Blue Gate escapes $13.5 million Connaught fund fine from FCA

LONDON (Reuters) - Britain’s Financial Conduct Authority on Friday ordered Blue Gate Capital to pay investors 203,007 pounds for failings related to the 2012 collapse of the Connaught Income Fund, but it escaped a 10 million pound ($13.5 million) fine.

FILE PHOTO: The Chair of the Financial Conduct Authority (FCA) Charles Randell, speaks at a Reuters Newsmaker event, in London, Britain July 11, 2018. REUTERS/Hannah McKay

The order comes a day after an independent report found “institutional failure” in the regulator’s handling of the fund, which left investors nursing losses of 79 million pounds.

Blue Gate took over as operator of the Connaught Income Fund, Series 1 in 2009 from Capita Financial Managers, which has already paid 58 million pounds to Connaught investors.

The FCA said in a statement that Blue Gate had agreed it breached rules on adequate due diligence prior to taking it on.

Blue Gate also agreed it had not communicated with investors in a clear, fair and not misleading way, the FCA added.

“These failings would have resulted in the imposition of a penalty of 10 million pounds, which would have been imposed if Blue Gate had not established it was in serious financial hardship,” the FCA said in a statement.

The FCA said its actions in response to the failure of the unregulated Connaught fund have led to investors receiving back, in net terms, the value of their investment.

The 203,007 pounds that Blue Gate will have to pay investors via the FCA reflects the profits earned by the firm.

“Blue Gate did not agree the issue of whether it should pay restitution, choosing instead to make use of the FCA’s partly contested case process,” the watchdog said.

An independent report into the collapse on Thursday said there was “institutional failure” at the regulator, which could have acted in a more effective way to protect investors given a “number of red flags”.

The FCA apologised on Thursday for its errors.

“I add my own public apology from the FCA to George Patellis, an important whistleblower who raised concerns that we should have acted on more promptly and decisively,” FCA Chair Charles Randell said.

($1 = 0.7392 pounds)

Reporting by Huw Jones; Editing by Carolyn Cohn and Alexander Smith