Arch Cru Compensation Scheme

Guy Opperman Excerpts

Wednesday 19th October 2011 Westminster Hall

[Alun Cairns]

The hon. Gentleman has made an extremely powerful point. This is the first debate on Arch Cru, and certainly on the FSA and its change to the successor bodies. Those who have responsibility for this matter need to bear in mind the strength of feeling among investors and the number of people who have turned up to this debate. This issue will not go away until investors feel that they have received justice.

The regulator, the Financial Services Authority, arguably failed in its duty as did the investigators and negotiators. Clearly, there was a position of conflict. It angers me that at every meeting and in every communication, the FSA points its finger at the independent financial advisers. In view of the FSA’s four strategy objectives, passing the buck to the IFAs is wholly inadequate. The pricing and fund performance would have been integral to the advice provided by any independent financial adviser.

In a meeting last week, the FSA told me that the obligation of suitability lies with the IFA. It is unrealistic for IFAs to have the capacity to interrogate individually all marketed funds, products and pricing strategies, or to speak to the financial directors and auditors of every firm on which they advise, when the FSA, with all its resources, failed to protect investors from wrongdoing in this respect.

[Guy Opperman (Hexham) (Con)]

Independent financial advisers may be being criticised, but is my hon. Friend not surprised that the Serious Fraud Office has not been more involved in this patently criminal investigation?

[Alun Cairns]

I pay tribute to my hon. Friend for the role he has played in uncovering many of these issues. I will come on to the Serious Fraud Office in a moment.

--- Later in debate ---

[Guy Opperman (Hexham) (Con)]

Thank you, Mr Owen, for calling me to speak.

The victims in this case are savers, widows and pensioners, who we must not forget and who we are fundamentally elected to fight for. It is definitely in the Government’s interests—is it not?—to encourage proper saving and proper investment. One can use this particular disaster—it is nothing less than that—to encourage proper investment in proper companies.

I am very pleased that, along with other colleagues, I have this opportunity to speak today on an issue that dozens of my constituents whose lives have been irreparably damaged by CF Arch Cru have contacted me about.

I must thank the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) for securing this debate. A lot of us have tried to secure such a debate. I also want to thank him because he gave his address in a measured, reasonable, all-party tone. That is welcome, because hon. Members are united—in every part of the country and in every democratic and political process—in their view of the disaster that has occurred.

I must also thank my hon. Friend the Member for Vale of Glamorgan (Alun Cairns), who has campaigned tirelessly on this issue. He has sought debate after debate after debate on this issue and was, frankly, pipped at the post by the might of Scotland in the form of the hon. Member for Rutherglen and Hamilton West, who snuck up the inside rail and secured this debate. However, I know that we are all working together, which is a wonderful thing to see.

Obviously I speak as a constituency MP, but I also speak as someone who, for approximately 15 years, was employed on a repeat basis by Her Majesty’s Government as a prosecutor of fraud trials. I worked for the Attorney-General and the Serious Fraud Office, and I bear the scars of involvement with cases such as Blue Arrow and Guinness, and particularly a scam in relation to a company called Moneywise, which was investigated by the Financial Times. In that case, I spent six long months in Guildford Crown court bringing fraudsters to justice and recovering money. It was another case where people were defrauded by supposedly safe investments and money was taken from them. We successfully brought prosecutions for conspiracy to defraud.

I do not know the inner details of the particular case that we are discussing today, because only those involved, the Financial Services Authority and others have full access to the documentation. It is easy to make glib comments, but, speaking as an informed observer, I would seek the involvement of the Serious Fraud Office. With respect, there seems to be only two choices in relation to official actions and official offences committed here. Either the Minister is appropriately referring this matter for an inquiry under section 14 of the Financial Services and Markets Act 2000 or—frankly—the Serious Fraud Office needs to get off its backside and investigate this matter properly, bringing people who are committing these particular offences to justice. Clearly, there is the potential—I can go no further than that—that criminal offences of conspiracy to defraud have taken place.

An awful lot of questions have been raised, and I do not want to repeat the points that other hon. Members have made, but we come back to the question why an investment advertised as a

“safe and cautious fund—ideal for pension transfer”

has so damaged people’s lives. We must move on to the simple question how to stop it happening again.

To deal first with the compensation package, given that the funds were suspended in March 2009, one might have imagined that it would have been put forward a little earlier. The delay by those involved and their dilatory tactics are to their discredit. However, the £54 million package is inadequate. Let us be blunt: Capita is a substantial company. There may be arguments about whether the company in question is limited within the confines of Capita’s many companies, or about the parent company not being responsible for the individual failings of individual people in other lesser companies in the group. Those may be perfectly legitimate comments, and if Capita wants to take that high financial moral tone with us, so be it. However, it needs to grasp that it has a simple choice in this Parliament. Either it provides 100% compensation or it will find that it has few friends in this House. The £54 million is frankly not sufficient. This is not like Equitable Life, because this is not a situation in which a company has run out of money. Capita has not gone bust. To quote one investor who wrote to me:

“The current package is barely a pinprick on Capita’s little finger.”

[Sir Peter Bottomley]

I hope that hon. Members will not mind my saying that this calls to mind the troubles of Arthur Andersen, where one problem in one country led to the destruction of a very good business in a number of other countries.

[Guy Opperman]

I endorse those comments. Capita will need to look over its shoulder after today’s debate.

[Tristram Hunt]

Does the hon. Gentleman not think, then, that the Government have a role to play in relation to the extraordinary award of contracts to Capita?

[Guy Opperman]

I accept that they have a role to a degree. The hon. Gentleman is being a little naive, because the provision of certain services by a perfectly reputable part of the company is satisfactory, and he is far too intelligent not to know that. However, we must deal with individual mismanagement by parts of the company, which happened in years gone by, and the hon. Gentleman knows that companies have obligations in relation to such matters. The matter can be pursued either as a civil obligation in the High Court or by way of criminal compensation arising out of a prosecution. Alternatively, it can be dealt with under section 14 of the Financial Services Act 2010. However, it is over-simplistic to say that just because the Government provide contracts to an organisation that is performing perfectly satisfactorily in some respects, they cannot be involved in seeking other compensation.

This debate is an opportunity for the Government to give a lead on what they will do, and they need to answer some questions. I want to discuss examples involving a couple of my constituents. The point has been fairly made that the losses have been suffered by people who are not wealthy. We are not standing up for toffs and fat cats, but for people who have lost £1,000, £2,000, £5,000, £10,000 or £15,000— people who have lost their life savings, and who were encouraged to put their money in.

[Nicky Morgan (Loughborough) (Con)]

My hon. Friend is making a powerful argument, building on some other powerful speeches. He is right about the people involved, and the same is true of my constituents, who are not wealthy but who were doing the right thing. Our party and all other parties have asked people to make provision for their pension and retirement. Those people were doing the responsible thing, and they had their fingers badly burned. Confidence has been mentioned, and the Government must address that.

[Guy Opperman]

I totally endorse that point, and that is where the Government definitely have a role. They can use the inadequacies of the present case to highlight their intention to come down hard on those who mismanage investments as in this instance, to give investors confidence in other investments in the future. Sadly, that should have been done previously, and such scams and difficulties have been bubbling over for the past 20 years.

My constituent, Mr Ian Robinson, transferred his entire pension pot of £90,000 into Arch Cru on the advice of an independent financial adviser. He thought it was a sensible policy. In 2009, his funds were revalued down to about £55,000; they were then frozen; and the remaining capital was eroded over the next two years. He will be lucky to get 40% back under the compensation package. Another constituent, who wants to remain nameless, worked all his life and built up a business. He sold it and thought that he and his wife had a successful pension pot of several hundred thousand pounds. They put all of it—savings and pension—into Arch Cru. After the devastating effects of what happened, he and his wife have been living off a state pension and with the current offer of recompense they will be forced to downsize to enable them to live from any capital that is released. They will have lost hundreds of thousands of pounds, which they thought was securely invested to provide a gentle but secure return, and they will be lucky to be able to leave anything to their dependants. If my constituent agrees to the package at this stage, he will have less than half the compensation needed to put him and his wife back in the position they were in prior to their investment. In the current climate, we should support such hard-working people.

Much could be said about the dilatoriness of the process, because, as other hon. Members have mentioned, nothing has really happened since suspension in March 2009. I shall briefly discuss Capita. Others have spoken eloquently and forcefully about its inadequacy in its role. One constituent told me:

“This is not just a case of an investment that has underperformed due to the Global Financial Crisis but one where there are serious misgivings in relation to the management and governance of the funds”.

That is certainly how I see the matter—it is potentially a criminal investigation. Capita was paid as trustees to oversee the management of the funds, which we all agree it simply did not do. Therefore why is Capita not fully accountable for the extent of the losses of the people whose money it was managing? Clearly it is vicariously liable and has an obligation.

Hugh Aldous has prepared a report on Capita, and I recommend that anyone who has not taken on board the full level of ineptitude should read it. It is clear from the report, in which Hugh Aldous makes multiple observations, that the net asset values of several of the cells that were invested in were overstated at least from 2007 onwards. He reported that the condition of the physical assets was far worse than

“we reasonably expected and, in some cases, frankly appalling.”

It seems inexplicable that small investors should suffer so severely with an inadequate package.

Several hon. Members have spoken about the compensation package, and the Minister must address two points. Why on earth has a closed offer been made, when it is also time-limited? That is wrong. The Minister must assist hon. Members by giving the reason for that and telling us whether the Government will do anything about it. Everything would change if the Minister were to say that it is an interim offer. If it were an interim offer, so that the victims of the scam could receive the £54 million paid down in the usual way, with the right to continue to take civil action if they wanted to pursue matters further, I would say, “So be it.” However, to tell them that it is a time-limited £54 million offer and they can take it or leave it is wrong.

The FSA has supposedly been making great efforts to ensure that companies can meet their commitments when they fall down. There are regulations to protect consumers. The FSA is a publicly funded body. It exists to protect investors, and it has not done so in this case. It should surely have launched a proper investigation. My hon. Friend the Member for Vale of Glamorgan has called for a proper investigation, and I repeat that call. The FSA seems reluctant to admit that Capita has failed in its duty as an authorised corporate director.

[Naomi Long]

The hon. Gentleman is making some strong points. Does he agree that in this crisis it is the failure of the regulatory aspect that has caused the biggest ripples in public confidence? People took the FSA’s regulation of the funds and the advice they were given at face value, which created a level of confidence that did not match the confusion about what was happening within the fund. The FSA has not only failed people but caused a crisis in public confidence.

[Guy Opperman]

I endorse the hon. Lady’s comments about the authority.

There are tremendous financial consequences here, but there is also a human one. All hon. Members—I have been here for only 18 months, but others have been here for many years—will have gone through the pain, difficulty and correspondence in relation to Equitable Life. To be fair, this situation is not the same, but it is similar in that constituents have written to me because they have given up. One told me about a retired couple in ill health who have already given up, because

“they have not the energy or the mental resolve to fight this”.

The Minister had an extremely difficult job with Equitable Life, and I applaud the fact that he did the best he could in very difficult circumstances. This matter, however, is far simpler, and I hope that he takes on board the four key points. First, will the inquiry be a section 14 inquiry? Secondly, why is the offer a closed one? Thirdly, why is the offer deadlined and time-limited? Fourthly, does the Minister agree with a large proportion of hon. Members—I say this based on the comments that have been made during the past hour and 11 minutes—that Capita has a simple choice: either it gives 100% compensation, or it is left with no friends in this House?

[Albert Owen (in the Chair)]

I shall call the Front-Bench spokespeople at 10.45 am. I now call Duncan Hames.

--- Later in debate ---

[Mr Hoban]

No, I will continue. I have three minutes left and more points to make.

The FOS is bound only in respect of complaints made against Capita, HSBC and BNY Mellon. Complaints made to the FOS about other parties to the investment chain, including independent financial advisers, can still be heard by the FOS. The limitation on the FOS applies only to complaints made about the three parties. That is a clear signal to investors that they can make further complaints about other parties. Investors are free to pursue action through the courts and to challenge the IFA who advised them to invest in Arch Cru funds over whether that advice was appropriate. Numerous people have already done so. If they are not satisfied with the IFA’s response, they can go to the FOS. If a complaint has been upheld but the adviser is no longer in business, investors can also complain to the Financial Services Compensation Scheme and apply for compensation.

[Guy Opperman]

Will the Minister give way on that issue?

[Mr Hoban]

No, I cannot. I have two minutes left. My hon. Friend and others asked about section 14, which I would like to address; I am sure that he will be grateful if I do.

I have yet to be persuaded that a section 14 inquiry is appropriate. It certainly would not be appropriate to announce one while enforcement action is being taken against any party to the matter. The powers are available where it appears that significant damage has been done to the interests of consumers that might not have occurred but for a serious failure of regulation. It is worth pointing out that the power has never been used. Throughout the life of the Financial Services and Markets Act 2000, many issues have not been examined.

As I have said, it is not the FSA’s role to ensure that no firm ever fails, to approve the investment strategy of every OEIC operating in the UK or to ensure that all investments are sound. The FSA does not audit or sign off an OEIC’s accounts. That responsibility rests elsewhere. It was the FSA, through its ARROW inspection, that identified the issues in Arch Cru.

It is vital that everyone engaged in the matter—the regulator, industry players, IFAs and others—reflects on the lessons learned. Many issues emerge, including the scheme’s complexity and consumers’ need for better financial education and better-quality advice. We look carefully at every lesson learned from such cases, and that is reflected in our thinking on the operation of the FSA.