A proposed £110m redress scheme for Arch Cru investors could “irreparably” damage firms forced to pay for the failures of others through the Financial Services Compensation Scheme (FSCS), the regulator has been warned.
Currently being consulted on the by the Financial Services Authority (FSA), the scheme would require 795 firms to review their Arch Cru business and, where any mis-selling is identified, to pay redress.
Although Informed Choice did not sell the products, which it deemed to be too opaque, the firm responded to the consultation because of its fears about the potential impact on the intermediary sector.
In an open letter to the FSA, executive director Nick Bamford suggested the estimate of 30% of firms failing as a result of the scheme, potentially landing FSCS levy-payers with a £33m bill, was a "substantial underestimate".
Identifying a number of potential scenarios for the firms affected, including not being able to afford professional indemnity insurance excesses, Bamford said the scheme was "faulty and inequitable" until the precise position of the firms can be identified.
"Firms are already suffering under successive FSCS levies and the consequences of the Consumer Redress Scheme will be to further damage, in some cases irreparably, those intermediary firms who have not mis-sold," he said.
He added that it was "very worrying" that the FSA had also not identified the other claims which may fall on the FSCS should the firms fail.
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