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FCA rejects approval for Connaught advice firm facing £1m in claims

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The FCA has refused an authorisation application from the directors behind a firm facing over £1m in claims over advice to invest in the collapsed Connaught Income funds.

The regulator says Strabens Hall is facing “inevitable insolvency” due to anticipated liabilities of £1.05m to eight of its customers who complained to the Financial Ombudsman Service about advice to invest the Connaught Income fund 1.

Strabens Hall directors Adam Benskin and John Halley applied for FCA authorisation for a company called Independent Family Advisers Ltd, which was incorporated in December 2013.

IFAL wanted FCA permission to acquire the Strabens Hall business – including its assets, staff and clients – but without the anticipated liabilities if the business becomes insolvent.

IFAL was to fund Strabens Hall after it entered insolvency so it could pursue a legal dispute with its professional indemnity insurer. The company believes this would lead to a settlement that would benefit the FOS complainants.

In its final notice, the FCA says it does not consider IFAL “fit and proper”.

It says: “The application, as submitted and as developed in representations following the warning notice, lacked detailed and clear proposals on issues of importance to consumers.

“It also lacked an appropriate recognition of the gravity of the anticipated circumstances of Strabens Hall’s failure and the consequences it could have for consumer creditors, public confidence in the system for redress provided by the FOS and for those funding the FSCS.

“In this case, the FCA notes the inadequacies in the original application and that IFAL has been slow to make changes to its application, that clarification has been provided in a piecemeal and incremental fashion and that IFAL has required considerable input from the FCA in developing its application.”

In response to the FCA notice, Strabens Hall says: “The notice, while only published in June 2016, covers a phase of interaction with the FCA between September 2013 and the end of February 2015. There have been significant developments in the period since then and Strabens Hall is able to confirm that these include the successful conclusion of the dispute with its professional indemnity insurer on a satisfactory basis for all parties concerned.”

It adds: “Strabens Hall continues to more than meet its full legal and financial obligations, and is trading normally. Now that these matters have been concluded we look forward to continuing to focus on assisting clients meet their financial planning and investment objectives, whether directly or working in tandem with their other advisers.”

The Connaught Series 1 fund was suspended in March 2012 and Money Marketing revealed investors faced losses of up to 50 per cent.

In March 2015, the FCA announced plans to investigate Capita Financial Managers and Blue Gate Capital, the operators of the failed Connaught Income Series 1 Fund, after it withdrew from talks with the firms.

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Has the FCA seen sense for once? I can’t believe that any adviser these days feel that phoenixing a business so blatantly is acceptable. Can anyone justify losing £1m of their clients’ money and then winding up the business and starting afresh, without the liabilities. I’m pleased to see that the FCA does not consider this proposed business to be fit and proper, but I’m shocked that the Directors felt that this is an acceptable way to proceed in the first place.

  2. Julian Stevens 2nd June 2016 at 4:50 pm

    In a decidedly convoluted and cluttered way, this article seems to be saying that the FCA has blocked the directors trying to phoenix into a new firm with the client bank of their old firm, whilst dumping the liabilities of the latter onto the FSCS. That’s about it, is it not?

    Mind you, had they made a better job of completing their application for reauthorisation, they probably would have succeeded.

  3. Richard Hoskins 2nd June 2016 at 8:42 pm

    No. I doubt the FCA has seen sense. Anyone that knows Adam knows he has integrity – more than most people. He and Strabans Hall were operating a RDR style fee based business long before RDR and IFA fees were around. I have personally recommended him as an IFA and would do so again. He wouldn’t do this unless he had a good reason to – sounds like the PI people are trying to avoid a liability and effectively forcing a good firm into liquidation.

  4. Julian Stevens 3rd June 2016 at 10:19 am

    Although they’ll have failed to secure reauthorisation, the directors will probably fold Strabens Hall anyway (they’ll probably have no choice) so the company’s liabilities will still be taken on by the FSCS.

    That aside, it would be interesting to know on what grounds their PI insurers are baulking at meeting these liabilities. Presumably because the policy didn’t cover advice to invest in unregulated schemes. Why didn’t the FSA pick this up?

    Andrea Leadsom (elsewhere) is reported to have confirmed that the FCA is ‘considering all avenues by which investors might be compensated’ as well as looking into allegations that Capita Financial Managers Limited set up and operated the Fund in a negligent fashion, that it failed in its duties under FSMA (the Financial Services and Markets Act 2000) and that the information memorandum and quarterly Fund reports that it issued may have been fraudulently misleading.

    Should it emerge that Capita Financial Managers Limited did indeed set up and operate the Fund in a negligent fashion, the FSA must surely be at fault for having allowed it to do so. Why did it not properly check the information memorandum and quarterly Fund reports that the company issued and identify that big trouble was brewing? Had it done so, this motorway pile-up (yet another) might well have been averted. Isn’t that what a competent regulator is supposed to do?

  5. Julian Stevens 3rd June 2016 at 11:20 am

    As an unregulated scheme (I just realised), the FCA can presumably (and reasonably) claim that vetting how it was set up and run was not within its purview.

    However, that still doesn’t excuse it from having failed to check that any regulated firm had in place proper PII cover to provide advice on it.

  6. From my minds eye, it reads that the FCA are pretty confident or presuming the PI policy wont pay out on and successful claim and in this case they are bang on, by not allowing this company to morph or phoenix into another…… companies do have a duty of care to ensure they operate within the remit of their PI policies, however this does come with a sting in the tail, I think Harry Katz made the best summery (with in a comment of the FSCS and PI), along the lines of the PI insurers are probably the worst at setting very high premiums, for doing there utmost not to pay out on a claim.

    We really do get shot by both sides, which means to be a bit safer, we have to work our way into the heart of the crowd IE-: the FOS seams to uphold a compliant, to easily in my view, then our PI will try their level best no cover said complaint.

    In short if you are prepared to feed on the fringes on advice and investments, be bloody sure you are covered in doing so….

  7. Unregulated investment business should be left where it belongs, on the shelf. It is not big and it is certainly not clever!!

  8. @RichardHoskins – clearly not that smart an IFA, recommending such a pile of junk for clients and then trying to claim losses on their PII policy, failing, then attempting to start again whilst dumping the losses on the rest of us via the FSCS

    If you are recommending IFAs like this, I question your due diligence.

  9. Richard Hoskins 6th June 2016 at 6:58 pm

    @DavidLord – it seems the IFAs actions might have been smarter than you gave them credit for. According to today’s press it appears the PII people now realise they should have paid out:

    http://www.internationaladviser.com/news/1029645/strabens-hall-claims-pi-payout-insolvency-threat.

    This isn’t the first (and won’t be the last time) fraud catches out a sophisticated investor.

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