Capita Financial Managers to pay up to £66 million for the benefit of investors

The Financial Conduct Authority has today announced that Capita Financial Managers Limited (CFM) has been publicly censured and will pay up to £66 million to those investors who suffered loss as a result of investing in the Guaranteed Low Risk Income Fund, Series 1 (or as it became later known, the Connaught Income Fund, Series 1) (“the Fund”), which is now in liquidation. The payment will be made via the FCA.

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 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.
Acknowledgement
“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.”
The Fund was an unregulated collective investment scheme (UCIS) which commenced operation in 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 on 25 September 2009. The Fund ultimately went into liquidation on 3 December 2012.
Failed to conduct adequate due diligence
The FCA found that CFM breached Principle 2 of the FCA’s Principles for Businesses (“the Principles”) because it failed to conduct adequate due diligence on the Fund prior to taking it on and failed fully to rectify this failure when it became aware that its processes had been inadequate. It also failed to adequately monitor the Fund throughout most of its tenure as Operator. There were serious issues which arose during CFM’s tenure as Operator. CFM 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 also found that CFM breached Principle 7 of the Principles because it failed to communicate with the Fund’s investors in a way that was clear, fair and not mis-leading. These failings would ordinarily have resulted in the imposition of a penalty.  However, the FCA has taken account of the fact that CFM itself would not have been able to make a payment of up to £66 million for the benefit of the Fund’s investors if a financial penalty were also imposed. For this reason, the FCA does not consider that it would be appropriate to require CFM to pay a financial penalty, and has instead issued a public censure in relation to CFM.
Payment
The FCA also takes into account that Capita plc is supporting the obligation of CFM to make the payment of up to £66 million to the FCA. The FCA is appointing Duff & Phelps as agents for the FCA to carry out the calculation and distribution of monies to investors. Geoff Bouchier, of Duff and Phelps is one of the joint liquidators of the Fund. It is not necessary for investors to take any further action at this time. Duff & Phelps will contact each investor with an outstanding claim against the Fund with more details shortly.
This brings to an end the FCA’s investigation in relation to CFM.  Other aspects of the FCA’s investigation into the operation of the Fund are continuing.
Source: https://www.fca.org.uk/