The FSA has censured Capita Financial Managers over “inadequate processes” and “significant failings” in its role as authorised corporate director of the Arch cru fund range.
Capita acted as ACD for the Arch cru funds between June 2006 and March 2009 when the funds were suspended. It delegated the investment management of the funds to Arch Financial Products in July 2006, but remained responsible for other aspects of its role as ACD. In total, £391m was invested in the funds. Since suspension the value of the funds has fallen 44 per cent, from £363m to £203m.
In its final notice against Capita, published this week, the FSA says there were potential conflicts of interest for Arch Financial as it earned various fees and commissions as the delegated investment manager and also earned fees for structuring some of the underlying invesetments. Capita did not identify specific conflicts of interests or how they were managed until November 2008.
Capita also did not have adequate controls over the way the funds’ prospectuses were revised, and did not maintain adequate compliance records of visits to Arch Financial.
The regulator says Capita should have considered whether pricing the Arch cru investments based on the share prices quoted on the Channel Islands Stock Exchange was reliable, and whether a fair value price should have been used instead. Capita only began investigating the valuation and pricing of the Arch cru funds in late 2008.
The FSA says Capita should have taken appropriate steps to monitor Arch Financial’s management of the funds, particularly as Arch Financial had not managed an open ended investment company before and the funds seemed to be outperforming other funds in their Investment Management Association sectors.
FSA director of enforcement and financial crime Tracey McDermott says: “Those firms which delegate activities to others need to have robust processes to allow them to oversee properly these third parties and protect investors. Capita Financial Managers’ processes in this case were inadequate for this.”
“The FSA takes the CF Arch cru situation very seriously and continues to devote considerable resources to securing the right outcome for investors.”