CFM will now pay up to £66m to investors who suffered loss as a result of investing in the Guaranteed Low-Risk Income Fund, Series 1.

Subsequently known as the Connaught Income Fund, Series 1, it was an unregulated collective investment scheme (UCIS), which commenced operation in March 2008 and provided short-term bridging finance to commercial operators in the UK property market. 

CFM was the operator of the fund until it resigned on 25th September 2009 and the fund ultimately went into liquidation on 3rd December 2012.

•   FCA publishes report on year one of regulatory sandbox
•   FCA proposes extending the SM&CR
•   Treasury to amend definition of financial advice

The FCA found that CFM breached principle two of the FCA’s Principles for Business because it failed to conduct adequate due diligence on the fund prior to taking it on and failed to fully rectify this failure when it became aware that its processes had been inadequate. 

The regulator found that CFM had failed to adequately monitor the fund throughout most of its tenure as operator. 

The FCA also found that CFM breached principle seven because it failed to communicate with the fund’s investors in a way that was clear, fair and not misleading. 

The regulator said these failings would have normally resulted in the imposition of a penalty, but the FCA took into account the fact that CFM itself would not have been able to make a payment of up to £66m for the benefit of the fund’s investors if a financial penalty was also imposed.

Therefore, the FCA did not consider that it would be right to require CFM to pay a financial penalty and has instead issued a public censure in relation to CFM.

“The aim of the payment announced today is to return the amount originally invested, placing investors as closely as possible back into the position they would have been in if they had never invested in the fund,” said Mark Steward, executive director of enforcement and market oversight at the FCA.

“The amount to be returned to investors to achieve this takes into account the fact that investors have already received a distribution of £22m made in the liquidation, as well as interest and other payments. 

“This also includes any awards made under the Financial Ombudsman Scheme they may have received since they invested.”

The FCA has appointed Duff & Phelps as agents to carry out the calculations and distribution of monies to investors and it will contact each investor with an outstanding claim against the fund with more details shortly.

The announcement brings to an end the FCA’s investigation in relation to CFM. 

Other aspects of the FCA’s investigation into the operation of the fund are continuing.