MP David Davis demands answers from FSA on Arch Cru

MP David Davis has pressed the Financial Services Authority for an explanation over why it allowed Capita to offer only limited redress to victims of the Arch Cru investment funds scandal.

Davis, a leading Tory MP, is concerned the level of compensation was decided not on grounds of fairness, but on Capita's ability to pay, according to the Daily Mail.

The Arch Cru funds were suspended in 2009 amid allegations of widespread mispricing and that fund manager Arch had invested in inappropriate assets.

As authorised corporate director to the Arch Cru funds, Capita's duty was to safeguard investors' assets and ensure their money was invested according to the rules. Investors argue it failed to carry out those responsibilities effectively.

Banking giants HSBC and BNY Mellon have agreed to contribute to a £54m  compensation pot, but Capita is providing the bulk.

In a letter on Friday to FSA chief executive Hector Sants, Davis asked why the regulator agreed limited redress with Capita behind closed doors. The £54m deal means most investors, many of whom invested for only a matter of months, will shoulder losses of at least 30%

According to the Mail, Davis said a letter from Sants to Chancellor George Osborne in August spells out ‘the inability of one of three firms - HSBC, BNY Mellon and Capita - to meet its liabilities to compensate investors as a reason for the cap of £54m'.

Davis asked in his letter to Sants: ‘Did the FSA decide that Capita could not pay over £100m? That appears to be the implication of your letter to the Chancellor.'

On Friday, Davis pledged to step up pressure for full compensation. Separately, an all-party parliamentary group will press Capita to attend a meeting in the New Year.

The FSA last week began a review that could lead to some independent advisers being forced to compensate investors.