Poacher and gamekeeper: getting familiar?

Posted on August 13, 2012

They say that familiarity breeds contempt. When it comes to links between regulators and the regulated, we wonder whether it also breeds complacency, and may even give rise to opportunities to collude. That’s why it’s important for bodies such as the FSA to ensure that registered firms are supervised by employees who have no former professional or personal links to the senior managements or compliance teams of those businesses.

The FSA representative principally tasked with ensuring that Tiuta plc safeguards investors’ assets and operates within the law is Lorraine Wadhams. According to Mortgage Strategy:
she was previously appointed Head of Operations at Infinity Mortgages, a sub-prime lender that scaled down its operations following the Northern Rock crisis, in August 2007, and has since been dissolved. Who was Infinity’s Compliance Director between 2005 and 2008? None other than our good friend Mike Davies, who in his dual roles of
Chairman of Connaught Asset Management and, between August 2008 and July 2010, Compliance Officer of Tiuta plc (we also understand he remained actively involved in the firm long beyond the latter date), would presumably have had extensive dealings with his former colleague in her supervisory role.

We stress that we do not currently have any evidence of collusion, merely of a potentially uncomfortable conflict of interest. However, we find it interesting that when one investor emailed Wadhams asking her to either attend the General Meeting of the Fund scheduled for Monday 13 August on the grounds that, given the number of IFAs and investors – many of them with relevant professional expertise – expected to attend, there had to be a chance that useful information
relating to professional misconduct might emerge, she declined to do so. ‘It is not my intention to attend the meeting and it is also not proposed that anyone else will attend from the FSA’ was the blunt response.

The Action Group understands that Mike Davies referred to Lorraine Wadhams at the meeting with investors on 13 August 2012 as his “usual FSA contact”. We are concerned that the FSA should realise that they were previously colleagues together and if nothing else, this creates a perception of a conflict of interest. Investors are entitled to demand    that the FSA fulfils its statutory duty to protect the interests of investors rather than the interests of friends or former colleagues. We are not saying that Lorraine Wadhams was solely responsible for the failure to protect the interests of investors in the Fund. We are saying that the FSA should be impartial in the way it conducts its duties.

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