Capita Financial Management has set aside £37 million as it braces itself for a Financial Conduct Authority (FCA) fine over its handling of the collapsed Connaught Income Series 1 Fund.
Half-year financial results published this morning revealed the company has recently been told the regulator is 'minded to seek a financial penalty' against Capita Financial Managers, which was the operator of the Connaught fund until September 2009.
The results did not disclose the exact value of the penalty, but said £37 million has been set aside to cover the potential fine and legal costs associated with its case with the FCA.
'The company has taken a prudent approach to this provision reflecting the early stages of our discussions with the FCA and the lack of clarity on the basis supporting the FCA's position,' Capita added.
Capita could face an even larger bill as the regulator plans to 'seek redress for the substantial losses incurred by all investors' after the Connaught fund collapsed in 2012.
Last year Capita paid £18.5 million to settle a claim made by the fund's liquidators. In today's announcement Capita said its board 'does not consider that the company is liable to pay further sums in addition to the amounts already paid in respect of the settled claims and therefore no provision has been made at this time'.
The Connaught Income Series 1 Fund went into liquidation in September 2012, after it was suspended in March 2012. Investors reportedly lost £110 million after the collapse of the fund.
The FCA began investigating Capita's role in the failure of the fund in March 2015 following the collapse of redress talks with the company. Capita was authorised corporate director of the fund until 2009, when it was succeeded by Blue Gate Capital. The regulator is also investigating Blue Gate but has not provided an update on this.
Last December the FCA announced it has appointed a third-party to investigate the way the fund was regulated before its collapse. This investigation will begin after the FCA has completed its enforcement investigations into the fund.
In June Capita sold its fund administration business for £888 million to Australian firm Link Administration Holdings. Under the terms of the deal legacy claims and liabilities will remain with Capita plc.