MPs have criticised the Financial Conduct Authority (FCA) over the way it handled a whistleblower who alerted the regulator to problems with the Connaught Series 1 Income fund one year before the fund collapsed.
The critics include Conservative MP Mark Garnier (pictured), who sits on the Treasury Select Committee (TSC). He has indicated the committee could reopen an earlier inquiry into how the FCA deals with whistleblowers.
Investors reportedly lost as much as £100 million in Connaught, which invested in bridging loan firm Tiuta, when it went into liquidation in September 2012.
The Connaught fund was suspended in April 2012, but over a year before this, the chief executive of Tiuta, George Patellis, contacted the FCA’s predecessor, the Financial Services Authority (FSA).
However, his initial concerns were not addressed by the regulator before the fund collapsed.
In May New Model Adviser® revealed the FCA apologised for its ‘poor treatment’ of Patellis following his complaint over the way the regulator treated him.
The FCA upheld some certain parts of the complaint, and offered Patellis £500 for the inconvenience caused. He has since declined this award.
MPs have criticised the FCA for its handling of the complaint and response to Patellis.
Garnier said the ‘cheque for £500 seems rather patronising’.
‘They [FCA] do seem to be making rather a hash of this – especially in respect to how they deal with their mistake,’ he added.
Garnier said that on the whole he is ‘worried’ about the FCA’s dealings with whistleblowers.
‘There is a huge problem in this area, not least because it is too often the case that whistleblowers can be vexatious,’ he said.
‘However, we need them to ensure that firms are compliant and that we do not have a situation when companies lose investors’ money as in the case of Connaught. Whistleblowers can be the best way to unearth problems, especially as the regulator simply does not have the resources to be able to look closely at firms. In short, without the cooperation of law-abiding citizens, which whistleblowers are, the FCA would not be able to function properly.’
The TSC looked at whistleblowing during the Parliamentary Commission on banking standards. However he said this issue could be ‘something that the TSC ought to take a look at again’.
Kirsten Oswald, SNP MP and recently appointed head of the Connaught all party parliamentary group, told New Model Adviser® that the regulator’s slowness to react meant investors may have lost money that could have been avoided. A significant proportion of the funds were raised after Patellis contacted the FCA and before it was suspended in 2012.
‘There are a number of people who are in a very difficult financial who should never have been placed in that situation. George [Patellis] has done the right thing, he has stuck his head above the parapet in a very difficult situation and highlighted what was clearly wrong,’ she said.
Oswald said the apology from the FCA was not satisfactory and neither was the offer of £500 to Patellis.
‘I had a look at other apologies the FCA has given to people and I don’t think this is going to do the job,’ she said.
‘[The £500 offer] is really not acceptable; it’s almost worse than not getting anything at all.
‘I think we need to get better at how we deal with these things because it’s going to make it very challenging for people to step up [in the future].’
The FCA declined to comment.