Financial Services Authority and Connaught Income Fund

David Davis Excerpts

Wednesday 7th May 2014 Westminster Hall

[Andrea Leadsom]

I am grateful to the hon. Gentleman for making that point, which I will certainly look into further. Those two organisations belong to the same parent company, but are in fact different subsidiaries. As he might be aware, Government contracts are awarded in line with EU procurement rules.

In addition to the work by the FCA, I can also confirm that other law enforcement agencies are looking into this matter. I will urge the police to consider the case very carefully. I know that Members are interested to hear whether the police are looking at this matter, and I can confirm that they are. The FCA has been working closely with law enforcement agencies to identify and pursue avenues that will yield the best outcome for investors. It continues to look into the matter, and its work is very much ongoing. In the meantime, it is encouraging any investors who believe they might have been mis-sold a product to contact their independent financial adviser. It has disclosed information to the police and the administrators of the firms involved to help them with their inquiries.

A number of points were made during the debate, and I will try to address them. I was asked whether Capita Financial Managers Ltd was negligent in its operation of the fund and whether it breached its obligations under the Financial Services and Markets Act 2000, the operator agreement or its duty of care to consumers. The Government and the FCA take those allegations very seriously, and the FCA is carrying out its own inquiries, but the requirements on the operator of an unregulated fund are limited under FCA rules. I was asked whether the FCA has made a restitution order against Capita. I stress that the FCA is considering all the different avenues by which those who have suffered could obtain compensation. I was asked about the information provided by George Patellis.

[Mr David Davis (Haltemprice and Howden) (Con)]

In a number of these cases, some involving Capita and some involving others, it has been clear that the financial structure of the company has been set up with limited liability subsidiaries to prevent the compensation demands from going back to the parent. Will she ask the FCA to look at the acceptability of that approach, with a view to future concerns like these? It seems to me that it is a way for the company to get the benefit from a reputation, without meeting the liability that goes with it.

[Andrea Leadsom]

I completely agree. There are questions to be asked about how this apparent ability to avoid culpability has been allowed, whether steps can be taken to ensure it cannot happen again and whether there are compensation issues. The FCA is looking into all those matters, but I will take up the point my right hon. Friend makes.

I was just talking about the action the FSA took when it received information from George Patellis. The FSA met with other parties to discuss his concerns, and as a result of those discussions, it became seriously concerned about the financial position of Tiuta plc. Having considered the regulatory options in respect of Tiuta plc, in May 2011 a requirement was added to the permission of the firm that it should cease any further regulated mortgage lending. In the same month, the FSA issued the consumer alert on the fund. A further alert was issued to financial advisers asking them to consider the suitability of advice they had given to consumers who had invested in the fund and to take action accordingly. In light of the fact that very little of Tiuta’s business was regulated, the FSA considered those steps to be appropriate and proportionate at the time. I certainly take on board the point made by my right hon. Friend the Member for Haltemprice and Howden (Mr Davis) about whether that was, with hindsight, acceptable.

On the other questions I was asked, Capita issued an information memorandum that consumers believe to be fraudulent, as the fund did not operate as it said it would. I was asked what action the FCA is taking against Capita. As I said, the FCA is considering all avenues by which investors might be compensated. Unfortunately, I cannot comment on that further at this time. One point I make, because the question has been implied, is that IFAs are not supposed to sell unregulated investment schemes to retail investors. The circumstances in which unregulated schemes can be promoted to consumers are generally restricted to certain types of consumers, such as sophisticated investors and high net worth individuals, for whom the products are likely to be suitable. The FCA has brought in new rules, banning the promotion of unregulated collective investment schemes to ordinary retail consumers. IFAs have the responsibility to promote the fund only to eligible individuals. That is an important point.

My hon. Friend the Member for Hexham (Guy Opperman) asked whether the police are involved. I confirm that they are. A question was asked about the deadlines for issuing complaints. The fund was incepted in June and July 2008 and suspended in March 2012. Action can be taken either six years from the cause of action, which will start to expire from June 2014—all those investors who invested in the early days of the fund need to take careful advice if they wish to make a complaint about that product, because the deadline is fast approaching—or three years from the date of knowledge of the cause of action, which is likely to expire in March 2015 or, at the latest, September 2015. I urge those consumers who feel that they were mis-sold the fund to look carefully at these deadlines. If the case goes to court, it depends on those courses of action. Insolvency reviews of those companies will be reporting in the near future. We do not have a more specific date for that.

Once again, I would like to thank sincerely my hon. Friend the Member for Vale of Glamorgan for instigating this debate on this important case, which is upsetting for many investors. I hope I have reassured him that the Government are fully aware of his concerns and that we take this issue seriously. We are absolutely determined that our financial services sector serves consumers in a right and fair way, and that investors receive the protections they need.