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Why isn’t Capita paying the price for its Arch Cru failings?
Capita Fund Managers have been censured by the regulator over Arch Cru, but why hasn't it been slapped with a fine?
The last three years have been tumultuous for investors involved in the Arch Cru scandal. They have seen their assets drop 40%, to-ing and fro-ing over compensation schemes and legal actions, and a failure of any party to take responsibility for the demise of the funds.
The censure of Capita Fund Managers by the Financial Services Authority (FSA) yesterday should have provided some closure for investors but many were left asking why, considering the myriad failings of the company, was it not slapped with a big fine by the regulator?
To recap, Capita was the ‘authorised corporate director’ of the funds meaning they had responsibility for delegating the fund management to Arch Financial Products and ensuring investors were treated fairly.
Due to a lack of sufficient processes, Capita failed to spot that Arch had invested the funds in illiquid and esoteric investments, such as Greek shipping vessels. It also had no proper processes for making an accurate valuation of the investments, which turned out to be worth a lot less than thought and investors saw their assets drop 40%.
There have been lots of characters in this saga, let’s not forget Cru Investment Management which marketed these risky funds as safe as cash, but a lot of the blame has fallen squarely at the feet of Capita.
So why isn’t it putting its hand in its pocket for a fine? The FSA said that Capita Financial Managers cannot afford to pay a penalty because it’s already had to ask its parent company Capita Financial Group to cough up £32 million to contribute towards a compensation scheme for Arch Cru investors, which was set up earlier in the year.
In short, Capita Financial Managers cannot afford it but just a small amount of digging shows that its parent company secured £2 billion worth of contracts in 2011 and the year ended 31 December 2011 profit before tax topped £385.2 million.
Doesn’t sound like a company that can’t afford a fine does it? Capita Financial Managers may not have enough cash in the bank to pay for its misdeeds but Capita Financial Group does, it’s just that the FSA has no jurisdiction over the parent company and can’t force it to pay a penny.
Only Capita Financial Managers is regulated by the FSA, its parent isn’t.
After years of battling to get their money back and prove they were sold a dud, investors see one of the Arch Cru debacle’s main protagonists get away with the regulatory equivalent of a slap on the wrist.
Capita has said it ‘accepts and acknowledges the FSA’s findings’ but for investors hoping for a bit of justice, or even an apology, they will have a long wait.
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by Gavin Lumsden on Dec 10, 2013 at 16:51