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FSA censures Capita Financial Managers for Arch Cru failings
The Financial Services Authority has censured Capita Financial Management for its involvement in the Arch Cru funds.
The City regulator has censured Capita over its failure to protect investors in the Arch Cru funds between June 2006 and March 2009.
Capita Financial Managers was the ‘authorised corporate director’ (ACD) of the Arch Cru funds. As well as having responsibility for the fair treatment of investors, Capita also delegated the investment management of the funds to a third party, Arch Financial Products, in July 2006. The funds were in turn marketed by Cru Investment Management.
Arch invested the funds in illiquid investments, including private equity assets including a fleet of Greek shipping vessels. The illiquidity of these investments saw the funds suspended in March 2009 and investors’ assets drop by 40%.
The Financial Services Authority (FSA) has said Capita did not have a suitable process in place to monitor liquidity risks.
Neither did Capita adequately identify and mitigate the conflicts of interest between Arch and the funds that arose as a result of the CF Arch Cru fund structure, which involved a complex network of onshore and offshore companies.
Capita also failed in its responsibilities for pricing the shares of the funds and did not have an adequate process in place to identify whether the information used to value the funds might not be reliable and whether an alternative measure should be used. The company did not begin to look at the valuation of the funds until late 2008 and once the funds were suspended the investments were shown to be worth less than Capita believed them to be.
Tracey McDermott, FSA director of enforcement and financial crime, said Capita’s performance fell ‘well short’ of the FSA’s requirements. However, Capita has escaped a regulatory fine as the FSA said the company could not afford to pay a fine in addition to its contribution of £32 million to the Arch Cru compensation scheme that was set up in April to provide redress to Arch Cru investors.
‘While Capita’s failings were significant, they reflect only a part of the overall picture in relation to the CF Arch Cru funds. The FSA takes the CF Arch Cru situation very seriously and continues to devote considerable resources to securing the right outcome for investors,’ said McDermott.
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