ARM Asset Backed Securities - FAQs

Investor Compensation
Role of Treasury and the Financial Services Authority
Further information on ARM

Investor Compensation

Can investors be compensated?

The FSA does not have any powers over ARM as it is unauthorised and based in Luxembourg.

However, Catalyst Investment Group (Catalyst) is the arranger and distributer of ARM products in the UK, and is supervised by the FSA. It produces brochures and markets the products via Independent Financial Advisers (IFAs). If you are unhappy with the financial products promoted, sold or provided by Catalyst, you should first complain to Catalyst.

Likewise, if you believe you were mis-sold your investment or that you received unsuitable advice from your independent financial adviser (IFA), you should complain to your IFA. Financial Ombudsman Service (FOS) rules require firms to investigate complaints and revert within 8 weeks. If you remain dissatisfied with Catalyst’s or their IFA’s response, or if they do not respond within the 8 weeks, you have the right to refer the complaint to the FOS.

Can pending investors be compensated?

Pending investors are those who invested in ARM after September 2009 but have not been issued bonds due to the failure of ARM to gain authorisation from the CSSF. Money paid by pending investors for bonds between September 2009 and December 2009 was transferred to ARM in December 2009. This money has been spent on premiums, coupons, refunds and expenses.

Money paid by pending investors after December 2009 was not transferred to ARM and is held by receiving agents. The FSA has notified UK institutions holding the money of pending investors that, following the decision of the CSSF not to authorise ARM, no money should be moved without the permission of the CSSF. The purpose of this is to stop pending investors’ monies moving to ARM’s main account or being used to pay costs.

ARM wrote to pending investors in September 2010 and May 2011, updating them on ARM’s position and offering an opportunity via a withdrawal form to request a return of their invested funds, less coupons received. A minority of pending investors accepted this offer and have received a refund of their investment. ARM has recently received more of these requests that remain outstanding.

While the decision to refund these investments lies with ARM, with Ernst & Young (E&Y) required to approve any decision in their role as supervisor, pending investors who are seeking a refund on their investment should submit a formal request to ARM. Pending investors who do not have this withdrawal form can write to ARM at:

ARM Asset Backed Securities S.A.
11-13 bd. Grande-Duchesse Charlotte,
L-1331 Luxembourg,
Grand Duchy of Luxembourg.

There is legal uncertainty over the status of money pending investors have transferred to ARM and ARM announced on 31 January that it is currently in the process of obtaining legal opinion on this. Investors may want to seek legal advice regarding their ability to seek a return of their investment if it is not returned.

What about investors who invested through Rockingham Independent Limited?

The FSA fined Rockingham Independent Limited (Rockingham) £35,000 and banned two directors. Rockingham customers can contact Rockingham’s customer helpline on 01832 770460 or they may wish to seek independent advice from another authorised firm, if they have concerns about the advice they received.

Rockingham has stopped selling any Unregulated Collective Investment Schemes (UCIS) or structured products and has also agreed to conduct a past business review to determine whether any of the sales were not suitable and whether any customer redress may be required.

If you believe you were mis-sold your investment, or that you received unsuitable advice, you should first complain to Rockingham Independent Limited. Financial Ombudsman Service rules require firms to investigate complaints and revert within 8 weeks. If you remain dissatisfied with Rockingham’s response, or if they do not respond within the 8 weeks, you have the right to refer the complaint to the ombudsman service.

Role of Treasury and the Financial Services Authority

What has the FSA done to protect investors?

ARM is based in Luxembourg, outside of the jurisdiction of the FSA. Thus the FSA do not regulate ARM and have no powers in respect of it.

In November 2009, the CSSF took action to stop ARM issuing new bonds and the FSA believed the firm had also stopped taking in new money. The FSA were only made aware in March 2010 that Catalyst had continued to take in new money despite ARM being unable to issue new bonds. The FSA then began action against Catalyst, with a supervisory notice being handed to them in August 2010. Catalyst is now being investigated by the FSA’s Enforcement and Financial Crime Division.

What are Treasury and FSA doing about this?

The Treasury sets the legal framework for the regulation of financial services but does not have investigative or prosecuting powers of its own. The FSA are in dialogue with all interested parties in order to seek the best outcome for UK investors. However as ARM remains outside of the FSA’s jurisdiction they have no powers over ARM and limited scope to take any action.

The FSA has recently taken the step to vary the following firms’ permissions: HSBC, NatWest and Jarvis Investment Management Limited, so that they freeze the assets they hold in relation to pending investors.

On 28 November 2011 the FSA released guidance for consultation warning against “toxic” traded life policy investments – such as the ARM bond. Traded life policy investments (TLPIs) are complicated products generally unsuitable for the mass retail market. They are also known as Traded Life Settlements or Senior Life Settlements. Early results from the FSA’s review of sales in this market have revealed high levels of unsuitable advice.

The FSA is concerned that this market could grow and cause further customer losses in the future. As a result, it has published guidance for consultation, recommending that these products should not be sold to ordinary retail investors in the UK.

Further information on ARM

What will happen to ARM?

The CSSF has not yet announced its response to ARM’s appeal. The process following the publication of that decision is as follows: if ARM’s appeal is successful, the CSSF will process ARM’s application for authorisation, though if unsuccessful, ARM can appeal the CSSF’s final decision to the Luxembourg court. Following the full appeal process, if ARM is unsuccessful in gaining authorisation, a Luxembourg court will place the firm in liquidation.

The liquidator will then determine how to wind up ARM’s business and distribute its assets to investors. Investors will need to wait for the outcome of the legal process in Luxembourg to know what will happen to their investment. Any investor concerned about their investment in ARM bonds should contact an independent financial adviser.

Why did CSSF not grant ARM a licence?

CSSF judged that ARM was unable or unwilling to comply with prudential and legal requirements, with concerns such as the adequacy of ARM’s liquidity risk management and the lack of a permanent liquidity facility. CSSF also judged that ARM did not comply with CSSF’s prohibition on issuing new bonds. This has subsequently led to uncertainty over the rights of, and use of funds belonging to, pending investors.

CSSF also believe that ARM’s financial situation had deteriorated which left them unable to honour redemption and refund requests.

More details are provided in CSSF’s press release (external website, opens in a new window)

It would be inappropriate to comment further on decisions made by the independent regulator from a third country.

How are Ernst and Young involved?

At the request of the CSSF, the Luxembourg court decided on 10 November 2011 that Ernst and Young (E&Y) would be appointed as supervisory commissioner to ARM in place of the CSSF. E&Y must now authorise all decisions affecting investors’ money. At present this means payments from ARM are suspended, including redemptions of its bonds and coupon payments.

What is the status of Insetco’s offer?

On 1 September 2011 ARM and Insetco plc announced proposals for a Sale and Purchase Agreement which depends on certain conditions being fulfilled, including regulatory approval and authorisation by E&Y. The Sale and Purchase Agreement formally lapsed on 30th November 2011 and on 27th January 2012 Insetco plc announced the formal lapse and the re-listing of their shares on the AIM Exchange.

Since the lapse of the Sale and Purchase Agreement, a small number of other offers have been received by the ARM’s board.