Capita Financial Managers has been forced to pay up to £66 million by the Financial Conduct Authority (FCA) over its handling of the collapsed Connaught Income Fund.
The Connaught Income Series 1 Fund, which invested in bridging loan firm Tiuta, went into liquidation in September 2012, after it was suspended in March 2012. Investors reportedly lost £110 million after the collapse of the unregulated collective scheme.
Until 2009 Capita Financial Managers, a subsidiary of outsourcing specialist Capita, was the operator of the fund. This prompted the FCA to launch an investigation into the firm in 2015 following the collapse of redress talks.
Now the FCA has announced it is forcing Capita to pay £66 million out to investors. Capita provisioned £37 million for this according to its latest company results.
The regulator said Capita failed to carry out proper due diligence on the fund and that it failed to monitor the fund properly.
The regulator added there were ‘serious issues’ which arose during Capita’s time as operator of the fund, and the firm failed to ‘address all of these issues and failed to ensure the replacement operator was fully informed about the issues which had arisen’.
The FCA said these actions would ordinarily have resulted in a penalty but because Capita Financial Managers would not have been able to pay this and £66 million to investors, it decided against a penalty.
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 under our Principles for Businesses with care and diligence. These responsibilities are paramount and in this instance CFM (Capita Financial Managers) 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 £22 million 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.’
The FCA is also investigating the fund’s subsequent operator Blue Gate but an update has not been provided on this review. Once that investigation is complete, a third party will be appointed to review the regulator's own handling of the case.
This was agreed following a decision by the Complaints Commissioner which found the regulator’s handling of whistleblower George Patellisto have fallen well short.
Patellis, the former chief executive of Tiuta, brought in evidence of alleged fraud and financial insolvency into the FSA’s offices 18 months before the fund collapsed. But his initial concerns were largely ignored by the regulator.
Last May Citywire revealed the FCA privately apologised to Patellis offering him £500 for its failings.