Back in July, I reported that the Financial Services Authority (“FSA”) had continued its crackdown on financial advisors who had given bad advice to customers to invest in Unregulated Collective Investment Schemes (“UCIS”). This followed on from industry reviews by the regulator in 2009 and 2010 which lead to take disciplinary action against a number of IFAs at the end of 2010 and in spring of this year.
It is very clear that the FSA continues to regard UCIS mis-sales as a problem that is not going to go away and it remains concerned about industry standards in this regard. The FSA’s resolve to clean up the industry is demonstrated by two further disciplinary actions announced in the past few days.
On 15 September 2011, the FSA announced that it had fined the Peterborough based IFA Rockingham Independent Limited (“Rockingham”) £35,000 and banned two of its directors and one of its financial advisors from selling UCIS.
The FSA found that 39 investors had been advised to invest in UCIS because Rockingham had failed to understand the regulatory restrictions on the promotion of UCIS (these mean that UCIS cannot be promoted to the general public in the UK, other than to very limited categories of investors such as sophisticated investors and high net worth individuals).
The two Rockingham directors were banned from holding significant influence functions and the controlled customer function concerning UCIS; the Rockingham financial adviser was banned from performing compliance oversight in any regulated firm and from performing a customer functions relating to UCIS. Furthermore, Rockingham agreed to stop selling UCIS and to conduct a past business review to assess whether any historic UCIS sales were unsuitable and whether it should compensate customers as a result.
In announcing the disciplinary action, the Acting Director of Enforcement and Financial Crime at the FSA, said that: “We have previously warned about the particular risks of UCIS…which are likely to be unsuitable for the vast majority of investors. The industry must heed these warnings.”
Hot on the heels of the Rockingham case, on 21 September 2011, the FSA fined Mr Ian Jones, a director of Specialist Solutions plc (“SSP”), £16,000 for UCIS mis-selling. Mr Jones was also, effectively, banned from selling UCIS. (SSP itself had previously been fined £35,000 by the FSA in April 2011 for failings in relation to UCIS).
During a 3 year period, SSP had advised 101 customers who invested just over £11m in UCIS. The FSA was concerned that SSP had not understood the regulatory restrictions on the promotion of UCIS, thereby exposing customers to the risk of receiving unsuitable advice.
The FSA decided that, as SSP director and compliance officer, Mr Jones had failed to (a) implement internal compliance procedures which adequately ensured UCIS was promoted in accordance with the relevant regulations; (b) implement an appropriate training and competence programme to ensure that advisors who promoted UCIS complied with the regulatory provisions; and (c) ensure that adequate due diligence was conducted into the UCIS funds promoted by SSP (d) to ensure that customers were given suitable advice to invest in UCIS. The FSA therefore concluded that Mr Jones was not a fit and proper person in terms of his competence and capability to carry out significant influence functions or customer functions with regard to the promotion of UCIS.
These two further disciplinary actions clearly demonstrate that the FSA’s work with UCIS is far from done. Moreover, it is likely to give those IFAs who have promoted unsuitable UCIS sales some sleepless nights as they anticipate a knock on the door from the FSA. It also clear that the FSA is focussing disciplinary action in this area on senior officers, rather than just the firm; the FSA is thereby sending a clear message to the regulated community as to what it expects in terms of senior management responsibility for firms’ compliance with the FSA’s rules.