Thursday, 4 February 2016

Do the regulators offer any real protection to investors - the latest episode involving the Financial Ombudsman and Secured Energy Bond holders suggests not?

The 973 investors who invested £7.5 million in the now defunct Secured Energy Bonds (SEB) have been delivered yet another body blow, this time by the Financial Ombudsman.

Initially, the investors and MPS who represent them were directed by business minister Harriet Baldwin and the Financial Conduct Authority (FCA) toward the Financial Ombudsman (FO), with the clear message that they would be able to look into their complaints and provide some resolution.

In October, it appeared that the FO would be willing to take up the investors complaints on an individual basis. The complaints were against the Independent Portfolio Managers (IPM), which were authorized by the FCA as representative to sit on the SEB board.

One investor complaint was that IPM had sat by whilst the Australian parent body – CBD Energy – siphoned off most of the money for purposes other than those originally stipulated, namely putting solar panels on 22 schools.

IPM objected to the complainants, quoting various reasons why they did not think the FO could investigate – one of which was that there was no client relationship with investors, This despite IPM clearly using the SEB database to send out subsequent offerings for future similar products.

There was then a change of adjudicator. The new adjudicator made noises about needing to take more expert advice, prior to coming back on 28 January to tell investors that they could not take up the case.

The reality is that the FCA has drafted inadequate and deficient rules that allow authorized firms to get away with endorsing investments without any responsibility or liability.

The question now for the investors is what next? The SEB Investor Action Group has the support of more than 100 MPs, who have been pressing the Treasury and FCA as to how the situation can be resolved. The Treasury, FCA and FO have for their part been pushing the issue around between themselves, whilst the investors fall down the cracks in the regulations, perhaps hoping that investors will finally give up and go away.

This is not going to happen, as investors feel effectively robbed of their money by SEB. What is more there was a previous energy bond produced by the same company, also for £7 million, where investors also remain out of pocket.

This is a matter of total injustice. IPM took up the responsibility for overseeing investors interests as the security trustee on the board of SEB. How can they just be allowed to wash their hands of the whole debacle and carry on with business as usual as if nothing has happened? The one action they took to “safeguard” investors interests was to appoint Grant Thornton as administrators – little has emerged from this source of investigation.
The failure of the FCA to do its job as a regulator, shows a blatant disregard for investors. These people let’s remembers are the regulators that everyone is going to be relying on should future institutions crash. The record thus far in this sorry tale does anything but inspire confidence.

History of Secured Energy Bonds

*Some £7.5 million of Secured Energy Bonds were advertised in the financial press in 2013, offering 6.5% on cash invested over three years.

*The investment looked good and secure. The company Secured Energy Bonds plc was a separate UK incorporated body, which would use the £7.5 million raised to buy solar panels to put on 22 schools. The investors would receive their return in the main from the feed in tariff payments on energy generated.

*The investor’s money was safe because even if some problem arose with the company, the assets (ie the panels on the schools) would still be there raising revenue.
All went well for the first months of the bond, interest was paid on the quarter. The alarm bells though really started ringing in January 2015, when interest payments were suspended.

*It then emerged that the Australian parent company, CBD Energy, had gone into administration in November. But no worries surely the UK incorporated Secured Energy Bonds was separate – the assets must remain untouched – all £7.5 million of them.

*The Financial Conduct Authority then said it was nothing to do with them, try the security trustee IPM.

*IPM were the “security trustee” and company director charged with overseeing investors interests. Initially, phone and email messages went unanswered before finally IPM confirmed that SEB had been put into administration. Grant Thornton were appointed administrators.

*If things were not bad enough, with the funds having effectively been siphoned off to Australia to the parent company CBD Energy, instead of being used on solar panels in the UK, there was more baffling news to come.
In January 2015, CBD Energy came out of administration in Australia, having exercised a Deed of Company Arrangement – this effectively put all the debts into a creditors trust, with some small payments in the form of dividends possibly coming off of it. The company meanwhile continues to trade.

*The single act made by IPM to protect investors was bringing in Grant Thornton as administrators – their efforts thus far have proved unproductive.

* Investors were directed by business minister Harriet Baldwin and the FCA to take their complaints to the Financial Ombudsman. She subsequently changed her tune.

* 28 January FO issue an adjudicator's opinion saying they cannot deal with complaints.

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