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Topics: Lehman| FSCS| Arc Capital & Income
Home secretary Theresa May has written to the Financial Services Compensation Scheme about its decision to compensate some Lehman-backed NDFA structured product investors but not others.
Billions of dollars of the US investment bank's debt were packaged as structured products and sold to retail savers worldwide. When Lehmans collapsed in September 2008, the investments became worthless.
About 2,000 investors in 'Capital at Risk' plans run by failed firms Arc, NDF Administration and Defined Returns Limited (DRL) have been told by the FSCS that they are not eligible to claim compensation for their losses.
The son of one Capital at Risk investor, who is 93 years old and invested £50,000 without the advice of an IFA, who lives in May's constituency, has met with the home secretary to argue the decision is unfair.
In a letter to him this month, on the third anniversary of Lehman's collapse, she expressed "sympathy" for investors, and said she had raised the issue with the FSCS.
"I have sympathy for anyone who lost investments through the events associated with NDFA and Lehman Brothers," she wrote.
"I appreciate the concerns of those who feel they have been unfairly treated due to the decision by the FSCS not to compensate investors of certain plans, whilst compensating others in similar plans. This is an issue I have raised with the FSCS."
However she added that the FSCS is an independent non-governmental body, governed by rules set by the FSA, not parliament.
The FSCS has said it is satisfied the relevant marketing materials for the Capital at Risk products provided adequate and appropriate warnings that there was a risk to investors' capital if the undisclosed organisation backing these investment products, Lehmans, failed.
However it said it will offer payouts to the 1,700 investors in the 'Capital Secure' products backed by the collapsed firms.
Investors argued the marketing material for both plans are identical apart form the name of the product, and branded the decision unfair.
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Prevention better...
Interesting comment from Peter Taylor, but is the possiblity of recourse really the best recommendation for using an IFA? The firms that packaged these products in the UK were also FSA-regulated and theoretically covered by recourse. However, FOS cases are stuck in a queue after three years, and FSCS just does not want to pay. Would using an IFA have prevented the issue? Not necessarily. More than half the members of the missoldinvestments action group used IFAs and still lost their money. Also the FSA's sample of 157 advised structured product sales in the run up to Lehmans' collapse assessed just 31% as 'suitable' with 'significant levels of unsuitable advice' in nine of the 11 firms audited.
Posted by: Missold
David Sanders
Yes I can read, and in the sales literature promoting NDFA's February '08 Fixed Income or Growth Plan I read 'Your capital is only at risk if the FTSE 100 Index or Dow Jones EURO STOXX 50 fall by more than 50% from their Starting Index Levels.' This statement was false, yet FSCS did not consider this Plan mis-sold! FSCS have never revealed WHY they think that investors in this (and other similar) plans received adequate and appropriate warning that there was a danger of capital loss. Nor have they revealed why they compensated investors in another NDFA Plan whose literature included EXACTLY the same statement of risk. Why are FSCS so frightened of revealing their reasoning? Could it be that they know that if they did reveal it it would prove laughably unsound?
Posted by: Anon
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"...appropriate warnings that there was a risk to investors' capital if the undisclosed organisation backing these investment products...failed." And how does an investor assess the risks posed by an undisclosed organisation? One for the FSA to re-think.
Posted by: Hmmm