It follows a complaint to the FCA’s watchdog, the Complaints Commissioner, into the regulator’s role in the fund’s failure.
Antony Townsend, the complaints commissioner, found the FCA “shifted the focus” away from its regulatory failings onto IFAs.
Adam Nettleship, of Surrey-based Bigmore Associates, made a number of complaints including “inactivity in the face of fraud” and covering up regulatory failings by directing the Financial Ombudsman Service to automatically uphold all relevant complaints against IFAs.
With both of these issues Mr Townsend uncovered concerns.
He said: “The evidence strongly suggests that, despite considerable activity, the Financial Services Authority’s approach was uncoordinated, fragmented, and was focussed upon narrow issues of jurisdiction rather than overall consumer detriment.
“This was despite much of the evidence (some of it significant and dating back two or three years) about the larger picture being available to the FSA in 2011.”
Regarding Mr Nettleship’s allegations about the Fos, he said: “I do not consider it was inappropriate for investors also to be advised about the possibility of making a complaint about their IFA.
“However, in my view, the FCA’s choices about what information not to put in the public domain, and the emphasis on IFAs, may have had the effect of shifting the focus away from the possibility that there might also have been regulatory failure.”
The unregulated fund was suspended in March 2012, followed by Connaught entering administration in September that year.
Mr Nettleship also complained about the FCA’s refusal for a protracted period to assist in recovery against firms committing fraud, and missed deadlines to update parties on negotiated settlement discussions.
The FCA upheld both elements of these complaints without recourse to Mr Townsend but he did express concern about the delays in its investigations of the funds operators.
In March 2015 the FCA decided to investigate the activities of Capita and Blue Gate in connection with their roles as operators of the Connaught fund.
It also announced it had withdrawn from negotiations aimed at securing an agreement to address the losses for investors.
Capita Financial Managers was operator until September 2009 when it was replaced by another company.
In light of the FCA’s decision to carry out the review, Mr Townsend said it should pay Mr Nettleship £1,500 for the distress and inconvenience, and recommended he seek legal advice if he wanted to claim compensation.
He added: “The FCA has said that its review will start once the ongoing enforcement actions would not be put at risk of being prejudiced.
“This is of course a reasonable approach; however, I consider that the FCA should be able to commence some preparatory work on the review now and do as much work as it can without waiting for the outcome of current proceedings.”
In a statement the FCA promised to publish the outcome of the review "to the extent that it can".
It said: "The FCA accepts the Commissioner's overall conclusion that the FCA’s complaint response did not go far enough in acknowledging the deficiencies in the handling of this matter.
"The FCA accepts the Commissioner’s recommendation to offer an ex gratia payment of £1,500 and will also be writing to the complainant with a further apology."
