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Arch Cru, Key-data – where are we now..?

Harriet Quiney and Andrew Davis at the history of the Keydata and Arch Cru investment fund collapses, including an update on the current redress schemes.

Arch Cru

Between July 2006 and March 2009 about 20,000 UK investors invested about £390 million into two open ended investment companies managed by Arch Financial Products LLP and marketed to financial advisers by Cru Investment Management Ltd.  These funds (“the Arch Cru funds”) subsequently collapsed with investors losing about 50% of their investments. It turned out that the funds had been invested in Jersey cell companies which, in turn, had invested in a range of speculative investments, such as Greek shipping companies. 

In October 2011 a payment scheme was set up by three companies associated with the Arch Cru funds which made payment of about £54 million to investors; however, this was insufficient to compensate for their losses. 

In 2012 the Financial Services Authority (as it then was) set up a consumer redress scheme.  This required advisers who had recommended the Arch Cru funds to investors contacting those investors to ask them if they would like their sales reviewed.  If the customers said that they would, then advisers were required to assess the suitability of sales in accordance with strict criteria.  If the sales were unsuitable, compensation had to be calculated in accordance with a pre-determined formula.  Under the tight timetable laid down by the FSA, most compensation should have been paid by now, with an absolute long stop of 14 July 2014. It seems that about 48% of investors opted into the scheme, 85% of sales were found to be unsuitable and total compensation due to be paid has been calculated at about £31 million. 

Keydata

The well chronicled Keydata saga has involved the Financial Services Compensation Scheme (“FSCS”) compensating thousands of investors following the demise of Keydata, a product provider which products that invested in second hand US life policies.  Having compensated investors, the FSCS embarked upon costly litigation against over 500 IFAs and accountants who had advised on the product, following the assignment and transfer of the compensated investors’ rights.  That litigation is still continuing, though most of the large cases have now settled.

Unregulated Collective Investment Schemes

There are said to be issues over Unregulated Collective Investments Schemes (“UCIS”), which are run along the same principles as unit trusts but are not authorised.  Usually the person advising customers to make investments in UCIS remains subject to FCA regulation.  They are generally regarded as high risk investments often of a speculative nature.  UCIS often involve exotic investments such as golf courses in Mexico, off‑plan property in Eastern European countries but some are not so exotic, such as wine in France.  They are complex.  The FCA have published final rules to ban the promotion of UCIS and certain close substitutes, together known as Non‑Mainstream Pooled Investments, to the vast majority of retail investors in the UK.

Mortgages

Mortgages became regulated on 1 November 2004.  The various products on offer have led to complaints and claims.  In particular the FCA was concerned about interest only mortgages where there is no clearly identifiable repayment vehicle.  New rules came into force on 26 April, which aim to ensure that lenders conduct a full affordability check on mortgage applicants to prevent any return of the pre-crisis mortgage lending that many described as "reckless" and ultimately reduce claims.

Contact

For more information, please contact Harriet Quiney, Partner, on 020 7280 8873 or Andrew Davis, Partner, on 020 7280 8801.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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