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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 FCA rules 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 FCA rules 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.