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UK fund manager Capita Financial Managers is to shell out £66 million following censure by the UK regulator, the Financial Conduct Authority, having “failed badly” in its responsibilities. The complaint relates to their Guaranteed Low Risk Income Fund, which went into liquidation in 2012.

Capita was the operator of the fund, which was classed as an Unregulated Collective Investment Scheme, or UCIS. The fund provided short term finance in the UK property market. Capita took over operation of the fund for 18 months before it finally resigned.

Capita Financial Managers: failure to communicate

According to Mark Steward, executive director responsible for enforcement and market oversight at the FCA:

“Consumers are entitled to expect that authorised firms will carry out their responsibilities under our Principles of Business with care and diligence…Investors were not communicated with in a way that was clear, fair and not mis-leading.”

The FCA said that Capita had failed in numerous areas when it took on the day to day running of the fund’s operations. The fund was being managed by another party, with Capita taking on responsibility for the day to day operations. But this still brings with it certain responsibilities to investors – in this case, the FCA found that Capita was also not properly monitoring the fund. Nor did it fully inform the replacement operator of the fund when it handed over responsibility.

Capita is being publicly censured by the FCA, but it escaped a big fine because the regulator still wanted to recompense investors, something that would not have been possible if a large fine had been levied. Duff and Phelps has been appointed to supervise compensation to investors.

“We acknowledge this resolution would not have been possible without the cooperation of Capita plc and CFM,” Steward added. “This agreement will provide substantial benefit to all outstanding investors, including those who invested in the fund after CFM resigned as operator.”

Day to day fund operations

It is common for third party companies to take over day to day operations of funds on behalf of their managers. This save the manager money, as the support tasks can be duplicated across numerous different fund management clients. In Capita’s case, it serves numerous blue chip names in the funds industry, including Odey, Macquarie, Stewart Ivory and Kleinwort Benson.

However, these third party services providers play an important role in the overall chain of communication to investors. They still carry out regulated activities. When they fail in this role, they face regulatory action. As fund managers continue to outsource mission critical activities to third parties, worries will increase about how effective such firms are in safeguarding the rights and interests of you, the end investors.

On 6 November, Capita Asset Services changed its name to Link Asset Services following its acquisition by Link Group.

Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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