The punishment relates to investors who suffered loss as a result of investing in the Guaranteed Low Risk Income Fund, Series 1 (also known as the Connaught Income Fund, Series 1 ) which is now in liquidation. The payment will be made via the FCA.
The FCA says that Capita Fund Managers (now known as Link Fund Solutions) “failed badly” to carry out due care and diligence on behalf of investors. Despite this, the FCA recognised that Capita plc and CFM co-operated with the regulator.
The FCA says it used a public censure and a compensation order, rather than fining CFM, because a fine would have meant CFM lacking enough funds to compensate investors fully.
The fund was an unregulated collective investment scheme (UCIS) which began 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.
The FCA warned investors about the marketing of Connaught Income Funds in 20111.
The compensation money will aim to put investors back to where they were before they invested in the fund. Investors have already received £22m following the liquidation of the fund.
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.
“We acknowledge this resolution would not have been possible without the co-operation of Capita plc and CFM.”
The FCA found that CFM breached Principle 2 of the FCA’s Principles for Businesses 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.
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.