any money through Catalyst or ARM, we will have to try to ensure that a claimant who promptly accepted FSCS’s offer of compensation is not disadvantaged compared to a person (with the same losses) who delayed making a claim for compensation. This would mean considering whether a claimant, whose claim FSCS has paid, would have received more money overall if they had made a claim through ARM or Catalyst before submitting their claim to FSCS. This can only ever be an issue if a claimant’s losses exceed the £50,000 maximum which FSCS can pay.
It is not clear yet whether FSCS will be able to recover any money from other sources (i.e. relevant third parties) liable for a claimant’s loss. However, should FSCS recover money from other relevant third parties, it will consider whether further payments to claimants are necessary under either of the rules set out above.
For clarity, any compensation paid by FSCS in relation to claims against Catalyst would be in respect of the actions of Catalyst for the way in which Catalyst promoted or distributed ‘bonds’ issued by ARM. When it pays compensation, FSCS will take over the rights of claimants against Catalyst and also against ARM.
For further information about the circumstances in which FSCS would have to pass on any recoveries it makes, please see the Financial Services Handbook under COMP 7.6 ("Recoveries: claims other than for protected deposits").
20. I would like to pursue a claim with ARM's Provisional Liquidator before making my claim with FSCS, or accepting compensation from FSCS; can this be done?
Yes. You can delay making your claim to FSCS until you have tried to recover the monies that you are owed from other parties. However, you should write to FSCS first to explain that you are doing this.
21. My ARM investment is held in a SIPP; am I able to make a claim to FSCS?
In most cases, it will be the SIPP member (i.e. the investor) who will be responsible for submitting a claim to FSCS.
The most common circumstance is the situation where an individual investor has decided to make an investment in the relevant ARM bond, to put into their SIPP. In these circumstances, the person who has the potential legal claim against Catalyst, and is therefore the proper claimant for the purposes of FSCS’s rules, is the individual investor, and not the SIPP or SSAS trustee. Accordingly, the individual investor will be responsible for making the claim to FSCS. However, there may be circumstances where the SIPP trustee has taken the decision to invest (for example, where the SIPP trustee is entitled to exercise discretionary investment powers on behalf of the member or members). Such claims will be considered on a case-by-case basis to determine who the proper claimant for FSCS purposes is.
In cases where ARM investments were held in a SIPP wrapper, if FSCS finds your claim eligible for compensation we will require your SIPP trustee to agree to certain terms before FSCS can make a compensation payment to you. FSCS will liaise separately with your SIPP trustee direct to agree these terms. In the event that we are not able to agree terms with your SIPP trustee, we will discuss with you the implications for your claim.
22. Does any compensation that I am paid by FSCS need to be paid into my SIPP, and what are the tax implications?
If it is the individual investor (SIPP member) who has the claim against Catalyst, in the event that FSCS finds a claim eligible for compensation, the compensation will be paid directly to the investor. Alternatively, the investor can nominate for the compensation to be paid to some other party, including into their SIPP (if this is permitted by the relevant trustee). Claimants should be aware that there may be tax consequences as a result of accepting the compensation, and they should seek independent advice at that point.
Where the SIPP Trustee is considered to have a claim against Catalyst, and FSCS finds a claim eligible for compensation, the compensation will be paid to the pension scheme itself for application within the terms of the relevant scheme.
23. My IFA is still trading; can I still register a complaint with that firm now that Catalyst has been declared in default?
Yes. If an investor believes that they have a complaint directly against their IFA (e.g. in relation to advice given to invest in ARM bonds), and that firm is still trading, they can still register a complaint with their IFA. If they are not satisfied with the response they receive from their IFA, they can refer the matter to the Financial Ombudsman Service.
However, in the event that an investor receives redress from their IFA, they should provide full details to FSCS, as it may affect their claim against Catalyst with FSCS.
24. If my claim against Catalyst is accepted by FSCS, can I still pursue a complaint with my IFA?
Under FSCS’s rules and the terms set out in the application form, when the FSCS pays compensation, claimants transfer or “assign” all their legal rights to claim against the firm in default and/or any relevant third parties. This means that, if FSCS pays compensation on a Catalyst claim, the claimant’s rights to claim against an IFA who recommended the ARM investment will be transferred to FSCS. Accordingly, if you accept any compensation from FSCS, you will no longer be entitled to claim against your IFA for the same losses. Furthermore, as detailed in question 19 above, you would no longer be entitled to claim in the insolvency of ARM for the same losses. In the event that you are offered redress by your IFA (perhaps following a complaint that had been upheld by the Financial Ombudsman Service) you must contact FSCS to discuss the implications of your previous acceptance of compensation in respect of your Catalyst claim.
25. My IFA is no longer trading; can I still register a claim with FSCS against that firm now that Catalyst has been placed in default?
Yes, if an investor considers they have a complaint against their IFA (e.g. in relation to advice given to invest in an ARM bond), and that firm is no longer trading or has been declared “in default” by FSCS, they can make a claim against that firm with FSCS.
26. I have previously submitted a claim to FSCS against an IFA; what now happens with that claim?
If you have previously registered a claim with FSCS against an IFA (such as Rockingham Independent Limited), FSCS will issue a decision as soon as it is able to. If you require an update on your claim, you can contact FSCS’s Initial Contact Team on free phone 0800 678 1100 or 020 7741 4100.
If you have outstanding losses after FSCS has considered your claim against your IFA (i.e. you invested more than the £50,000 which FSCS can pay through your IFA and Catalyst), or your FSCS claim against your IFA was not successful, you may be eligible for further payment from FSCS as a result of Catalyst’s “default”. However, you will need to complete a new Catalyst application form (when they are available) before FSCS can consider your claim.
27. I invested in ARM bonds following advice from an adviser who was not authorised in the UK; can I still make a claim against Catalyst with FSCS?
Yes. The country of residence of a claimant does not prevent them from making a claim with FSCS (on the basis that claims against Catalyst relate to its activities whilst it was authorised by the FCA or its predecessor, the Financial Services Authority).
FSCS has investigated how the ARM bonds were distributed and sold in countries other than the UK. In particular, we have considered how the bonds were sold in Malta, where a high proportion of ARM bondholders reside. Following these investigations, FSCS is satisfied that bondholders who dealt with Maltese IFAs will be able to claim against Catalyst in the same way as bondholders who dealt with UK IFAs.
28. Are there time limits for claiming compensation?
FSCS rules set no time limit for making a claim for compensation to the FSCS, although a claim may be subject to legal time limits, such as limitation time bars, which can prevent a claimant from being able to make a claim. However, in the case of claims against Catalyst, it is unlikely that a claim will be time barred in most circumstances. This is because the date that Catalyst was declared in default by the FCA (4 October 2013) will ‘stop the clock’ for limitation purposes. The following limitation tests should provide guidance to claimants:
- Test 1: Claimants should submit a claim within 6 years of their dealings with Catalyst (which will generally be the time an ARM investment was made, typically between 2007 and 2010). As the Catalyst default date of 4 October 2013 ‘stops the clock’, limitation will only be an issue if investors invested before 4 October 2007.
- Test 2: If Test 1 is not passed, claimants have 3 years to submit a claim from the point they became aware or ought reasonably to have become aware (whichever is earlier) of a potential claim against Catalyst. For many investors this will have been in 2011 when payments from the ARM bonds were suspended. If that is the case, as 3 years will not have elapsed by the time Catalyst was declared in default on 4 October 2013, it is not expected that claims will be time barred for FSCS purposes.