A short while ago I wrote a blog explaining what happens to £100 of revenue received by an authorised and regulated firm like ours.
In that article I explained that £12 in every £100 went to pay for regulatory and accountancy costs.
Yesterday the Financial Services Authority (FSA) publicly censured Capita Financial Managers for their failure to act with skill, due care and diligence as the Authorised Corporate Director in respect of the Arch Cru funds.
These funds have lost nearly 20,000 investors a great deal of money.
Capita however have escaped with a public censure and no fine, even though the FSA believed they would have imposed a financial penalty of close to £4 million for their failure had Capita Financial Managers had the monetary resources to pay.
Earlier this year the FSA proposed a Consumer Redress Scheme that if they went ahead with it would require IFAs who recommended Arch Cru to pay over £110 million in compensation to the consumers who lost out.
Life though is never that simple!
The FSA estimated that some 30% of that £110 million would be payable by IFAs who were no longer financially solvent and their share would fall upon the Financial Services Compensation Scheme (FSCS) which itself is funded by levies from firms that do continue to trade.
So in this very strange universe a huge amount of compensation (we actually believe that it would be much, much greater than the £33 million estimated by FSA) would be paid by those who “did not pollute”.
Do not be surprised if next year I write a blog explaining how £25 in every £100 of our revenue goes to regulatory costs because these are constantly increasing and becoming a real burden for small firms like ours.
Anyway back to Capita Financial Managers, apparently they were not fined because they had already voluntarily contributed to a consumer redress scheme of £54 million of which they paid £32 million.
Bearing in mind the parent group of Capita Financial Managers posted a half-yearly pre-tax profits of £191 million and has a market capitalisation of £4.8 billion I cannot think of any good reason why they should not both pay the fine and the total cost of compensating consumers.
Photo credit: Flickr/Bernt Rostad
