The Complaints Commissioner has recommended the Financial Conduct Authority (FCA) issue a public apology to the whistleblower in the Connaught case, owing to its ‘lack-of care’ in its treatment of him and ‘regulatory failure’.
Earlier today in a separate report, the Complaints Commissioner heavily criticised the regulator for its handling of the collapsed Connaught Series 1 Income Fund, following an IFA complaint, and it was announced there will be a third-party review of the way the regulator handled it.
Investors are understood to have lost as much as £100 million in Connaught, which invested in bridging loan firm Tiuta, when it went into liquidation in September 2012.
The Connaught fund was suspended in April 2012, but over a year before this, the chief executive of Tiuta, George Patellis, contacted the FCA’s predecessor, the Financial Services Authority (FSA), bringing evidence of alleged fraud and financial insolvency into the FSA, but his initial concerns were not addressed by the regulator before the fund collapsed.
In May New Model Adviser® revealed the FCA apologised privately for its ‘poor treatment’ of Patellis following his complaint over the way the regulator treated him.
The FCA upheld some parts of the complaint, and offered Patellis £500 for the inconvenience caused. He has since declined this award.
MPs criticised the FCA’s response, with, parliamentary under-secretary in the department of trade, Mark Garnier, saying the offer of £500 ‘seemed rather patronising’.
Patellis was not satisfied with the FCA’s ‘partial’ apology and went to the Complaints Commissioner.
Today it released its response which said while ‘the FCA’s complaint response goes some way to acknowledging the FSA’s deficiencies in this matter but does not go far enough’.
It recommended the FCA issue a public apology to Patellis.
Patellis said the Commissioner had laid bare a 'festival of ingnorance'.
'Overall I'm pleased with the Commissioner's findings,' said Patellis. 'I believe he was fair and looked at the facts. I wish he had gone a bit deeper into the evidence I provided and more on the disproportionate blame heaped on IFAs. It is gratifying to see that after a six year festival of ignorance the truth is coming out.'
The first element of Patellis’ complaint related to inadequate actions by the regulator after he blew the whistle on Tiuta in 2011.
‘Patellis approached the FSA in January 2011 in his capacity as chief executive of the Tiuta Group to report concerns about the firm’s financial situation. He was interviewed by the FSA in March 2011 and a few days later asked to provide evidence that he had been asked to bring to, and had offered to supply at, the meeting,’ the Complaints Commissioner report said.
He alleged that fraud was being committed as Tiuta, with Connaught’s agreement, ‘was using funds it received to redeem loans as a revolving credit facility to run its business instead of paying off the loans and releasing the charge certificates at the Land Registry’.
In its original response, the FCA said it did ‘not consider that we had sufficient evidence of fraudulent activity’ to refer the matter to the police. It also said that because only 5% of Tiuta’s activities were regulated, that the regulator was limited in what it could do.
However the Complaints Commissioner has said although no law enforcement agency has established that fraud was committed; the regulator did not do enough to determine whether or not fraud was being committed at the companies in the first half of 2011.
The report said: ‘The evidence strongly suggests that, despite considerable activity, the FSA’s approach was uncoordinated, fragmented, and was focused upon narrow issues of jurisdiction rather than overall consumer detriment. This was despite much of the evidence (some of it significant and dating back two or three years) about the larger picture being available to the FSA in 2011.’
Specifically the Complaints Commissioner pointed out that from February 2011 onwards, the regulator was aware that Tiuta was technically insolvent. In January 2011, Patellis told the FSA that his chief finance officer had found a £20 million shortfall in accounts and it was later found in August 2012, that there was a loss of £23.5 million in the accounts.
When Patellis initially contacted the regulator he was not classed as a whistleblower. This element of his complaint was upheld by the FCA in the summer and this point was agreed with by the Complaints Commissioner.
The Complaints Commissioner said that the regulator relied too heavily on the accountants BDO monitoring the firm and it ‘did not take its own decisive action based on the information BDO did provide about Tiuta’s financial stability and solvency’.
The report also repeated the line in its response from earlier today that the regulator attempted to shift responsibility away from its own possible ‘regulatory failings’ to IFAs through messaging around it being a mis-selling issue.
The conclusion of the report said: ‘The evidence does not suggest that the regulator was simply too slow to reach its conclusions: it suggests that, despite a long build-up of evidence pointing to the risk of serious consumer detriment, it failed to act in a coordinated fashion, and failed to involve other agencies when it clearly ought to have done so.’
As well as a public apology, it recommended that Patellis is given an offer of a further £1,000.
Patellis said: ‘I'm exploring the next steps with my lawyers and it's far from over.’