Settlement offer ends regulator's long battle with trust company

Thursday 16 July 2015

A long-running battle between Jersey's financial services watchdog and Equity Trust over a failed investment scheme in Eastern Europe could be over, after the trust company bowed to pressure for changes, compensated investors and offered to pay part of the commission's legal fees.

The Jersey Financial Services Commission has today issued a statement in relation to Equity Trust concerning its creation of trusts and funds that invested in undeveloped properties in Bulgaria, Croatia and Montenegro almost a decade ago.

Investors – mostly UK residents – lost money after a lack of finance and planning permission, combined with legal action by creditors, led to the sites all being sold without a brick being laid.

A battle has been waged between the JFSC and Equity for almost a decade but in a statement this morning the Commission has praised Equity for taking a more collaborative approach over the last 12 months.

The trust company, which merged with the Dutch TMF Group in 2011, has since offered a settlement to aggrieved investors.

The statement by the JFSC says: “During 2011, the JFSC appointed independent Inspectors having received numerous complaints containing serious allegations from investors in the [investment trusts and funds].

“The investigation which concluded in early 2014 revealed Equity had breached the JFSC’s Codes of Practice for Trust Company Business by failing to:

• Have the highest regard for the interests of customers
• Organise and control its affairs effectively for the proper performance of its business activities and demonstrate the existence of adequate risk management systems
• Deal with the JFSC in an open and co-operative manner

“Following the appointment of a new Managing Director in early 2014, Equity made changes to its board of directors and commissioned an independent ‘Regulatory Healthcheck’ on the current state of the business.

“In October 2014, Equity acting in an open and co-operative manner, advised the JFSC of the results. A number of serious issues were identified, including similar issues to those identified by the JFSC. As a responsible entity, Equity openly acknowledged its failings and supported by its parent TMF Group, initiated a significant remediation exercise. Equity has committed to work with the JFSC to resolve all outstanding matters within agreed timeframes.

“In addition, as a result of discussions with the JFSC, Equity made a settlement offer [to investors].

“The JFSC considers the actions by Equity in 2014 demonstrate a positive change in its relationship with the JFSC. This change is welcomed as previously, since 2006, Equity had generally adopted an adversarial approach in dealing with the JFSC. This detrimental stance has now been superseded by the current board’s candid, accountable and collaborative attitude.

“The JFSC has devoted significant resources in pursuing its investigation and dealing with numerous investor complaints over the previous eight years in relation to the Funds, FSTs and related entities. In recognition of this, Equity has made a significant contribution towards the JFSC’s costs.

John Harris, Director-General of the JFSC, said: “The Jersey Financial Services Commission is committed to working with regulated entities to resolve issues whenever possible and appropriate.

“The actions taken by the JFSC since 2006 in relation to Equity support our regulatory objectives.

"In our view the issues highlighted in this public statement could have been resolved much sooner had Equity historically sought to work with the JFSC rather than against it, but the conduct of Equity more recently has been very constructive and instrumental in bringing about a degree of resolution to the long running and regrettable matter.”