Hedge fund BlueCrest’s failure to manage conflicts of interest resulted in FCA redress, public censure and a payment of USD 101m to investors

By way of reminder, my article published earlier this year, considered the implications of the Court of Appeal ruling (Financial Conduct Authority v BlueCrest Capital Management (UK) LLP) regarding the FCA’s statutory power under s.55L of the Financial Services and Markets Act 2000 to impose a customer redress scheme on one particular regulated entity.

The most notable aspect of the Court of Appeal judgment is that a s55L single redress scheme is not constrained like a s.404 market wide redress scheme by requiring that the four conditions of loss, causation, duty or actionability are present. The Court of Appeal made clear that this does not provide an unfettered discretion to the FCA to provide redress schemes at will, and FCA powers must be exercised in compliance with defined statutory objectives.  However, it does open the door to redress schemes where a consumer might not have an actionable claim at in court.

The matter was referred to the Supreme Court but has now settled between the FCA and BlueCrest.  In this article, I review the settlement and provide some reminders of the key takeaways and issues for insurance programmes.

The Court of Appeal confirms FCA powers

In October 2024 the Court of Appeal upheld a proposed mandatory FCA redress scheme for investors of BlueCrest Capital Management[1].  The FCA had considered that the hedge fund had failed to properly manage conflicts of interest in breach of Principles 7 and 8, and decided on that basis to:

• impose a financial penalty of £40.8m; and
• require BlueCrest to provide redress to its investors (with payments under the scheme estimated to amount to USD 700m) under s.55L of the Financial Services and Markets Act 2000.

The Court of Appeal found that the FCA had acted in accordance with its powers, effectively upholding the redress scheme.  The Supreme Court granted permission to appeal on 15 January 2025, and an appeal hearing was scheduled to commence on 12 November.  A few weeks before, however, the FCA announced a settlement with BlueCrest[2].

101 (million) reasons to settle

Rather than impose the planned £40.8m fine, the FCA will instead publish a statement described as “public censure” to the effect that BlueCrest breached its regulatory requirements.  BlueCrest, in turn, has agreed to pay redress to non-US investors in the sum of USD 101 million.

Practical takeaways for regulated entities 

This case is a reminder of the significant financial authority which the FCA wields where it makes use of its statutory powers to award redress if it considers wrong doing to have taken place.

For those entities managing investor funds the FCA had the following comments to make regarding conflicts of interest:

• The Authority [FCA] has previously emphasised that when providing services, asset managers are susceptible to conflicts of interest arising between their own interests and those of their customers.
• BlueCrest’s disclosures to its investors regarding the existence of the Internal Fund, and the conflicts arising, were insufficient and, at times, misleading.
• Firms were required to have effective organisational arrangements with a view to taking all reasonable steps to prevent conflicts from constituting or giving rise to a material risk of damage to the interests of their clients.
• When firms fail to manage conflicts fairly, the customer harm may include the provision of a sub-standard service whereby customers are not given enough information to make informed decisions about their financial affairs and/or do not get fair and equal access to suitable investment opportunities.

The sum BlueCrest will now pay demonstrates the huge financial implications of getting this wrong.