Financial Conduct Authority

Debate between Kirsten Oswald and James Berry

Monday 1st February 2016 Commons Chamber

[Kirsten Oswald (East Renfrewshire) (SNP)]

I, too, congratulate the hon. Member for Aberconwy (Guto Bebb) on securing the debate and on the work he has done on this subject over a lengthy period.

Hon. Members have come to this place with a range of concerns. My engagement with this issue was prompted by the lack of protection and compensation available to investors in the Connaught Income Fund, including some in my constituency. The Connaught case demonstrates how dysfunctional the regulation of investment services in the UK still is. The FCA line appears to be, “We’ve closed the loophole exposed by Connaught. These things can’t happen again,” but that misses the point: the rewards available from financial services will simply make people look for another loophole.

Members will be familiar with what might be termed the Ronseal test. What happens if we apply that test to the situation faced by ordinary investors—those who are neither high net worth individuals nor sophisticated investors under the Financial Services and Markets Act 2000—caught out by the next loophole?

The Treasury paper on access to financial services describes the Government’s aim as

“to ensure the financial system enables people to access and manage their financial products with confidence and ease.”

The Government’s approach is to encourage people to prepare for their retirement and to manage their own finances, just as my constituent George Devon did. When looking for a secure investment for his funds, Mr Devon did as the Government suggest and approached an independent financial adviser for advice on investments that reflected his need to obtain an income with a low capacity for risk. He was advised to invest in the Connaught Income Fund, which was described as

“The Guaranteed Low Risk Income Fund”.

Helpfully, the information memorandum defined the risk level clearly. It also said that the document itself was not aimed at people such as Mr Devon, but at experienced or professional investors or at intermediaries such as Mr Devon’s adviser, who should have been able to provide sound advice on the investment’s suitability. However, in common with approximately 1,500 other investors, Mr Devon saw his funds disappear.

[James Berry (Kingston and Surbiton) (Con)]

One of my constituents, who is a financial adviser, and a number of his clients have lost significant amounts from investing in the Connaught Income Fund. Is the hon. Lady aware that an investigation has not even been commenced into one of the main parties, even though key information was provided to the FCA as long ago as 2011?

[Kirsten Oswald]

The hon. Gentleman makes a valid point. The delays inherent in this case are making it difficult for people in all kinds of situations to have justice and clarity.