Capita Financial Managers will pay out up to £66m in redress to Connaught investors after being publicly censured by the Financial Conduct Authority for its role in the collapse of a series of unregulated investments.
CFM will pay redress to those investors who suffered a loss after investing in the Connaught Income Fund Series 1, or the Guaranteed Low Risk Income Fund Series 1, as it was previously known.
The fund, which is now in liquidation, was an unregulated collective investment scheme which Capita ran from March 2008 providing short term bridging finance to commercial operators in the UK property market.
CFM was the operator of the fund until it resigned in September 2009, before the fund went into liquidation in December 2012.
But the FCA found there were “serious issues” which arose during CFM’s tenure as operator and it failed to ensure its replacement was fully informed about these.
The FCA also found CFM failed to communicate with the fund’s investors in a way that was clear, fair and not mis-leading.
Mark Steward, executive director of enforcement and market oversight at the FCA, said consumers are entitled to expect that authorised firms will carry out their responsibilities with care and diligence in line with the regulator's rules.
“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.”
Among the failings the FCA uncovered was the fact CFM’s due diligence and take-on process contained “basic failings” such that at the point at which it became operator of the fund it “did not adequately understand the structure of the fund’s business or its responsibility and duties as operator”.
Even when CFM realised its processes had been inadequate, it failed to rectify them, the FCA found.
CFM continued to allow money to be invested in the fund despite its developing concerns that its information memoranda were not clear, fair and not misleading.
On top of this the FCA found CFM approved information memoranda which contained inaccuracies, omissions and unclear or potentially misleading statements, such as describing the fund as “low risk” and “guaranteed” and naming a particular firm as auditor when that company was not instructed.
The FCA would have imposed a fine on CFM but found that if it did so, the company would not have been able to make the £66m payment to the fund’s investors.
The amount to be returned to investors takes into account the fact investors have already received £22m through liquidation, as well as interest and other payments.
It also includes any awards made by the Financial Ombudsman Service they may have received since they invested.
In a statement this morning, Capita said it expects to make redress payments to investors through the FCA during the first quarter of 2018.