Financial services investigations and enforcement monthly round-up

November 2020


A round-up of recent enforcement actions and investigations in the financial services sector.

This month in summary:

FCA opens only 67 investigations into defined benefit transfer advice in the last three years

The FCA has faced questions over the lack of investigations into defined benefit transfers (DB’s), even though customer complaints to the financial ombudsman regarding DB’s has increased. A freedom of information request by a consultancy firm has revealed that there have been only 11 investigations into DB’s in 2020 – four into firms and seven into individuals. 

This is in line with the amount of investigations in 2019 (10), but is considerably less than in 2018, namely, 46. 

This has caused particular scrutiny for the FCA as there are nearly 2,000 firms in the UK licenced to provide DB’s, while complaints to the financial ombudsman on misadvised DB’s has been between 400 and 600 complaints per year in the same three year period (currently at 504 for 2020).

The FCA has commented on this, explaining that they have given over 1,500 firms “detailed” feedback on how they can improve their advice, and will continue to monitor emerging risks in the market to protect consumers where required, and investigate serious misconduct with a view to enforcement action as appropriate.

Three individuals banned by FCA for non-financial misconduct

Russell Jameson, Mark Horsey, and Frank Cochran have been banned by the FCA from working in the financial services industry after the FCA found them to no longer be considered fit and proper. They were each convicted of a serious non-financial offence, 

Mr. Jameson was a financial adviser at an authorised firm. In July 2018, He was convicted of serious criminal offences involving the making, possession and distribution of indecent images of children. Mr. Jameson was sentenced to five years’ imprisonment, ordered to sign the sex offenders register, and barred from working with children or vulnerable adults.

Mr. Horsey was the sole director and shareholder at a financial advice firm. In September 2018, Mr. Horsey was convicted of voyeurism and was sentenced to nine months’ imprisonment, suspended for 18 months, required to complete 100 hours of unpaid work and 25 days of rehabilitation activity, and required to sign the sex offenders register.

Mr. Cochran was a director and shareholder of an advice firm, and, in April 2018, was convicted of sexual assault, engaging in controlling and coercive behaviour. Mr. Cochran was sentenced to seven years imprisonment and required to sign the sex offenders register also.

We are seeing the FCA act on serious non-financial offences more regularly, as they have outlined that they expect high standard of character from those who operate in the industry. Firms and senior managers are expected to ensure they are able to identify and prevent non-financial misconduct, in order to prevent a harmful wider culture from emerging internally.

Additionally, it is important to note that the offences occurred outside of the workplace – indicating that the FCA expects those working in the industry to show high standards of character at all times, and not just in their financial roles.

The FCA takes unauthorised collective investment schemes to court

The FCA has begun court proceedings against two individuals, Mr. Robin Forster and Mr. Richard Tasker, and one firm, Fortem Global Limited (FGL), over links to unauthorised investments in care homes where investors appear to have lost at least £30 million.

The authorised schemes were allegedly operated by two of Mr. Forster’s companies - Qualia Care Developments Limited (QCD) and Qualia Care Properties Limited (QCP) – with FGL promoting the schemes. Mr Tasker was the sole director of FGL.

QCP and QCD, now in administration, previously owned 13 care homes across the North East of England. Within these care homes (and 3 others they did not own), they sold, or claimed to sell, investments at a total of £50 million since 2016.

QCP and QCD provided investors with misleading information on the financial sustainability of the schemes, including unrealistic levels of return (8 to 10% a year). The FCA believes there were never any prospect of the schemes meeting those returns.

Shortly before their administration, Mr. Forster moved £1.8 million into a newly established bank account in the name of Qualia Care Holdings Limited from QCP and QCD. The FCA believes Mr. Forster and Mr. Tasker were knowingly concerned with the unauthorised collective scheme activities, and is seeking an injunction and a declaration from the High Court that the defendant’s actions amount to unauthorised activity. The FCA is looking to return funds to consumers who were affected by the alleged breaches.

FCA commences criminal charges against individual for perverting the course of justice

The FCA has begun criminal proceedings against Stephen Allen following an investigation into his conduct in cooperation with Renwick Haddow. It is alleged that, between July 2014 and July 2017, Mr. Allen and Mr. Haddow conspired to pervert the course of justice by disguising Mr. Haddow’s interest in a property and its availability as an asset to satisfy any order from the FCA against Mr. Haddow.

Mr. Haddow was the founder of a shared office business in New York called Bar Works. Investors could buy desks at Bar Works locations for $25,000 and lease them back to the company, which was seen to be identical to a Ponzi scheme. Criminal proceedings are ongoing against Mr. Haddow in the United States.

Aviva censured for listing and transparency rules breach

The FCA’s investigations into breaches of the Listing Rules and Transparency Rules has found that Aviva’s preliminary year end results announcement, from March 2018, was capable of giving the impression that Aviva intended to take action to cancel, at par value, certain preference shares.

The FCA identified that the preference shares were trading above their par value, meaning the statement by Aviva caused concern that holders would see losses on cancellation as a result. Aviva preference shares market price fell between 20% and 26% on the day of the announcement, due to holders looking to sell at the above par market price.

Aviva clarified the statement later in March 2018, stating that Aviva were not taking any action to cancel the preference shares. Aviva also provided a payment scheme for the affected shareholders.

The FCA found that Aviva failed to consider its obligations under the rules to take reasonable care in ensuring their announcement was not misleading, and would not be misinterpreted by the market. The FCA considers Aviva’s breach serious but not intentional – evidenced by Aviva’s prompt clarification response. This, according to the FCA, helped Aviva avoid a financial penalty.

Anti-money laundering takes centre stage – Treasury launches crime inquiry and NCA SARs annual report published

Anti-Money Laundering (AML) has taken centre stage in recent weeks as different bodies take steps to address and shed light on economic crime in the financial sector.

In particular, the Treasury Committee (the Committee), on 23 October 2020, launched a new economic crime inquiry (the Inquiry). This will focus on reviewing the previous inquiry from the Committee, which looked at the UK’s anti-money laundering systems and sanctions and how they were implemented. The Inquiry will set out how economic crime has been tackled and will have two main strands:

  • Anti-money laundering systems and the sanctions regime, including the FinCEN papers and the work of the Office for Professional Body Anti-Money Laundering Supervision (OPBAS); and
  • Consumers, including emerging trends as a result of coronavirus and Authorised Push Payment Fraud.

Additionally, the National Crime Agency (NCA), on 19 November 2020, published their 2020 Suspicious Activity (SARs) Annual Report (the Report). The Report provides insight on the performance of the UK Financial Intelligence Unit (UKFIU), and the NCA, in relation to the number of SARs they have received, and what has come from them (if anything).

The Report shows that there have been a record number of SARs received and processed (over 570,000 – a 20% increase on last year); with a particular high increase in Defence Against Money Laundering requests (a DAML) (over 62,000 – a 81% increase on last year). According to the Report, DAML’s have led to £172m being denied to suspected criminals – which is up 31% on the previous year, and over three times the £52m that was denied in 2017/2018.

Both recent news stories are particularly relevant in light of the recent US Financial Crimes Enforcement Network (FinCEN) whistle-blower file leaks. Press reports on the FinCEN file leaks highlighted the extent that large, international banks had noted suspicious activity, through ‘secret’ SARs submitted to FinCEN, but allegedly did not act on their concerns. One of the key findings by those examining the data from this leak was that global banks had moved more than $2 trillion between 1999 and 2017 in payments they believed to be suspicious.

FSCS and SFO combine powers to battle fraud

The Financial Services Compensation Scheme (FSCS) and the Serious Fraud Office (SFO) have signed a Memorandum of Understanding (MoU) to cooperate on the investigation and prosecution of complex fraudulent behaviour within the financial services sector. This MoU has been signed during international fraud awareness week (15th – 19th November), with both parties indicating they will look to work more closely together and share intelligence that assists each other in fighting fraud.

This will also aid customer compensation, as the FSCS (which has a cap on the amount of compensation it can provide), will be able to make recoveries through an SFO prosecution. They will then be able to pass on the proceeds to the customer, who may not have been fully compensated otherwise.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.


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