Scottish National Party (SNP) MP Kirsten Oswald has written to Financial Conduct Authority (FCA) chief executive Andrew Bailey calling on him to ‘address this long-running injustice’ of the loss-making Connaught Series 1 Income Fund.
In her letter Oswald (pictured right) also said Bailey should look into the ‘double standards’ applied to IFAs by the FCA in its approach to the Connaught fund.
Although Bailey has not directly responded to the letter, in response to a question at the FCA's annual public meeting today he said the regualator would take its investigations into Connaught 'very seriously'.
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.
It was originally launched as a Guaranteed Low Risk Income Fund in 2008. Capita Financial Managers was the fund’s authorised corporate directors (ACD) until 2009 when it resigned and passed the job on to Bluegate Capital. Subsequently the FCA has said it investigating the actions of Capita and Bluegate.
Many IFAs who gave advice over Connaught have had to pay out for claims upheld by the Financial Ombudsman Service (FOS), and last month the FCA blocked authorisation for an IFA firm with £1 million in outstanding liabilities from the sale of the fund.
In May New Model Adviser® revealed the FCA had apologised for its ‘poor treatment’ of the chief executive of Tiuta, George Patellis, who alerted the FSA to concerns about the fund in January 2011 – 18 months before it was eventually suspended.
Since then MPs have criticised the way the FCA handled the whistleblower Patellis, calling his £500 compensation cheque ‘rather patronising’.
Yesterday the Connaught all-party parliamentary group of MPs, which was set up in 2014, met and drafted a letter to Bailey, calling on him to look at the Connaught case.
The APPG was previously run by Guto Bebb MP however he stepped down earlier this year because he was appointed under secretary of state at the Wales Office, and it has since been taken over by Oswald. Around five MPs met yesterday at the APPG.
In Oswald’s letter to Bailey there is an issue note attached which: criticises the way Capita have seemingly ‘walked away’; the treatment of the IFAs involved; the treatment of Patellis the whistleblower; and the lack of consumer protection.
The issue note summarises the concerns of the APPG in Oswald’s letter as follows:
- That a major regulated firm appears to have ‘walked away’ from an inaccurate Information Memorandum, passing an emerging problem to a replacement with no warning to investors or regulators.
- Apparent ‘double standards’ in the FCA’s approach, with small-scale IFAs being used as funders of last resort for a failure of a major regulated firm and the regulator.
- Failure of the FSA to recognise the scandal brought to it by whistleblower George Patellis and the state of denial displayed by the FCA in continuing to refute his concerns.
- That the FCA has to date failed to use its full powers to meet its strategic objectives of protecting consumers and enhancing market integrity.
Oswald said advisers and investors were not the ones to blame over this case, and the FCA should look at the fund backers, Capita, and its own past mistakes.
‘We are asking Mr Bailey to look seriously at the failure of the FCA to address this long-running injustice,’ she said. ‘If he really wants to improve the protection of consumers and the integrity of the UK’s financial sector, he should use the Connaught failure as a case study of what is wrong.’
‘The people who made mistakes weren’t the investors and their advisers, but the fund backers who walked away when problems appeared and the regulators who have failed for five years to hold them to account. Mr Bailey needs to end the double-standards, delay and denial that characterise the FCA’s efforts to date, and use the powers the regulators have been given to really make a difference.’
Using all its powers
When asked on the collapsed Connaught fund at the regulator's public meeting today, Bailey said he is taking the investigation 'very seriously' and is giving use of its power 'very serious consideration.'
'This is a very serious issue and I can assure you we take it as such,' Bailey said. 'It is subject to investigation...there are therefore limits to what I can say in the context of the case, we don't provide a running commentary on investigations of that nature.
'But I can assure you we will use whatever powers are most appropriate and can be used in the wake of where the investigation goes. The use of powers will receive very serious consideration.'
Bailey added that the FCA would be an 'open line of contact' for consumers and firms affected as the investigation progresses.