British financial regulators have concluded that certain investment funds were mis-sold, so the UK Financial Services Authority (FSA) is directing firms to contact clients and offer redress.

The FSA said Monday that this is the first time that it has used its statutory consumer redress power to implement a scheme of this type.

The regulator announced that firms who advised investors on investments in the CF Arch cru Investment and Diversified Funds (Arch cru) — two open-ended investment companies that invested in companies listed on the Channel Islands Stock Exchange — must contact all their clients asking if they want their case reviewed to determine whether they were mis-sold the funds and may be eligible for redress.

The FSA says it has concluded that there is evidence of widespread mis-selling of these funds, which were unsuitably sold to investors as low or medium risk products, when they were actually high risk, as they were typically invested in non-mainstream assets such as private equity, private finance and commodities.

The redress scheme launched today means advisers will have to write to all of their clients who invested in the funds and ask if they would like to ‘opt-in’ to have their case reviewed. Firms will have one month from April 1, 2013 to contact their clients, and the FSA will monitor their progress in implementing the scheme. The wording of the letters to clients is being mandated by the FSA to ensure they are clear and straightforward, and it says it will take action against firms who deviate from it. Investors will just have to fill in a short form to confirm they want their case reviewed; and, firms will be required to let customers who opt-in know the outcome of their case by December 9, 2013.

The FSA says that if clients who invested in the funds opt for a case review and receive redress, it will put them back into the position they would have been in had they received suitable advice.

“Advisers have to accept and understand that ultimately they are responsible for making sure their customers’ interests are protected. If they don’t understand a product or haven’t done the due diligence on it, they are in no position to recommend it to their customers,” said Clive Adamson, FSA director of supervision.

“It is important that when mis-selling occurs that consumers can be redressed. The vast majority of advisers maintain very high standards and mis-selling by a few only further erode trust in the market which harms the whole sector,” Adamson added.