Financial services investigations and enforcement round-up

July 2020

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

FCA fines ex-CEO of former AIM company

The former CEO of WorldSpreads Ltd and its parent company WorldSpreads Plc (WorldSpreads), Mr Conor Foley, has been fined by the FCA for engaging in market abuse and prohibited from performing any roles linked to a regulated activity.

Mr Foley was involved in the drafting of admission documentation ahead of WorldSpreads’ AIM flotation in August 2007. In particular, the documentation did not mention that some executives had made significant loans to WorldSpreads and its subsidiaries as well as not mentioning an internal hedging strategy.

In 2017, the FCA took action against WorldSpreads’ former CFO and financial controller for disclosing material known to be inaccurate and which gave a false impression of the company’s financial position.

The decision has been referred to the Upper Tribunal where both parties will make their cases. The Upper Tribunal will determine what, if any, action the FCA should take.

This is a clear reminder of the requirement for companies to provide accurate and timely information to the market and the willingness of the FCA to pursue those that fail to do so.

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SFO closes investigation into De La Rue Plc

The Serious Fraud Office has announced that it is concluding its investigation into De La Rue Plc on the basis that the case did not meet the relevant test for prosecution as defined by the Crown Prosecution Service.

The SFO began its investigation looking into suspected corruption in South Sudan in July 2019.

This is the latest in a series of investigations dropped by the SFO in the last two years, including the closing of investigations into GlaxoSmithKline and Rolls-Royce.

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FCA wins against illegal pension introducers

The FCA has succeeded in its actions against two companies and their directors found to be providing unregulated pensions advice to consumers. Avacade Limited (in liquidation) and Alexandra Associates (UK) Limited were held to have provided unauthorised and misleading advice to consumers on retirement.

The FCA alleged that the two companies provided a pension report service and made misleading statements, inducing consumers to transfer their pensions into SIPPs and other alternative investments.

Over 2,000 consumers transferred more than £91 million into SIPPs as a result of the scheme. The Court found that the activities were unlawful as they had engaged in the regulated activities of arranging and advising on investments, made unapproved financial promotions through their websites, promotional material and by telephone to consumers and made false or misleading statements.

The case provides greater clarity as to the difference between the provision of information and advice.

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Privilege in the context of a regulatory investigation

The recent judgment in A v B and the FRC has clarified the process that should be followed when a regulator requests client documents which the disclosing party argues are privileged.

The court was asked to determine whether when the FRC requests or requires the production by B of documents or communications over which A has asserted legal professional privilege:

  1. Was B obliged to withhold production to the regulator of such documents or communications (or parts of documents or communications) on the grounds of A's assertion of its privilege; or
  2. Was B obliged and/or entitled to make its own assessment as to whether A's claim for privilege is valid and therefore to withhold from production to the regulator only those documents or communications (or parts of documents or communications) which B considers are subject to a valid claim for legal professional privilege?

In the judgment, the Court held that:

  • There was no dispute as to B's obligation to maintain the privilege (if the documents in question were privileged).
  • B should determine whether the documents in question were privileged because the duty to disclose is imposed on that entity by service of a statutory notice.
  • If B makes the wrong decision in relation to privilege, it would then be liable to A if it failed to maintain privilege it was under a duty to maintain.
  • It would be inappropriate for the regulator to seek a copy of the same document directly from A because A may no longer have the relevant document and the regulator will often wish to look at the document as it appears on the audit file.

Legal privilege continues to be a hot topic, in particular, in relation to regulatory requests and investigations.  Clarity on the purpose and content of legal advice is key to providing a defensible position for those seeking advice. This will inevitably not be the last time a regulator or prosecutor challenges an assertion of legal privilege.

FCA commences proceedings against alleged unauthorised regulated mortgage contracts

The FCA has commenced civil proceedings against London Property Investments (U.K) Limited (LPI) and NPI Holdings Limited (NPI) alleging both companies carried out regulated activities in the UK without FCA authorisation or exemption, and LPI communicated financial promotions without the required authorisation or approval.

LPI provides services to individuals in financial distress who face eviction or who have recently been evicted. The individual would be provided with replacement finance, usually in the form of a high interest loan, in exchange for an interest being secured against the property, which was not explained, to the individual.

Additionally, LPI would tell individuals that NPI would buy the property and rent it back to them in a ‘sale and rent-back’ agreement.

The FCA is seeking the return of ownership of the properties to the affected individuals, restitution for individuals who suffered losses because of LPI and NPI’s actions, declarations from the court stating that the defendants acted illegally and injunctions to prevent further breaches in the future.

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

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