Financial services investigations and enforcement round-up

June 2020

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

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Advisers warned not to pursue claims against own advice

The FCA has issued a warning to financial advisers which have sought to pursue claims against their own poor advice. Executive director of supervision at the FCA, Megan Butler, stated that the practice of advisers leaving firms which had liabilities due to poor advice and resurfacing at claims management firms in order to pursue claims against their former firms was a ‘recent and egregious development’ which is ‘completely unacceptable and totally out of line with any concept of fit and proper’.

The comments were made at a conference held by the Personal Investment Management & Financial Advice Association. The FCA took control of CMC regulation last year and has stated that it will use all regulatory tools available to it to stamp out the above practice.

In addition to the above, the FCA has also become aware of firms trying to:

  • avoid their liabilities to customers by closing down companies and setting up new ones – a practice referred to as ‘phoenixing’; and
  • pre-emptively set up new entities and applying for authorisation before complaints and liabilities at their existing entities have crystallised – a practice referred to as ‘lifeboating’.

Ms Butler stated that that the FCA was aware that historic poor conduct was driving an increase in the FSCS levy payable by advisers. The levy has increased by £16m for the coming year.

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FCA explores heightened risks resulting from home working

In a recent article, the FCA has suggested that the increased number of people working from home poses major challenges for corporate culture and conduct.

Whilst the FCA also states that increased flexibility around work offers many opportunities, the article raises the following concerns:

  • Individual behaviour: Psychological stress combined with financial pressure may cause an increased risk of misconduct in addition to misconduct being facilitated by the home-working environment, for example, by a loss of ethical cues from colleagues;
  • Corporate culture: Culture may become increasingly fragmented due to reduced informal contact between employees leading to a loss of direction and ethical foundations;
  • Supervision: Disconnected managers may make judgements based solely on data (P&L, sales etc.) without enough context. In addition, decisions made hastily may lead to people feeling unable to report a mistake before it is too late; and
  • Diversity and well-being: Isolated work environments may lead to diversity, inequality and mental health being pushed down the agendas of some firms.

Some of these points are long-running themes in the FCA’s work on culture. If you would like to discuss the impact of home working on conduct in your business, please get in touch with a member of our team.

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FSCS to launch probe into claims against Greyfriars

The FSCS has referred its investigation into Greyfriars Asset Management (Greyfriars) to its internal legal team as part of an investigation to discover what regulatory breaches may have occurred.

According to the FSCS, it has received 241 applications for compensation against Greyfriars so far since it defaulted in April 2020, though only two have been upheld so far.

The claims submitted against Greyfriars have mostly related to a number of investment portfolios offered by the discretionary fund manager. However, some of the other claims relate to self-invested personal pensions, pension advice and personal pension opt outs.

The FSCS said it will provide an update on the investigation’s progress in due course.

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FCA obtains orders for victims of unauthorised share scheme

Following an FCA investigation, in early May the High Court ordered £3,619,352 to be paid in restitution to members of the public who bought unlawfully promoted shares. The order was made against the directors of Our Price Records (OPR) and their marketing agents Gemini.

OPR promoted other companies’ products on its website for a commission. After failing to secure any investment from sophisticated investors through an FCA authorised firm, OPR sought to raise funds from retail customers through two share offerings. OPR promoted them through unauthorised marketing agents who telephoned members of the public.

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:

'Investors should stay clear of any unsolicited investment offers from unauthorised advisers or brokers. These businesses are breaking the law and will almost certainly lead to investment losses.

'The FCA is able to take punitive and remedial action in some cases but the best protection is to avoid these types of offers completely.'

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FCA stops firms that used unauthorised celebrity endorsements

The FCA has taken action against four Cypriot firms which offered high-risk contracts for difference by using unauthorised celebrity endorsements on social media as part of their marketing. The FCA believes that investors in the UK have lost hundreds of thousands of pounds in these investments. 

The FCA took action because consumers were not provided with sufficient information as to the nature of the investments, pressured into making increasingly large investments and some were encouraged to take out credit to make the investments.

None of the firms and their operators have any actual presence in the UK and the firms have addresses in Cyprus.

The orders require the firms to stop selling CFDs to UK customers, to close existing positions with UK customers, to return UK customers’ money and to notify UK customers of the FCA’s action.

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FCA bars credit card fraud adviser

The FCA has banned a financial advisor, Mr Jason Taylor, who was convicted for credit card fraud from performing any function in relation to regulated activity carried on by any authorised person, exempt person or exempt professional firm.

From 2012 until 2019 Mr Taylor held various controlled functions at four authorised firms. However, in early 2019 Mr Taylor pleaded guilty for his role in a credit card fraud in which he attempted to acquire criminal property which represented the proceeds of fraudulent credit card transactions. He was sentenced to three and a half years imprisonment.

An FCA spokesperson stated that Mr Taylor’s conduct showed a ‘clear and serious lack of honesty, integrity and reputation.’

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

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