FCA hits Capita with £66m compensation demand over Connaught fiasco
The UK financial regulator the Financial Conduct Authority (FCA) today ordered Capita Financial Managers to settle a £66m (US$86.6m, €74.6m) bill in compensation to investors in its flawed UCIS scheme known as the Connaught Income Fund, Series 1, it said in a statement.
Payment will be administered by the FCA rather than Capita to investors who lost out from backing the fund, originally called the Guaranteed Low Risk Income Fund, Series 1, which is now in administration.
At the same time, the FCA also “publicly censured” Capita for their behaviour over the unregulated collective investment scheme (UCIS).
The fund was launched in 2008 and operated to provide high-risk bridging loans in the property market via bridging lender Tuita.
Capita was the corporate services director until it resigned in 2009 to be replaced by Blue Gate.
In September 2012, Tuita went into administration with the concomitant collapse of the fund, losing £110m and leaving investors with no prospect of getting their money back.
The FCA opened an investigation into the fund in 2015, and in July 2016 investors secured a partial payment of £18.5m (US$24m,€21m) from Capita.
‘Lack of care and due diligence’
FCA executive director of enforcement and market oversight Mark Steward said: “Consumers are entitled to expect that authorised firms will carry out their responsibilities under our Principles for Businesses with care and diligence. These responsibilities are paramount and in this instance CFM failed badly.
“The aim of the payment announced today is to return the amount originally invested, placing investors as closely as possible back into the position they would have been in if they had never invested in the Fund.
“The amount to be returned to investors to achieve this takes into account the fact that investors have already received a distribution of £22m made in the liquidation, as well as interest and other payments. This also includes any awards made under the Financial Ombudsman Scheme they may have received since they invested.
“We acknowledge this resolution would not have been possible without the co-operation of Capita plc and CFM. This agreement will provide substantial benefit to all outstanding investors, including those who invested in the Fund after CFM resigned as Operator.”
Ordinarily, said the FCA, the failure to carry out due diligence would have resulted in the imposition of a penalty. However, it said that it has taken account of the fact that CFM itself would not have been able to make a payment of up to £66m for the benefit of investors if a financial penalty were also imposed. For this reason, it said, it did not consider that it would be “appropriate” to impose a financial penalty, and that it was for this reason that it had instead issued a public censure in relation to CFM.
The FCA also said that it had taken into account the fact that Capita plc was supporting the obligation of Capita Financial Managers to make the payment to the FCA.