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CONRED 2.1 Application and subject matter of the scheme

Application to firms which made personal recommendations

CONRED 2.1.1 R
  1. (1)

    1The whole of this chapter applies to a firm which made a personal recommendation in relation to an Arch cru fund, after which a consumer made an investment in the Arch cru fund, and to which the suitability requirements (specified at paragraph 5.1R of the instructions in CONRED 2 Annex 13 ) applied.

  2. (2)

    The Arch cru funds referred to in CONRED are any of the following sub-funds of the CF Arch cru Investment Funds and CF Arch cru Diversified Funds:

    1. (a)

      CF Arch cru Investment Portfolio;

    2. (b)

      CF Arch cru Specialist Portfolio;

    3. (c)

      CF Arch cru Income Fund;

    4. (d)

      CF Arch cru Balanced Fund;

    5. (e)

      CF Arch cru Global Growth Fund; or

    6. (f)

      CF Arch cru Finance Fund.

Application to persons who have assumed a firm's liabilities

CONRED 2.1.2 R
  1. (1)

    The whole of this chapter also applies to a person who has assumed a liability (including a contingent one) in respect of a failure by a firm to whom this chapter applies.

  2. (2)

    A person in (1) must either:

    1. (a)

      perform such of the obligations as the firm is required to perform under this chapter; or

    2. (b)

      ensure that those obligations are performed by the firm;

      and must notify the FCA, by 29 April 2013, by email to ArchCruProject@fca.org.uk, as to whether that person or the firm, or both, will be performing those obligations.

  3. (3)

    References in this chapter to a firm are to be interpreted as referring to a person in (1) where the context so requires.

Wider application of certain provisions

CONRED 2.1.3 R

CONRED 2.2 , CONRED 2.4.1R (1), CONRED 2.8.1 R, CONRED 2.8.2 R, CONRED 2.8.3 R and CONRED 2.8.4 G also apply to any firm which has carried out any of the following regulated activities for a customer in relation to an Arch cru fund:

  1. (1)

    advising on investments; or

  2. (2)

    arranging (bringing about) deals in investments; or

  3. (3)

    making arrangements with a view to transactions in investments; or

  4. (4)

    managing investments;

except for a firm which, at the relevant time, was a platform service provider; meaning it:

  1. (5)

    provided a service which involved arranging and safeguarding and administering assets;

  2. (6)

    distributed retail investment products which were offered to retail clients by more than one product provider; and

  3. (7)

    did not carry on the regulated activities of advising on investments or managing investments.

Duration of the scheme

CONRED 2.1.4 R

The consumer redress scheme created by this chapter comes into force on 1 April 2013 and has no end date.

Subject matter of the scheme

CONRED 2.1.5 R

The subject matter of the scheme is whether a firm complied with the suitability requirements (specified in paragraph 5.1R of CONRED 2 Annex 13 R) in cases where the conditions in CONRED 2.4.2 R are satisfied (these are referred to in this chapter as "scheme cases").

CONRED 2.1.6 R

A scheme case ceases to be within the subject matter of the scheme if the firm:

  1. (1)

    did not have sufficient information to determine the scheme case and has taken the required steps to obtain further information from the consumer but still does not have sufficient information (as more fully described in CONRED 2.5.9 R); or

  2. (2)

    has not received an opt-in from the consumer by 22 July 2013 (or later, where the provision in CONRED 2.5.1R (2) in relation to exceptional circumstances applies); or

  3. (3)

    is unable to contact a consumer (as more fully described in CONRED 2.8.3R (2)).

CONRED 2.1.7 G

Where the firm has not received, by 22 July 2013, a response from the consumer to the letter required by CONRED 2.4.4 R or (where applicable) to the letter required by CONRED 2.4.5R (1) or (2), the firm should handle any complaint received from a consumer after this date in relation to the sale of Arch cru funds in accordance with the complaint handling rules in DISP, unless CONRED 2.5.1R (2) (in relation to exceptional circumstances) applies.

Defined terms

CONRED 2.1.8 R

Certain words and phrases specific to CONRED are defined in CONRED App 1 and the Glossary. All words in italics are defined in the Glossary.

CONRED 2.2 Summary of the scheme

CONRED 2.2.1 G
CONRED-2.2.1.png

CONRED 2.3 Notifications and reports to the FCA

CONRED 2.3.1 R

Notifications and other reports required by these rules to the FCA must be sent to the email address specified.

CONRED 2.3.2 G

If the firm is to send an encrypted email to the FCA it will need to download the public PGP key from the FCA website and import the key into its email client software.

CONRED 2.4 Consumer redress scheme: identifying scheme cases and inviting consumers to request a review

Deadlines to complete the steps in this section

CONRED 2.4.1 R
  1. (1)

    By 29 April 2013, a firm must take the first and second steps set out in this section and send a redress determination in the form set out in CONRED 2 Annex 1 R to any customer in CONRED 2.1.3 R who falls outside the subject matter of the scheme.

  2. (2)

    A firm must, by the deadlines set out in CONRED 2.4.5 R, take the third step set out in this section.

First step: identify cases within subject matter of scheme

CONRED 2.4.2 R

The first step is to identify all cases within the subject matter of the scheme; ie, where each of the following conditions is satisfied ("scheme cases")

  1. (1)

    the firm made a personal recommendation to a consumer to invest in an Arch cru fund specified above at CONRED 2.1.1R (2) and after that recommendation the consumer did so invest;

  2. (2)

    the suitability requirements (specified at paragraph 5.1R of CONRED 2 Annex 13 R) applied to the recommendation;

  3. (3)

    the law applicable to the obligations of the firm arising in connection with the personal recommendation is that of a UK territory (that is, England, Wales, Scotland or Northern Ireland) (see CONRED 2.4.7 R);

  4. (4)

    if the applicable law in (3) is that of England, Wales or Northern Ireland, the consumer's investment in Arch cru funds was on or after 13 December 2006;

  5. (5)

    if the applicable law in (3) is that of Scotland:

    1. (a)

      the consumer's investment in the Arch cru fund was on or after 13 December 2007; or

    2. (b)

      where the consumer's investment in the Arch cru fund was before 13 December 2007, the consumer did not know, and could not with reasonable diligence have known, before 13 December 2007, that he had suffered loss;

  6. (6)

    the consumer has not, prior to 1 April 2013, accepted an offer of redress from the firm or other person in full and final settlement of all potential claims arising out of the recommendation in (1); and

  7. (7)

    the consumer has not, prior to 1 April 2013, asked the Financial Ombudsman Service to deal with a complaint against the firm arising out of the recommendation in (1).

CONRED 2.4.3 E

The adoption by a firm of any date earlier than the date of suspension (13 March 2009) as the date when the consumer knew, or could with reasonable diligence have known, that he had suffered loss, may be relied upon as tending to show contravention of CONRED 2.4.2 R.

Second step: send initial letters to consumers

CONRED 2.4.4 R

The second step is, for all scheme cases, to send to the consumer a letter in the form set out in CONRED 2 Annex 2 R inviting the consumer to opt-in to the scheme.

Third step: send follow-up letters to consumers

CONRED 2.4.5 R

The third step is to do the following:

  1. (1)

    for all scheme cases where the firm has not received an opt-in, by 27 May 2013, the firm should send the consumer an opt-in reminder (in the form set out in CONRED 2 Annex 3 R) by 3 June 2013 (unless the firm has received an opt-in in the interim);

  2. (2)

    for all scheme cases where the firm has not received, by 24 June 2013, an opt-in or (where applicable) by (1), the firm should send the consumer an opt-in reminder letter (in the form set out in CONRED 2 Annex 4 R) by 1 July 2013 (unless the firm has received an opt-in in the interim); and

  3. (3)

    for all scheme cases where the firm has not received, by 22 July 2013 an opt-in or, where applicable by (1) or (2), the firm should send the consumer a letter in the form set out in CONRED 2 Annex 5 R by 29 July 2013 (unless the firm has received an opt-in in the interim when it must follow the steps in CONRED 2.5.1R (2)).

CONRED 2.4.6 R

For the purpose of CONRED 2.4.5 R:

  1. (1)

    an 'opt-in' is an indication from, or on behalf of, a consumer that he wishes the firm to carry out a case review (as detailed in CONRED 2.5); and

  2. (2)

    if a firm receives a complaint relating to the subject matter of the scheme from a consumer on or after 1 April 2013 and before 23 July 2013 it must treat the complaint as an 'opt in' to the scheme.

Applicable law

CONRED 2.4.7 R

For the purposes of CONRED 2.4.2R (3), the applicable law is:

  1. (1)

    where, in connection with the personal recommendation:

    1. (a)

      the consumer has agreed to the firm'sterms of business; and

    2. (b)

      these include a clause providing for the application of the law of a particular UK territory (that is, England, Wales, Scotland or Northern Ireland);

    that UK territory; or

  2. (2)

    if (1) does not apply: where the firm and the consumer are habitually resident in the same UK territory, and the personal recommendation is made there, that UK territory; or

  3. (3)

    if neither (1) nor (2) applies: where the conditions in CONRED 2.4.8 R apply, the UK territory in which the consumer is habitually resident; or

  4. (4)

    if none of (1), (2) or (3) applies: the UK territory in which the firm made the personal recommendation.

CONRED 2.4.8 R

The conditions referred to in CONRED 2.4.7R (3) are that:

  1. (1)

    in the UK territory in which the consumer has his habitual residence, either:

    1. (a)

      the contract under which the personal recommendation was provided was preceded by a specific invitation addressed to the consumer, or by advertising, and the consumer took all the steps necessary to engage the firm; or

    2. (b)

      the firm or its agent received the consumer's order; and

  2. (2)

    the personal recommendation was provided at least in part in that UK territory.

Reporting requirement: opted-in scheme cases

CONRED 2.4.9 R

By 29 July 2013, a firm must report to the FCA by email to archcrureview@fca.org.uk; or (if the email is encrypted) archcrureviewpgp@fca.org.uk with the following information:

  1. (1)

    the total number of scheme cases (cases falling within CONRED 2.4.2 R);

  2. (2)

    the total number of investments in Arch cru funds resulting from the regulated activities for a customer in CONRED 2.1.3 R which fall outside the subject matter of the scheme (see CONRED 2.1.5 R and CONRED 2.4.2 R), with a summary explanation of the reason why in each case; and

  3. (3)

    the total number of opted-in scheme cases.

    [Note: for details of how to obtain an encryption key see guidance above at CONRED 2.3.2 G]

CONRED 2.5 Consumer redress scheme: case review

Deadline to complete the steps in this section

CONRED 2.5.1 R

A firm:

  1. (1)

    in respect of any scheme case where the firm has received an opt-in by 22 July 2013, must take the steps set out in this section by 9 December 2013; and

  2. (2)

    in respect of any scheme case where the firm has received an opt-in later than 22 July 2013, must take the steps set out in this section if the consumer's failure to comply with that time limit was caused by exceptional circumstances; in such a case, the deadline in (1) is extended according to the length of the delay caused by the consumer's failure to comply with the time limit.

CONRED 2.5.2 G

The guidance on exceptional circumstances at CONRED 2.6.3 G is relevant to CONRED 2.5.1R (2).

CONRED 2.5.3 R
  1. (1)

    For any scheme case where the firm has received an opt-in, but the firm, does not consider CONRED 2.5.1R (2) requires it to take the steps set out in this section, and does not intend to do so, the firm must send the consumer a redress determination in the form set out in CONRED 2 Annex 6 R within 14 days of receiving the opt-in.

  2. (2)

    For any opted-in scheme case, the firm must send the consumer, within 14 days of receiving the opt-in, a letter in the form set out in CONRED 2 Annex 7 R.

First step: case review of each opted-in scheme case

CONRED 2.5.4 R

The first step is to carry out a review (a case review) of each opted-in scheme case, by completing the template at CONRED 2 Annex 12 R, in accordance with the rules set out in the instructions at CONRED 2 Annex 13 .

CONRED 2.5.5 E

Non-compliance with any of the evidential provisions set out in the instructions at CONRED 2 Annex 13 may be relied upon as tending to show contravention of CONRED 2.5.4 R.

CONRED 2.5.6 G

In complying with CONRED 2.5.4 R, firms should have regard to the guidance set out in the instructions at CONRED 2 Annex 13 .

Second step: cases of insufficient information

CONRED 2.5.7 R
  1. (1)

    The second step applies only in respect of an opted-in scheme case where a firm has attempted to comply with the first step (CONRED 2.5.4 R) but does not have sufficient information to determine all of the following matters:

    1. (a)

      whether it has failed to comply with any of the suitability requirements specified at paragraph 5.1R of CONRED 2 Annex 13 ;

    2. (b)

      if so, whether that failure has caused loss or damage to the consumer; and

    3. (c)

      if so, what the redress should be in respect of its failure.

  2. (2)

    The second step is to:

    1. (a)

      send the consumer a letter in the form set out in CONRED 2 Annex 8 R;

    2. (b)

      if no reply is received by the firm within four weeks of a letter in (a) being dispatched, the firm must send a letter to the consumer, within one further week, in the form set out in CONRED 2 Annex 9 R, and take all reasonable steps to contact the consumer by other means; and

    3. (c)

      if a reply is received from a consumer but the information it contains is insufficient to determine all the matters in (1), the firm should take all reasonable steps to obtain further information from the consumer.

[Note: see also CONRED 2.8.7 R.]

CONRED 2.5.8 R

A firm which, having carried out the second step, has acquired sufficient information to determine all of the outstanding matters must then complete the first step (CONRED 2.5.4 R).

CONRED 2.5.9 R

Where a firm has carried out the second step in relation to an opted-in scheme case (falling within CONRED 2.4.2 R) but still does not have sufficient information to determine all of the outstanding matters, the opted-in scheme case no longer falls within the subject matter of the consumer redress scheme created by this chapter. The firm must send the consumer a letter in the form set out in CONRED 2 Annex 10 R promptly on completion of the second step.

CONRED 2.5.10 G

Opted-in scheme cases to which the second step (CONRED 2.5.7 R) applies are likely to be exceptional, having regard to the record-keeping requirements applicable to authorised persons under FCArules (notably SYSC).

Third step: redress determination

CONRED 2.5.11 R

The third step is to send the consumer a redress determination in the form of the letter set out in CONRED 2 Annex 11 R in respect of each opted-in scheme case.

Taking steps by or on behalf of FCA

CONRED 2.5.12 R

The FCA may (on giving notice to the firm) take any of the steps in CONRED 2.3 to CONRED 2.5, instead of the firm, or may appoint one or more competent persons to do so on behalf of the FCA, if there is a material failure by the firm to take any of the actions required under this chapter, including where the firm informs the FCA that it is unable or unwilling to take any of those actions because to do so would be in breach of a condition of its professional indemnity insurance. In such a case, the firm must:

  1. (1)

    not carry out (or, as the case may be, continue) any of the steps to be taken by the FCA or competent person, unless so directed by them; and

  2. (2)

    render all reasonable assistance to the FCA or competent person (but any assistance, the rendering of which would invalidate the firm's professional indemnity insurance, is not reasonable for the purposes of this rule).

CONRED 2.5.13 G

The FCA would expect a firm to make reasonable efforts to obtain the consent of its professional indemnity insurer to take the relevant steps, in line with its obligations under Principle 11 (Relations with regulators).

CONRED 2.5.14 R

If, where the FCA or a competent person takes any steps under CONRED 2.5.12 R, the FCA proposes to make any determination of:

  1. (1)

    whether a failure by a firm has caused loss to a consumer; or

  2. (2)

    what the redress should be in respect of the failure;

the FCA must give the firm a warning notice specifying the proposed determination.

CONRED 2.5.15 R
  1. (1)

    If the FCA decides to make a determination of the matters in CONRED 2.5.14 R, the FCA must give the firm a decision notice specifying the determination.

  2. (2)

    If the FCA decides to make such a determination, the firm may refer the matter to the Tribunal.

CONRED 2.5.16 R

Part 26 of the Act (including the provisions as to final notices) applies in respect of notices given under CONRED 2.5.14 R and CONRED 2.5.15 R.

CONRED 2.5.17 G

Where, under CONRED 2.5.12 R, the FCA (or a competent person) communicates with a customer (or consumer) instead of the firm, it will do so in its own name, making clear (in the case of a competent person) its authority from the FCA to do so.

CONRED 2.5.18 G

Where the FCA (or a competent person), instead of the firm, carries out the third step in CONRED 2.5.11 R, it will do so no earlier than seven days after the issue of a final notice in respect of the FCA's decision to make a determination of the matters in CONRED 2.5.14 R, and will send the firm a copy of the consumer's response to the redress determination.

CONRED 2.5.19 G

A fee is payable by the firm (or person falling within CONRED 2.1.2R (1)) in any case where the FCA exercises its powers under CONRED 2.5.12 R: see the table at FEES 3.2.7 R.

CONRED 2.5.20 G

The completion of the steps in CONRED 2.3 to CONRED 2.5 by, or on behalf of, the FCA, as provided in CONRED 2.5.12 R, does not affect the ability of the Ombudsman to consider a complaint, in particular where the firm has not sent a redress determination in accordance with the time limits specified under the scheme.

CONRED 2.6 Consumer redress scheme: paying redress

CONRED 2.6.1 R

A firm must pay the redress determined to be payable to a consumer, calculated in accordance with the requirement in section 10 of the instructions at CONRED 2 Annex 13 :

  1. (1)

    within 28 days of receiving a claim from the consumer for the redress determined to be payable, following the issue of the redress determination; and

  2. (2)

    in accordance with the instructions set out by the consumer in his response to the redress determination in which he makes the claim

but a firm need not pay redress where the consumer did not send a claim for it within six months of the date of the redress determination, unless the consumer's failure to comply with that time limit was as a result of exceptional circumstances, except where the consumer refers a complaint in respect of the redress determination to the Financial Ombudsman Service within the time limits provided in DISP 2.8.2 R (or DISP 2.8.2R (3) applies).

CONRED 2.6.2 R
  1. (1)

    Simple interest is payable on the redress determined to be payable from the end of the 28-day period referred to in CONRED 2.6.1R (1) until the date of payment, at a rate of 8% per annum.

  2. (2)

    After the expiry of 28 days following the consumer's claim for the redress, the redress, including interest, may be recovered as a debt due to the consumer and, in particular, may:

    1. (a)

      if a county court so orders in England and Wales, be recovered by execution issued from the county court (or otherwise) as if it were payable under an order of that court; or

    2. (b)

      be enforced in Northern Ireland as a money judgment under the Judgments Enforcement (Northern Ireland) Order 1981; or

    3. (c)

      be enforced in Scotland by the sheriff, as if it were a judgment or order of the sheriff and whether or not the sheriff could himself have granted such judgment or order.

[Note: This rule is imposed by the FCA using the powers granted to it under section 404A(1)(m) of the Act to make rules providing for the enforcement of any redress under a consumer redress scheme.]

CONRED 2.6.3 G
  1. (1)

    An example of exceptional circumstances in CONRED 2.6.1 R might be where the consumer has been or is incapacitated.

  2. (2)

    In considering whether circumstances are exceptional, firms may wish to have regard to the guidance on exceptional circumstances justifying the extension of the time limits, in the online technical resource titled "the six-month time limit" on the website of the Financial Ombudsman Service.

CONRED 2.7 Supervision and delegation of scheme process by firms

CONRED 2.7.1 R

A firm must ensure that the steps required by this chapter are undertaken or supervised by the individual appointed by the firm under DISP 1.3.7 R where that rule applies. In any other case, those steps must be taken or supervised by a person of appropriate experience and seniority.

CONRED 2.7.2 G
  1. (1)

    Any firm intending to outsource any of the obligations imposed on it under this chapter should have due regard to the rules and guidance on outsourcing which are applicable to it, notably in SYSC.

  2. (2)

    A firm which outsources any of the obligations imposed on it under this chapter in respect of communications with consumers should ensure that those communications are clear as to the identity of the firm.

CONRED 2.8 Provisions relating to communications with consumers

CONRED 2.8.1 R

Whenever a firm is required by a provision of this chapter to send a letter in a form set out in an Annex, it must do so enclosing any documents referred to, following the instructions in the standard form set out in the relevant Annex, complying with any instructions in that Annex to insert, delete, select or complete text.

CONRED 2.8.2 R

All letters to consumers required under this chapter must be printed on the letterhead of the firm and dispatched by recorded delivery mail.

CONRED 2.8.3 R
  1. (1)

    Where a firm becomes aware that the contact details it holds for a customer (or consumer) are out of date, it must take all reasonable steps to obtain up-to-date contact details and, where appropriate, resend any letter and repeat the steps to contact the customer (or consumer) required by this chapter.

  2. (2)

    If, having complied with (1), a firm is unable to contact a customer (or consumer), it need not take any further action pursuant to this chapter in relation to that customer (or consumer) unless (3) applies.

  3. (3)

    If, in reliance on (2), the firm has ceased taking action but subsequently becomes aware of up-to-date contact details for that customer (or consumer), the firm must, where appropriate, resend any letter and repeat the steps to contact the customer (or consumer) required by this chapter. Each applicable deadline for those actions by the firm is extended according to the length of the delay incurred by the application of (2).

CONRED 2.8.4 G

The reasonable steps in CONRED 2.1.3R (1) might include checking public sources of information, but without incurring excessive cost.

CONRED 2.8.5 G

The reasonable steps in CONRED 2.5.7R (2)(b) might include attempting to contact the consumer by telephone (at a reasonable hour when the consumer is likely to be available to receive the call) or by email.

CONRED 2.8.6 R

A firm must not make any communication to a consumer which seeks to influence, for the benefit of the firm, the outcome of the processes undertaken pursuant to this chapter, either by seeking to influence the content of information provided by the consumer in response to the firm's requests made under CONRED 2.5.7 R or otherwise.

CONRED 2.8.7 R

A firm must tailor the questionnaire at CONRED 2 Annex 8 R so that it does not request more information than is sufficient for it to determine all of the outstanding matters.

CONRED 2.9 Consumer redress scheme: information requirements

Requests for information by the FCA

CONRED 2.9.1 R

In relation to any matter concerning or related to the consumer redress scheme created by this chapter, section 165 (Regulator's power to require information: authorised persons etc) of the Act and any provision of Part 11 (Information Gathering and Investigations) of the Act which relates to that section, apply to any firm (or person in CONRED 2.1.2 R) which is not an authorised person as if it were an authorised person.

Reporting requirement: by 9 December 2013

CONRED 2.9.2 R

A firm must, by 9 December 2013, a firm must report to the FCA, by email to archcrureview@fca.org.uk or (if the email is encrypted) archcrureviewpgp@fca.org.uk, the following information:

  1. (1)

    the total number of opted-in scheme cases (cases falling within CONRED 2.5.1 R);

  2. (2)

    the total number of completed templates;

  3. (3)

    the total number of incomplete templates, with an explanation as to why the templates have not been completed;

  4. (4)

    the total number of redress cases;

  5. (5)

    the total number of redress determinations sent to consumers;

  6. (6)

    the total number of consumers that have been paid redress to date;

  7. (7)

    the total amount of redress paid to date; and

  8. (8)

    the total amount of redress unpaid to date.

[Note: for details of how to obtain an encryption key see guidance above at CONRED 2.3.2 G]

CONRED 2.10 Record-keeping requirements

CONRED 2.10.1 R
  1. (1)

    A firm must keep the following records:

    1. (a)

      the certificate of posting for each letter sent in accordance with this chapter;

    2. (b)

      a copy of each letter sent in accordance with this chapter;

    3. (c)

      a record of any attempts to contact the consumer, or obtain further information, in accordance with CONRED 2.5.7R (2)(b) or (c);

    4. (d)

      the completed template (CONRED 2 Annex 12 R) for each opted-in scheme case; and

    5. (e)

      all information on the consumer file and any information received from a consumer.

  2. (2)

    A firm must keep the records required by (1) for a minimum of five years from the date of their creation or (for the records in (1)(e)) the date when the information is located on the consumer file or obtained.

CONRED 2 Annex 1 Redress determination for customers outside subject matter of Arch cru consumer redress scheme

R

Redress determination for customers outside subject matter of Arch cru consumer redress scheme - CONRED 2 Annex 1 R

CONRED 2 Annex 2 Letter to consumers confirming existence of review and inviting request to opt-in

R

Letter to consumers confirming existence of review and inviting request to opt-in - CONRED 2 Annex 2 R

CONRED 2 Annex 3 First reminder letter to consumers inviting request for review

R

First reminder letter to consumers inviting request for review - CONRED 2 Annex 3 R

CONRED 2 Annex 4 Second reminder letter to consumers inviting request for review

R

Second reminder letter to consumers inviting request for review - CONRED 2 Annex 4 R

CONRED 2 Annex 5 Final letter to consumers who have not sent a request for review

R

Final letter to consumers who have not sent a request for review - CONRED 2 Annex 5 R

CONRED 2 Annex 6 Redress determination where firm considers opt-in ineffective

R

Redress determination where firm considers opt-in ineffective - CONRED 2 Annex 6 R

CONRED 2 Annex 7 Letter to consumers confirming their case will be reviewed

R

Letter to consumers confirming their case will be reviewed - CONRED 2 Annex 7 R

CONRED 2 Annex 8 Initial letter requesting information/enclosing questionnaire

R

Initial letter requesting information/enclosing questionnaire - CONRED 2 Annex 8 R

CONRED 2 Annex 10 Redress determination where consumer has not provided requested information

R

Redress determination where consumer has not provided requested information - CONRED 2 Annex 10 R

CONRED 2 Annex 11 Redress determination letter for scheme cases

R

Redress determination letter for scheme cases - CONRED 2 Annex 11 R1

1

CONRED 2 Annex 12 Arch cru product advice suitability assessment template

R

Arch cru product advice suitability assessment template - CONRED 2 Annex 12 R

CONRED 2 Annex 13 CF Arch cru funds template instructions

1

Limitations on use of template and instructions

1.1

G

The Arch cru advice suitability assessment template reproduced at CONRED 2 Annex 12 R (referred to in these instructions as the "template") and the instructions in this Annex are only to be used for the purpose of complying with the requirements under CONRED 2 to assess sales of the Arch cru funds identified at CONRED 2.1.1R (2). They should not be used for any other purpose.

2

Using the template

2.1

G

The template contains factors to take into account to determine whether there has been a failure to comply with the suitability requirements (specified at 5.1R, below) in an opted-in scheme case.

2.2

R

The template is divided into sections which must be completed in full, except where indicated in these instructions.

2.3

R

Before completing the template you must familiarise yourself with the features and risks of the Arch cru funds that a reasonably competent firm should have identified, as specified in CONRED 2 Annex 15 R.

2.4

R

Answer the questions in the template and complete your assessment by reference to the available evidence (information on the consumer file and any information received from a consumer), and the features and risks of the Arch cru funds that a reasonably competent firm should have identified, as specified in CONRED 2 Annex 15 R.

3

Admission of failure to comply with suitability requirements

3.1

R

Where you admit that the firm has failed to comply with a suitability requirement (specified at 5.1R, below) in an opted-in scheme case complete the following sections of the template:

(1)

firm and case details;

(2)

consumer details;

(3)

transaction input;

(4)

admission of failure in an opted-in scheme case;

(5)

causation; and

(6)

redress.

4

Completing the template

4.1

R

Fill in the following sections of the template as follows:

(1)

Firm and case details: enter the firm-specific information as it appears on the Financial Services Register.

(2)

Consumer details: enter the consumer details and the date of the advice to the consumer. Advice was given on a joint basis if it was given to two people where the personal recommendation relates to a "joint" portfolio. This includes cases where the advice is directed at a couple but where the investment is in one spouse's name for tax purposes.

(3)

Transaction input: take the following steps:

(a)

Select the date of investment in the "transaction date" box. If you cannot identify the date of investment from the consumer file, insert the date of advice as the approximate date of the investment.

(b)

Select the Arch cru fund(s) invested in.

(c)

Select the transaction type from the drop-down menu. The transaction types to select from are:

Investment: an investment into an Arch cru fund. Enter the amount invested, the share class, and the wrapper (if applicable).

Partial withdrawal: the sale of part of the consumer's share capital in the consumer's investment, excluding interim hardship withdrawals.

Final withdrawal: the sale of all of the consumer's share capital in the consumer's investment, excluding final hardship withdrawals.

Income distribution: any income distribution received by the consumer in respect of their shares in the consumer's investment prior to the date of suspension of the Arch cru funds.

Capital distribution: any capital distribution received by the consumer in respect of their shares in the consumer's investment after the date of the suspension.

Capita offer: the amount offered to the consumer under the CF Arch cru payment scheme.

Interim hardship withdrawal: interim distributions received by the consumer from the Capita Hardship Scheme (ie, the hardship scheme for investors in Arch cru funds as set out by Capita Financial Managers Ltd in a letter to investors of 7 December 2009) after the date of the suspension.

Final hardship withdrawal: the amount received by the consumer for any full surrender of the investment from the Capita Hardship Scheme (as described above) after the date of the suspension.

(d)

Input the amount corresponding to the transaction type.

(4)

Admission of failure to comply with a suitability requirement in the opted-in scheme case: Select "yes" or "no" and proceed with the steps outlined at 3.1R, above.

(5)

Consumer investment objectives: take the following steps:

(a)

Identify and select whether any of the objectives listed on the template is recorded (yes/no) and override the "yes" with "priority" if the consumer says, or the firm recorded that, this objective was a priority.

(b)

If a consumer was investing a lump sum to obtain an income, identify and record what level of annual income the consumer wanted from the recommended Arch cru fund.

(c)

The objective 'Realignment of portfolio' must be used when the consumer's circumstances or overall investment objective has changed.

(d)

If the consumer had other investment objectives not identified in the list above, record these objectives in the box provided and identify whether they were a priority.

(e)

Complete the "Comments on consumer investment objectives" box where you have further comments on the consumer's investment objectives relevant to your assessment.

(6)

Consumer attitude to risk ("ATR"): take the following steps:

(a)

In the "Consumer's attitude to risk" box record the firm's short description of the consumer's ATR, using the headline description used on their risk scale (eg, "balanced", "medium", "5/10").

(b)

In the "Firm's description of the consumer's ATR" box record the firm's description of the consumer's ATR, using the firm's own wording (eg, "balanced means the consumer will invest in x, y types of assets and wants to take x risk with their capital").

(c)

In the "Comments on the firm's assessment of the consumer's ATR" box record any comments you have on the firm's assessment of the consumer's attitude to risk and whether the firm's assessment was, in your view, a reasonable representation of the consumer's ATR. You should also include any information about the consumer's ATR in relation to this particular investment.

(d)

This section does not record information on the consumer's capacity for loss (which is different to a consumer's ATR). This information must be noted in the "Comments on the consumer's capacity for loss" box in the "Consumer's financial situation" section of the template.

(e)

Where there is evidence that the consumer's ATR was wrongly assessed by the firm, complete the suitability section based on your assessment of the consumer's ATR.

(7)

Consumer financial situation: take the following steps:

(a)

Record information on the consumer's savings and investments portfolio before and after the consumer's investment in the Arch cru funds in the boxes provided.

(b)

The template provides the following categories:

• Cash (including cash ISAs)

• Investments

• Arch cru funds (this is a drop-down menu).

(c)

When completing the table of the consumer's investments, take into account the following:

• Where advice is being provided on a "joint" basis (see 4.1R(2), above), record the combined total of, for example, a married couple's investments. Where advice is on a 'single' basis but the consumer is married or in a relationship include the value of the proportion of investments owned by the consumer (these will usually be in the consumer's name). Where the consumer's share of investments is unclear from the file you can assume the proportion owned by the consumer is 50%.

• Only include pension policy values where the fund is held in a pension wrapper (eg a self-invested personal pension (SIPP) or a small self-administered scheme (SASS)).

• Where the source of funds is existing investments, use the surrender value of the investments.

(d)

In the "Comments on portfolio before and after sale" box record your observations about the level of diversification within the portfolio and how the advice to invest in the selected Arch cru fund has met the consumer's investment objectives for their portfolio.

Your comments must include whether the evidence supports an assessment that the risk profile of the consumer's overall portfolio was suitable given the consumer's personal and financial circumstances and objectives before and after the advice to invest in an Arch cru fund. This information will be relevant later in the template.

(e)

In the "Comments on consumer's capacity for loss" box, record the firm's comments on the consumer's capacity for loss (also referred to as the level of risk the consumer is able to take). This is different to the level of risk that the consumer was willing or would have preferred to take. In doing so, consider whether, in the light of the available evidence:

• the consumer was able to take any risk with the consumer's capital or income;

• there would have been an impact on the consumer of a total or partial loss of capital;

• the consumer could, considering his personal and financial circumstances, afford to take this level of risk.

(8)

Suitability requirements: take the steps set out at 5.1 to 5.4, below.

(9)

Causation: take the steps set out at 9.1 to 9.5, below.

(10)

Redress: take the steps set out at 10.1 to 10.15, below.

5

Suitability requirements

5.1

R

The following requirements are specified:

(1)

for a personal recommendation made on or before 31 October 2007, COB 5.3.5 R (1);

(2)

for a personal recommendation made on or after 1 November 2007, COBS 9.2.1 R (1);

(3)

the common law duty in contract or tort to exercise reasonable skill and care in advising the consumer on investments.

5.2

G

The contract between the firm and the consumer may have included a specific term providing that the firm would exercise reasonable skill and care in advising the consumer on investments. If it did not do so, such a duty is likely to have been implied into the contract.

5.3

G

The standard of care under the FCArules and the common law is that of a reasonably competent firm carrying on a similar business to that of the firm assessed.

5.4

G

COB 5.2 and COBS 9.2.1 R (2), COBS 9.2.2 R and COBS 9.2.3 R indicate particular matters of which you should take account when assessing whether the firm failed to comply with the suitability requirements at 5.1R, above. In summary, these are the consumer's:

(1)

investment objectives;

(2)

financial situation; and

(3)

experience and knowledge of investments similar to the recommended Arch cru fund.

6

Assessing opted-in scheme cases

General

6.1

G

The "Suitability section" in the template and associated additional provisions in these instructions contain examples which tend to show failure to comply or compliance with the suitability requirements ("example").

6.2

G

The suitability requirements arise from FCArules and the common law. For the requirements specified, the standards required of the firm are broadly the same whether their origin is a rule or the common law.

6.3

R

You must in each opted-in scheme case falling within CONRED 2.4.2 R:

(1)

fairly consider and give appropriate weight to all information on the consumer file and any information received from a consumer of the firm's compliance or non-compliance with applicable suitability requirements at 5.1R, above; and

(2)

decide, with reference to the examples in the suitability requirements section of the template, whether it is more likely than not that the firm failed to comply with the suitability requirements specified at 5.1R, above.

6.4

R

In considering the information on the consumer file and any information received from a consumer, you must:

(1)

not assume that a firm complied with a suitability requirement (specified at 5.1R, above) solely on the basis that:

(a)

the consumer signed documentation that records his understanding or agreement to matters set out in that documentation;

(b)

the personal recommendation was given to a consumer who had already invested in an Arch cru fund or a predecessor of that fund;

(2)

give more weight to evidence of the particular circumstances of a personal recommendation than to general evidence of the selling practices of the firm or its advisers at the relevant time;

(3)

determine that an example in the suitability requirements section of the template is present on the "balance of probabilities" when it is more likely than not to have occurred.

Reliance on others

6.5

R

You must take into account that:

(1)

the duty of a firm to advise on the suitability of investments cannot be delegated to, or discharged by reliance on, another;

(2)

where the firm made a personal recommendation in reliance on the advice or opinions of persons other than the firm, a firm must not be regarded as complying with the suitability requirements at 5.1R, above, because of that reliance; and

(3)

the suitability requirements at 5.1R, above, require a firm in all cases to form its own view of the suitability of the recommended Arch cru fund for the particular consumer, based on the information that the firm had, or ought reasonably to have obtained, regarding that Arch cru fund and its suitability for the consumer's circumstances.

6.6

R

If, in relation to any rating, before coming to a view that the firm came to a reasonable, albeit erroneous, conclusion on the risks of the recommended Arch cru fund and sold the Arch cru fund on this basis, you must take into account:

(1)

that the FCA's guidance on the Responsibilities of Providers and Distributors for the Fair Treatment of Consumers (RPPD) says that a firm distributing products:

(a)

should consider, when passing provider materials to consumers, whether it understands the information provided;

(b)

should ask the provider to supply additional information or training where that seems necessary to understand the product or service adequately; and

(c)

should not distribute the product or service if it does not understand it sufficiently, especially if it intends to provide advice;

(2)

any due diligence: a firm providing a personal recommendation should have formed its own view on the risks of investing in an Arch cru fund, based on the information that it had or ought to have gathered about the fund;

(3)

that the reliance on other rules (COB 2.3.3 R and COBS 2.4.6 R) enable a firm to place reasonable reliance for some purposes on factual (ie, not opinion-based) information provided by an unconnected authorised person; but that these rules do not absolve a firm from forming its own view on the risks of investing in an Arch cru fund;

(4)

the features and risks of the recommended Arch cru fund set out in CONRED 2 Annex 15 R; and

(5)

that COBS 2.4.8 G states that "it will generally be reasonable... for a firm to rely on information provided to it in writing by an unconnected authorised person ... unless it is aware or ought reasonably to be aware of any fact that would give reasonable grounds to question the accuracy of that information". In the absence of those grounds, it will generally have been reasonable for a firm to have relied on factual statements provided by Arch or Cru on the Arch cru funds, such as information about the funds' underlying assets.

7

Assessing compliance with the suitability requirements

7.1

R

When assessing whether a firm complied with the suitability requirements specified at 5.1R, above, you must take into account the following:

(1)

the consumer's investment objectives, including his willingness to bear the risks associated with the recommended Arch cru fund;

(2)

the consumer's financial situation, including his financial ability to bear the risks associated with the recommended Arch cru fund consistent with his investment objectives;

(3)

the consumer's ability, in the light of the following, to understand the risks associated with the recommended Arch cru fund:

(a)

the experience and knowledge of the consumer relevant to an investment in the recommended Arch cru fund; and

(b)

any correspondence between the firm and the consumer (which may include references to promotional materials, such as fund factsheets or offer documents or prospectuses) regarding the recommended Arch cru fund.

7.2

R

When assessing the reasonableness of a firm's conduct in relation to a personal recommendation, you must:

(1)

assess the firm's conduct against what was reasonable at the time when the firm made the personal recommendation; and

(2)

conclude that the conduct of the firm assessed was reasonable only where that firm displayed the degree of skill, care and diligence that would at that time have been exercised in the ordinary and proper course of a similar business to that of the firm.

Consumer instructions

7.3

R

In all cases, you must take into account any specific instructions the consumer gave the firm about the sale.

7.4

G

Specific instructions include, for example, where the consumer asked the firm to advise only on the sum to be invested and not on the consumer's pension arrangements.

7.5

G

As the Arch cru funds are high-risk investments, the firm should have asked for further information about the consumer's wider portfolio, and have taken this into account when making its personal recommendation to the consumer to invest in an Arch cru fund.

7.6

G

If there is clear evidence on file that the consumer has given specific instructions that the firm is not to review the consumer's entire portfolio, but to advise on this investment only, the suitability assessment could involve a narrower review, focusing on the consumer's objectives in relation to the specific amount to be invested. However, any personal recommendation should still have taken into account how the specific investment would fit within the consumer's overall savings and investments portfolio.

8

Suitability section

Filling in the suitability requirements section

8.1

G

The suitability requirements section is used to record your assessment of whether or not the firm complied with the suitability requirements specified at 5.1R, above.

8.2

R

To complete the suitability requirements section you must take the following steps for an opted-in case falling within CONRED 2.5.1 R (an "opted-in scheme case"):

(1)

review the information on the consumer file, any information received from a consumer and the information recorded in the data section of the template ("the available evidence");

(2)

determine whether the available evidence shows overall that any or all of examples (1) to (7) is present or not;

(3)

indicate whether any or all of examples (1) to (7) is present, or not, by selecting "yes" or "no";

(4)

conclude, taking into account the available evidence, whether the firm complied with the suitability requirements specified at 5.1R, above; and

(5)

insert your commentary on whether or not the firm complied with the suitability requirements specified at 5.1R, above, with reference to the example(s) that support your conclusion. Your comments can refer to relevant sections of the fund summary in CONRED 2 Annex 15 R.

8.3

G

If an example is present, this will tend to show the firm's compliance or non-compliance with the suitability requirements. The presence of the example is not definitive as to whether a firm has complied with the suitability requirements. There may be other factors which mean that the firm has, despite the presence of the example, complied, or not complied, with the suitability requirements at 5.1R, above.

8.4

G

The template sale rating will automatically default to "Compliant" or "Non-compliant" depending on your answer to the example questions in the template. The "Non-compliant" rating indicates that the personal recommendation does not comply with the suitability requirements at 5.1R, above.

8.5

G

This table contains rules, evidential provisions, and guidance for determining whether the available evidence shows overall that an example is present, or not:

(1)

The consumer was willing to take a high degree of risk with the sum invested

R

Compare:

(1)

the information on the consumer file, and any information received from the consumer and, in particular, the information recorded in the template on the firm's assessment of the consumer's attitude to risk (ATR), focusing on the degree of risk the consumer was willing to take with this investment (not, for the purposes of this question, the degree of risk the consumer was able to take); with

(2)

the high degree of risk a consumer must have been willing to take for a personal recommendation to invest in an Arch cru fund to be suitable.

E

Answer "no" to this question where:

(1)

the consumer was not willing to take a high degree of risk with the sum invested (by reference to the risk scale used by the firm); or

(2)

the consumer was not willing to put his capital at risk for the potential of a higher return and had expressed a preference for lower-risk investments.

G

This question relates to the level of risk a client is willing to take with the sum invested.

(2)

The risk profile of the consumer's overall savings and investment portfolio after the sale was suitable for the level of risk he was willing to take to meet his investment objectives

R

Take the following steps:

(1)

refer to the information recorded on the consumer's stated attitude to risk in the template;

(2)

with reference to the firm's risk scale, identify the risk level in the consumer's portfolio after the sale; and

(3)

compare the level of risk in the consumer's overall portfolio after the sale with the level of risk the consumer was willing to take to meet his investment objectives.

E

Answer "no" where the risk profile of the consumer's portfolio was higher than the level of risk he was willing to take to meet his investment objectives.

G

This question relates to how the investment fits into the client's portfolio of investments.

(3)

The consumer's portfolio was sufficiently diversified after the sale to meet his investment objectives

R

Take the following steps:

(1)

refer to the information on the consumer file, any information received from a consumer and the information recorded on the consumer's investment objectives section of the template;

(2)

identify the concentration of Arch cru funds in the consumer's portfolio after the sale; and

(3)

taking into account in particular:

(a)

the concentration of Arch cru funds;

(b)

the liquidity in the consumer's portfolio;

(c)

the exposure to different asset classes; and

(d)

the level of stability of returns or security of invested capital in the portfolio;

determine whether the consumer's portfolio was sufficiently diversified to meet his investment objectives.

E

(1)

Answer "no" where the consumer has a large portfolio of savings and investments but his preferences regarding risk-taking indicate that he would prefer to diversify and invest in a wide range of assets and he has invested a high concentration of his assets in Arch cru funds and the risk of this investment is not offset by the potential return offered by the Arch cru funds.

(2)

Answer "yes" where the consumer wanted a significant portion of his capital to be invested in higher-risk or alternative investments and has a low proportion of Arch cru funds. This may be recorded in specific instructions the consumer gave the firm.

(4)

The consumer was reliant on income from this investment

E

(1)

Answer "yes" where a consumer needed a minimum level of income from this fund (for example, to pay household bills and expenses).

(2)

Answer "no" where a consumer did not need a specific level of income from the fund, for example, because it was not essential to maintain his standard of living.

G

(1)

Whether a consumer had a need for income from this investment may be reflected in the information on the consumer file and any information received from a consumer about the consumer's household income and whether the income from this investment was necessary for household expenses and personal outlays or whether it was "disposable income" (which is money left over after bills and household expenses are paid).

(2)

The Arch cru funds that offered income shares are the Investment Portfolio, Specialist Portfolio and Income Fund. These funds aimed to pay income on a half-yearly basis but did not provide a set level of income.

(5)

The consumer had the capacity to bear the risk of investing [x%] of his savings and investments in the selected Arch cru fund

R

(1)

Take the following steps:

(a)

refer to the information on the consumer file, any information received from a consumer and the information recorded on the consumer's financial situation in the data section of the template;

(b)

identify the concentration of Arch cru funds in the consumer portfolio after the sale; and

(c)

taking into account in particular:

(i) the concentration of Arch cru funds;

(ii) the source and extent of the consumer's assets;

(iii) the liquidity in the consumer's portfolio;

(iv) the exposure to different asset classes;

(v) the level of stability of returns or security of invested capital in the portfolio; and

(vi) the impact the loss of the capital invested would have on his standard of living overall;

determine whether the concentration of Arch cru funds in the consumer's portfolio was suitable for his financial situation.

E

(1)

Answer "no" where any loss of the investment would have had a materially detrimental effect on the consumer's standard of living.

(2)

Answer "yes" where the investment was speculative: the consumer had no need for the capital and would not be using it to maintain his standard of living.

(6)

The firm took reasonable steps to ensure the consumer had the necessary experience and knowledge to invest in the selected Arch cru fund

R

Take the following steps:

(1)

refer to the information on the consumer file, any information received from a consumer and the information recorded on the template;

(2)

identify the consumer's level of investment experience and knowledge of investments both:

(a)

in relation to investments similar to Arch cru funds; and

(b)

generally;

(3)

identify the steps that the firm took to establish that the consumer could appreciate the nature of the risks they were taking with his investment in the Arch cru fund;

(4)

taking into account, in particular:

(a)

information about the consumer's existing portfolio and the nature, volume, and frequency of the consumer's transactions in investments;

(b)

how long the consumer had been an investor;

(c)

the consumer's experience with, and knowledge of, high-risk investments similar to Arch cru funds;

(d)

the consumer's profession (if any);

(e)

insofar as it was clear, fair and not misleading, information the firm gave the consumer over and above any Capita Financial Managers Limited, Arch Financial Products LLP or Cru Investment Managers Limited produced documentation (if that was provided);

(f)

how the firm communicated the risks of investing and the underlying assets in the selected Arch cru fund listed in CONRED 2 Annex 15 R; and

(g)

the overall impression that the consumer would reasonably have had of those features and risks, particularly in the light of:

(i) the entirety of the communications referred to in (1);

(ii) the extent to which such communications were consistent in their presentation of those features and risks; and

(iii) the consumer's relevant experience and knowledge;

conclude whether the firm had a reasonable basis for believing that the consumer had the necessary experience and knowledge to understand the risks involved in investing in Arch cru funds.

E

Answer "no" where:

(1)

the firm did not communicate in substance the risks and features of the selected Arch cru fund listed in CONRED 2 Annex 15 R; and

(2)

one or more of the following is present:

(a)

prior to the personal recommendation, the consumer had experience and knowledge of investing in capital protected products only;

(b)

prior to the personal recommendation, the consumer had no experience and knowledge of investments in bonds or shares traded on public markets;

(c)

prior to the personal recommendation, the consumer had no experience and knowledge of investing in high-risk investments.

G

A firm may rely on the simplified prospectus to disclose the risks in CONRED 2 Annex 15 R, but disclosure will not be "clear" if, in particular:

(1)

the information was contradicted by the firm in correspondence between the firm and the consumer (which may include references to promotional materials, such as monthly reports, fund factsheets or offer documents or prospectuses); or

(2)

given the consumer's experience and knowledge, it is unlikely that the consumer would have understood the risks as disclosed in the prospectus without further explanation from the firm.

(7)

The recommendation is not suitable for the consumer's investment objectives or financial situation for some other reason

R

Take the following steps:

(1)

refer to the information on the consumer file, any information received from a consumer and the information recorded on the consumer's financial situation in the template;

(2)

refer to the risks and features of the Arch cru funds in CONRED 2 Annex 15 R; and

(3)

consider whether there is any reason, other than the reasons at questions (1) to (6) why the personal recommendation to invest in an Arch cru fund was unsuitable for the consumer's investment objectives or financial situation.

E

Answer "yes" where:

(1)

the consumer's financial situation was likely to change in the near future so that he would not be able to bear the risks of this investment; or

(2)

the consumer had existing debts which it would have been in his best interests to repay before making this investment; or

(3)

following the personal recommendation, the consumer did not have an adequate emergency fund and cash reserve; or

(4)

the consumer would need the money invested within five years of investment in the fund; or

(5)

any of the risks or features of the Arch cru fund set out in CONRED 2 Annex 15 R were unsuitable for the consumer's financial situation; or

(6)

an existing product in the consumer's portfolio could have been changed to meet the consumer's investment objective with less cost or less risk.

G

(1)

The features and risks of the Arch cru fund may have been unsuitable for the consumer's investment objectives if any of the following applies:

(a)

the consumer did not want to invest through an offshore vehicle or in non-UK assets;

(b)

the consumer did not want an investment that did not have a transparent secondary market for its underlying assets;

(c)

the consumer did not want to invest through collective investment schemes;

(d)

the consumer was not prepared to put capital at risk in stock markets;

(e)

the consumer did not want to be exposed to risks associated with commodities or derivatives;

(f)

the consumer did not want an investment that invested in illiquid assets;

(g)

the consumer did not want an investment that was exposed to non-traditional asset classes;

(h)

the consumer did not want an investment where the investment manager employed investment techniques such as gearing, that would not normally have been used in more commonly encountered UCITS.

(2)

In relation to whether the consumer's financial situation was likely to change in the near future so that the consumer would not be able to bear the risks of this investment, consider whether the consumer was expecting a change in his personal circumstances, such as the birth of a child, redundancy or retirement and the impact this was likely to have on his financial situation.

(3)

In relation to whether the consumer had existing debts which it would have been in his best interests to repay before making this investment, consider the particular circumstances of the debt, including:

(a)

the size of the debt (excluding mortgage debt);

(b)

whether the debt had an early repayment penalty or fixed repayment schedule;

(c)

the interest rate on the debt in relation to what they could reasonably expect in relation to the performance of the investment.

(4)

An adequate emergency fund should be at least three times monthly outgoings but, depending on the consumer's circumstances, this could be more. The consumer should also have held sufficient 'cash reserves' to meet known or reasonably anticipated future expenses, such as the payment of care fees, or spending on home improvements, or a new car or dependents.

Outcome: overall assessment on suitability requirements

8.6

R

Take the following steps to determine whether the firm complied with the suitability requirements:

(1)

review the information on the consumer file, any information received from a consumer and the features and risks of the Arch cru fund in CONRED 2 Annex 15 R;

(2)

determine whether the firm took reasonable steps to ensure that the personal recommendation was suitable, and select the appropriate outcome in the Firm sale rating box "Compliant" or "Non-Compliant"; and

(3)

in all cases, insert your commentary on whether or not the firm complied with the suitability requirements specified at 5.1R, above, with reference to the example(s) that support your conclusion. Your comments can refer to relevant sections of the fund summary in CONRED 2 Annex 15 R.

8.7

E

For the purposes of 8.2R(2) above, in any case where you have answered:

(1)

"no" to any of the questions in sub-paragraphs (1), (2), (3), (5) or (6) of paragraph 8.5; and/or

(2)

"yes" to either of the questions in sub-paragraphs (4) and (7) of paragraph 8.5;

this will tend to indicate that the personal recommendation was "Non-Compliant".

8.8

G

The presence of an example in the suitability section of the template is not determinative as to whether a firm has complied with the suitability requirements. There may be other factors which mean that the firm has, despite the presence of the example, complied, or not complied, with the suitability requirements.

8.9

G

Where the personal recommendation is to invest in more than one Arch cru fund and one investment is suitable but the other is not suitable, the firm should conclude overall that the personal recommendation does not comply with the suitability requirements. The template will take into account the suitable part of the investment in the redress section.

9

Causation section

9.1

G

The causation section is used to record your assessment of whether or not the consumer's loss was caused by the firm's failure to comply with the suitability requirements specified at 5.1R, above. The causation section proceeds on an assumption that the consumer suffered a loss. Whether or not there was actually a loss is dealt with in the redress section.

9.2

G

Complete the causation section where you have concluded that the firm has failed to comply with the suitability requirements specified at 5.1R, above.

9.3

R

To fill in the causation section you must:

(1)

review the information on the consumer file, any information received from a consumer and the information recorded in the template ("available evidence");

(2)

determine whether the firm's failure to comply with the suitability requirements caused the consumer's loss; and

(3)

explain your conclusion on causation with reference to the available evidence.

9.4

R

In assessing the available evidence, you must have regard to:

(1)

the impact of the firm failure(s) on the consumer's decision to invest in the Arch cru fund(s) in all the circumstances of the consumer's case;

(2)

the position at law that, irrespective of the actions of third parties, the firm is responsible for all losses that flow from its failure to comply with the suitability requirements; and

(3)

the position at law that no actions of Capita Financial Managers Limited; Arch Financial Products LLP; cru Investment Management Limited; HSBC Bank plc and BNY Mellon Trust and Depository (UK) Limited break the chain of causation, so that the firm is still responsible for all losses that flow from its failure to comply with the suitability requirements.

9.5

E

You should conclude "yes" (that the firm's failure caused the consumer's loss) unless you are satisfied on the basis of the available evidence that the consumer did not rely on the personal recommendation in making the decision to invest.

10

Redress Section

10.1

R

Complete the redress section in each opted-in scheme case where you have determined that the consumer's loss was caused by the firm's failure to comply with any of the suitability requirements at 5.1R, above.

10.2

G

The redress section is used to identify and record an investment benchmark to compare the position the consumer is in with the position they would have been in if the firm had complied with the suitability requirements.

10.3

R

For a redress case where a personal recommendation resulted in more than one investment in one or more Arch cru funds, complete the redress section for each of the consumer's investments in Arch cru funds.

10.4

R

Take the following steps in each redress case:

(1)

select the Arch cru fund that the consumer invested in;

(2)

having regard to what investment the consumer would have invested if the firm had complied with the suitability requirements at 5.1R above, and other requirements applicable to it at the time (referred to in this chapter as a "suitable investment"), either:

(a)

select investment benchmark "1", "2", or "3"; or

(b)

select investment benchmark "4" (suitable investment); or

(c)

select investment benchmark "5" (other);

(3)

where investment benchmark 4 or 5 is selected:

(a)

determine what would have been a suitable investment in accordance with the instructions at (for investment benchmark 4) 10.6R, below, and (for investment benchmark 5) 10.7R and 10.8R, below; and

(b)

record the suitable investment identified and the reasons for selecting it in the 'SI selection justification' box (for investment benchmark 4, this will be the selected Arch cru fund); and

(4)

submit a redress calculation request to the FCA following the instructions at 10.13R, below.1

1

10.5

E

For the purposes of paragraph 10.4R(2), above:

(1)

have regard to the investment benchmarks inCONRED 2 Annex 14 R;

(2)

consider which investment benchmark best reflects the risks and features of a suitable investment;

(3)

subject to 10.7R, above, select that investment benchmark; and

(4)

record your reasons for the selection of that investment benchmark in the Comments box.

10.6

R

You may select investment 4 (suitable investment) only if you are satisfied on the basis of the information on the consumer file, and information received from the consumer, that the consumer would have made an investment in the Arch cru fund if the firm had complied with the suitability requirements.

10.7

R

You may select investment benchmark 5 (other) only where you are able to identify a specific investment:

(1)

which would have been a suitable investment; and

(2)

in which a consumer could have made an investment at all times from the date on which the consumer's investment was made to the date of calculation.

10.8

G

For the purposes of 10.7R, above, a firm might be able to identify a specific investment in circumstances where:

(1)

at the time when the firm made the personal recommendation to the consumer to invest in Arch cru funds, the firm also recommended other specific investments which would have been suitable for the consumer; or

(2)

the firm recommended that a consumer disinvest from a specific investment, which was suitable for the Consumer, in order to invest in Arch cru funds.

10.9

R

In cases where you have selected investment benchmark 5 (other) you must, following the instructions at 10.12R, below, and determine and record the value which sums initially invested by the consumer in the consumer's investment would have had at the date of calculation if such sums had been invested in investment benchmark 5.

10.10

R

In a redress case where the consumer retained any shares in the consumer's investment at the date of suspension, redress is equal to the sum of A - B - C - D where:

(1)

"A" is the value of sums initially invested by the consumer at the date of calculation if they had been invested in a suitable investment;

(2)

"B" is the net asset value of the consumer's investment in the Arch cru fund at the date of calculation;

(3)

"C" is the value of income distributions received by the consumer by the date of suspension; and

(4)

"D" is the value of sums under the CF Arch cru payment scheme that the consumer is, or was, eligible to receive (whether or not it has been received) where the consumer has retained shares in the consumer's investment.

10.11

R

In a redress case where the consumer has sold all of the shares in the consumer's investment prior to the date of suspension, redress is equal to the sum of A - C - E + I where:

(1)

"A" is the value of sums initially invested by the consumer at the date of the sale of the consumer's share capital if they had been invested in a suitable investment;

(2)

"C" is the value of income distributions received by the consumer prior to the date of sale;

(3)

"E" is the capital realised on the sale of the consumer's share capital; and

(4)

"I" is simple interest on the result of A - C - E at the Bank of England base rate prevailing from time to time over the relevant period + 1%/365 for each day between the date of the sale of the consumer's share capital and the date of the redress determination.

10.12

R

When calculating the value of "A", "D" and "E" to take into account the net effect of any partial sale of the consumer's share capital during the term of the consumer's investment:

(1)

deduct the amount of any sale of shares or distribution (including interim or final hardship withdrawals) in respect of the consumer's investment at the date that the sale or capital distribution is made; and

(2)

for each sale or capital distribution, account for:

(a)

the growth rate from the time of the original investment, or previous sale or capital distribution, until the time of sale or capital distribution;

(b)

the value of the residual investment after any sale or capital distribution; and

(c)

the growth rate from the time of sale or capital distribution up to the date of calculation.

10.13

R

To submit a redress calculation request, send a completed copy of the template to the FCA by email to archcrureview@fca.org.uk or (if the email is encrypted) archcrureviewpgp@fca.org.uk.

10.14

G

If the firm is to send an encrypted email to the FCA it will need to download the public PGP key from the FCA website and import the key into its email client software.

10.15

G

Following receipt of the redress calculation request the FCA will send the firm a summary detailing the redress payable for each consumer's investment and the total redress payable to the consumer in the redress case.

CONRED 2 Annex 14 Investment benchmarks

CONRED 2 Annex 14 1.1 R
  1. The following investment benchmarks apply:

    Comparator 1:

    this comparator is a return equal to the Bank of England official Bank Rate (the 'base rate').

    Comparator 2:

    this comparator is a return equal to a 50/50 combination of the APCIMS Conservative Index and the IMA Mixed Investment 20-60% Shares sector. This comparator has a listed equity exposure of 20-60% (IMA) and 32.5% (APCIMS).

    Comparator 3:

    this comparator is a return equal to a 50/50 combination of the APCIMS Balanced Index and the IMA Mixed Investment 40-85% Shares sector. This comparator has a listed equity exposure of 40-85% (IMA) and 67.5% (APCIMS).

CONRED 2 Annex 14 1.2 G

Further details of the sectors and indices referred to in the rule above can be found at the websites of the relevant organisations:

http://www.apcims.co.uk/private-investor-indices/about-the-indices/

http://www.investmentfunds.org.uk/fund-sectors/sector-definitions/

CONRED 2 Annex 15 Risks and features of Arch cru funds

R

1

The Arch cru funds consist of two open-ended investment companies, the CF Arch cru Diversified Funds and the CF Arch cru Investment Funds, and their respective sub-funds, sold to consumers during the following periods:

Investment funds

Investment Portfolio: July 2006 to March 2009

Specialist Portfolio July 2006 to March 2009

Diversified funds

Balanced Fund September 2007 to March 2009

Global Growth Fund: September 2007 to March 2009

Income Fund: September 2007 to March 2009

Finance Fund: October 2008 to March 2009

2

Dealings in the Arch cru funds were suspended by the authorised corporate director, Capita Financial Managers Ltd ("Capita"), on 13 March 2009.

3

The Arch cru funds aimed to achieve their objectives by investing in a broad range of mainstream and non-mainstream assets.

4

The Arch cru funds, through transferable securities, ultimately invested in the following asset classes, in various combinations:

(a)

unlisted equity;

(b)

unlisted debt instruments;

(c)

non-UK investments;

(d)

venture capital or project finance investments;

(e)

private markets, private equity, private finance;

(f)

private and structured finance;

(g)

asset-backed lending;

(h)

investments in developing countries;

(i)

collateralised debt and collateralised cash flow financings;

(j)

life settlements; and

(k)

commodities.

5

Information about each Arch cru fund and its sub-funds is set out below.

CF Arch cru Diversified Fund

6

The Diversified Fund was incorporated in June 2002 and originally named "Insinger de Beaufort Manager Selection ICVC".

7

The Diversified Fund was re-named the CF Arch cru Diversified Funds in mid-2007. The firms involved in the diversified fund were:

Authorised corporate director (ACD): Capita

Investment manager: Arch

Depository: HSBC Bank PLC

Marketing and distribution: Cru Investment Management Limited, Arch Financial Products LLP

Income fund

Promotions

8

The Income Fund was promoted to advisers as an investment in the IMA "Cautious Managed" sector and "a strong alternative to cash based investments and bond based investments".

Features

9

The features of the Income Fund as described to advisers are:

(a)

its objective is long-term capital and income growth.

(b)

it offers both net income and net accumulation shares. For income shareholders, net income was to be distributed half-yearly. For net accumulation shareholders, net income was retained and accumulated for the benefit of shareholders and reflected in the price of the shares;

(c)

from October 2007, its aims were to provide returns of cash + 3% per annum from a diversified pool of assets;

(d)

it can invest in a range of assets including:

(i)

collective investment schemes (which invest principally in equities), transferable securities, cash, deposits and money market instruments; and

(ii)

non-mainstream assets including: private equity; private finance; structured finance and commodities;

(e)

from October 2007, the investment classes are described as bonds, equities and other assets to demonstrate low volatility and correlation with equities and bonds to improve diversity;

(f)

Transactions in derivatives will only be used for the purposes of hedging and will not affect the risk profile of the fund.

Risks

10

It is the FCA's view that an investment in the income fund is likely to be high risk and, as such, investors must understand and be willing to accept the following investment risks:

(a)

risk to invested capital and return, in general - the risk that the investment may fall in value;

(b)

exchange rate risk - some of the assets are located overseas and would, therefore, be affected by exchange rate movements;

(c)

credit risk - the risk of failure of an entity or counterparty to an underlying investment. For some of the assets, this risk was greater than for more mainstream listed assets;

(d)

governance risk - where equity or debt instruments are not listed on an exchange, then there may be a higher associated corporate governance risk than with listed assets. Similarly, where assets are located in developing countries, the same increased risk may apply;

(e)

liquidity risk - the risk associated with the fund manager being unable to realise assets quickly without significantly affecting the position of investors; and

(f)

valuation risk - assets not traded on a recognised market can be difficult to value accurately.

Balanced fund

Promotions

11

The balanced fund was promoted to advisers as investment in the IMA "Balanced Managed" sector and:

(a)

may be suitable for investors with a low-level risk appetite;

(b)

may be a strong alternative to cash based investments and bond based investments.

Features

12

The features of the Balanced Fund, as described to advisers, are:

(a)

its objective is long-term capital growth;

(b)

it offers net accumulation shares;

(c)

from May 2008, its aims were to provide returns of cash + 4% per annum particularly over the medium term;

(d)

it can invest in a range of assets including:

(i)

collective investment schemes (which invest principally in equities), transferable securities, cash, deposits and money market instruments; and

(ii)

non-mainstream assets including: private equity; private finance; structured finance and commodities;

(e)

it will have a UK overweight portfolio;

(f)

transactions in derivatives will only be used for the purposes of hedging and will not affect the risk profile of the fund.

Risks

13

It is the FCA's view that an investment in the balanced fund is likely to be high risk and investors must understand and be willing to accept the following investment risks:

(a)

risk to invested capital and return, in general - the risk that the investment may fall in value;

(b)

exchange rate risk - some of the assets are located overseas and would, therefore, be affected by exchange rate movements;

(c)

credit risk - the risk of failure of an entity or counterparty to an underlying investment. For some of the assets, this risk was greater than for more mainstream listed assets;

(d)

governance risk - where equity or debt instruments are not listed on an exchange, then there may be a higher associated corporate governance risk than with listed assets. Similarly, where assets are located in developing countries, the same increased risk may apply;

(e)

liquidity risk - the risk associated with the fund manager being unable to realise assets quickly without significantly affecting the position of investors; and

(f)

valuation risk - assets not traded on a recognised market can be difficult to value accurately.

Global Growth fund

Promotions

14

The Global Growth Fund was promoted to advisers as an investment in the IMA "Global Growth" sector and:

(a)

may be suitable for investors with a low-level risk appetite;

(b)

to deliver decent absolute returns through a broad exposure to the major asset classes;

(c)

investing in equity and bond funds and also other assets.

Features

15

The features of the Global Growth Fund, as described to advisers, are:

(a)

its objective is long-term capital growth;

(b)

it offers net accumulation shares;

(c)

from May 2008, its aims were to provide returns of 6% per annum more than cash returns;

(d)

it can invest in a range of assets including:

(i)

collective investment schemes (which invest principally in equities), transferable securities, cash, deposits and money market instruments; and

(ii)

non-mainstream assets including: private equity; private finance; structured finance and commodities;

(e)

from October 2007, the investment classes are described as bonds, equities and other assets to demonstrate low volatility and correlation with equities and bonds to improve diversity;

(f)

transactions in derivatives will only be used for the purposes of hedging and will not affect the risk profile of the fund.

Risks

16

It is the FCA's view that an investment in the Global Growth Fund is likely to be high risk and investors must understand and be willing to accept the following investment risks:

(a)

risk to invested capital and return, in general - the risk that the investment may fall in value;

(b)

exchange rate risk - some of the assets are located overseas and would, therefore, be affected by exchange rate movements;

(c)

credit risk - the risk of failure of an entity or counterparty to an underlying investment. For some of the assets, this risk was greater than for more mainstream listed assets;

(d)

governance risk - where equity or debt instruments are not listed on an exchange, then there may be a higher associated corporate governance risk than with listed assets. Similarly, where assets are located in developing countries, the same increased risk may apply;

(e)

liquidity risk - the risk associated with the fund manager being unable to realise assets quickly without significantly affecting the position of investors; and

(f)

valuation risk - assets not traded on a recognised market can be difficult to value accurately.

Finance Fund

Promotions

17

The Finance Fund was promoted to advisers as an investment in the IMA "Cautious Managed" sector and:

(a)

providing "steady returns, low risk";

(b)

aiming to beat both cash and bond returns;

(c)

as a superior investment to cash deposits and bonds.

Features

18

The features of the finance fund, as described to advisers, are:

(a)

its objective is steady capital appreciation over the medium to long-term through exposure to a diversified portfolio of private finance-related instruments;

(b)

it offers net accumulation shares;

(c)

from November 2008, its aims were to provide returns of cash + 3% per annum;

(d)

from November 2008, the investment category is defined as private finance, including bridging finance and term lending;

(e)

it can invest in a range of assets including:

(i)

collective investment schemes (which invest principally in equities), transferable securities, cash, deposits and money market instruments; and

(ii)

non-mainstream assets including: private equity; private finance; structured finance and commodities;

(f)

transactions in derivatives will only be used for the purposes of hedging and will not affect the risk profile of the fund;

(g)

it will have a UK overweight portfolio.

Risks

19

It is the FCA's view that an investment in the Finance Fund is likely to be high risk, and investors must understand and be willing to accept the following investment risks:

(a)

risk to invested capital and return, in general - the risk that the investment may fall in value;

(b)

exchange rate risk - some of the assets are located overseas and would, therefore, be affected by exchange rate movements;

(c)

credit risk - the risk of failure of an entity or counterparty to an underlying investment. For some of the assets, this risk was greater than for more mainstream listed assets;

(d)

governance risk - where equity or debt instruments are not listed on an exchange, then there may be a higher associated corporate governance risk than with listed assets. Similarly, where assets are located in developing countries, the same increased risk may apply;

(e)

liquidity risk - the risk associated with the fund manager being unable to realise assets quickly without significantly affecting the position of investors; and

(f)

valuation risk - assets not traded on a recognised market can be difficult to value accurately.

CF Arch cru investment fund

20

The investment fund was incorporated on 29 June 2006. It has two sub-funds: the investment portfolio and specialist portfolio.

21

The firms involved in the investment fund were:

Authorised corporate director (ACD): Capita Financial Managers Limited

Investment manager: Arch Financial Products LLP

Depository: Bank of New York Mellon Trust and Depository (UK) Ltd

Marketing and distribution: Cru Investment Management Limited, Arch Financial Products LLP

Investment Portfolio

Promotions

22

The Investment Portfolio was promoted to advisers as an investment in the IMA "Cautious Managed" sector and "an excellent replacement for cash based and bond based investments."

Features

23

The features of the Investment Portfolio as described to advisers are:

(a)

its objective is to generate consistent returns to provide wealth preservation and capital appreciation;

(b)

it offers net accumulation and net income shares;

(c)

in March 2007, its aims were to provide consistent returns of LIBOR + 4% with a significant focus on risk management, this was revised to cash + 4% in August 2007;

(d)

from March 2007, investment classes are stated as being public market securities and private investments. In September 2007 it is stated that the premise since inception of the fund was that public markets did not represent sufficient future reward for the fund.

Risks

24

It is the FCA's view that an investment in the Investment Portfolio is likely to be high risk and investors must understand and be willing to accept the following investment risks:

(a)

risk to invested capital and return, in general - the risk that the investment may fall in value;

(b)

exchange rate risk - some of the assets are located overseas, and would therefore be affected by exchange rate movements;

(c)

credit risk - the risk of failure of an entity or counterparty to an underlying investment. For some of the assets, this risk was greater than for more mainstream listed assets;

(d)

governance risk - where equity or debt instruments are not listed on an exchange, then there may be a higher associated corporate governance risk than with listed assets. Similarly, where assets are located in developing countries, the same increased risk may apply;

(e)

liquidity risk - the risk associated with the fund manager being unable to realise assets quickly without significantly affecting the position of investors; and

(f)

valuation risk - assets not traded on a recognised market can be difficult to value accurately.

Specialist Portfolio

Promotions

25

The Specialist Portfolio was promoted to advisers as an investment in the IMA "Active Managed" sector and "an excellent replacement for cash based and bond based investments."

Features

26

The features of the Specialist Portfolio as described to advisers are:

(a)

its objective is "to seek capital growth from an aggressively managed portfolio which may take high cash weightings at times when the investment manager lacks confidence in the outlook for equities, bonds and other asset classes. There is a moderate risk to capital";

(b)

it offers net accumulation and net income shares;

(c)

in March 2007, its aims were to provide consistent returns of LIBOR + 6% with a significant focus on risk management; this was revised to cash + 6% in August 2007;

(d)

from March 2007, investment classes are stated as being public market securities and private investments which are leveraged up to 25%. In September 2007, the fund is described as having a low correlation with traditional public investments such as bonds and equities.

Risks

27

It is the FCA's view that an investment in the Specialist Portfolio is likely to be high risk and investors must understand and be willing to accept the following investment risks:

(a)

risk to invested capital and return, in general - the risk that the investment may fall in value;

(b)

exchange rate risk - some of the assets are located overseas and would, therefore, be affected by exchange rate movements;

(c)

credit risk - the risk of failure of an entity or counterparty to an underlying investment. For some of the assets, this risk was greater than for more mainstream listed assets;

(d)

governance risk - where equity or debt instruments are not listed on an exchange, then there may be a higher associated corporate governance risk than with listed assets. Similarly, where assets are located in developing countries, the same increased risk may apply;

(e)

liquidity risk - the risk associated with the fund manager being unable to realise assets quickly without significantly affecting the position of investors; and

(f)

valuation risk - assets not traded on a recognised market can be difficult to value accurately.