FSA HQ
The Financial Services Authority has publicly censured Capita Financial Managers (CFM) for its failures regarding CF Arch cru funds.
A fine was not imposed as it was decided the firm could not afford a penalty and its substantial contribution to the £54m payment scheme.
The Arch cru fund range was suspended in March 2009 due to liquidity concerns and a £54m payment scheme was set up with CFM, HSBC, BNY Mellon in June 2011.
CFM was the authorised corporate director of CF Arch cru funds but in June 2006 it delegated the investment management of the funds to third party Arch Financial Products. These funds were then directly invested in private finance and private equity assets.
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While CFM had delegated the investment management, it remained responsible for the overall performance of the regulatory obligations of the funds. It failed in this as it did not have sufficient processes to monitor Arch and did not identify and mitigate the conflicts of interest between Arch and the funds that arose as a result of the CF Arch cru structure. The structure was described as "a complex nature of onshore and offshore companies and private market investments." It also failed to mitigate the liquidity risks of the funds.
CFM did not investigate the valuation and pricing of the funds investments until late 2008 and it became clear, after they were suspended, they were not as valuable as CFM had expected.
Tracey McDermott, FSA director of enforcement and financial crime, said: "Capita Financial Managers has major responsibilities in relation to funds holding a very significant amount of investors' monies. However, its performance in relation to CF Arch Cru funds fell well short of the FSA's requirements.
"Those firms which delegate activities to others need to have robust processes to allow them to oversee properly these third parties and protect investors. Capita Financial Manager's processes in this case were inadequate for this."
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