On 16 August 2013, the FCA announced that it had banned and fined two individuals for providing insufficient oversight of activities carried out by their respective firms regarding the promotion of three Unregulated Collective Investment Schemes (“UCISs”). John Leslie of Leslie & Nuding and Jeffrey Bennett of Burlington Associates Limited (“Burlington”) were each fined £28,000 and banned from performing any significant influence function in relation to any FCA-regulated firm. This is the latest in a string of FCA enforcement action relating to Collective Investment Schemes.
Burlington’s role was required to be limited to administrative tasks under an Authorised Representative (“AR”) agreement, which prohibited it from conducting UCIS business. However, the FCA found that due to Mr Bennett’s lack of oversight, another unnamed director of Burlington (“Director A”), was able to involve Burlington heavily in every stage of the sales process. This breached the AR agreement and risked breaching FSMA. Mr Leslie’s oversight related to the delegation of certifying potential investors as eligible to receive UCIS promotions and issuing prospectuses. These were delegated to another firm controlled by Director A, who was also involved in the matter.
This instance stands out from the line of previous cases because of the focus on the specific individuals’ conduct rather than the mechanics of the scheme’s operation. In this matter, Mr Leslie and Mr Bennett were found to have breached Principle 6, which requires Approved Persons to act with due skill, care and diligence in managing the business of the firm. Although the FCA found that these failings risked breaching s.19 FSMA (general prohibition) and s.21 FSMA (restrictions on financial promotions), it did not go as far as to say that such breaches actually occurred. Although the FCA acknowledged that Mr Leslie and Mr Bennett did not act recklessly or deliberately, their failures fell short of the minimum level of oversight required by an approved person. The FCA stated that, as a consequence of their misconduct, unsolicited email mailshots were sent to approximately 15,000 potential investors and prospectuses were sent to approximately 2,900 retail customers without an adequate assessment of eligibility having been made.
This serves as a reminder that the individuals and/or firms involved in promoting Collective Investment Schemes (regulated or unregulated) must ensure not only that the scheme is promoted and operated in a compliant way in accordance with FMSA, but also that the systems, controls and supervision of such promotion is carefully monitored and controlled so as not to breach the wider FCA rules and principles.
In June the FCA published rules banning the promotion of UCISs and certain close substitutes to the vast majority of retail investors. In light of this rule change, it remains as important as ever for IFAs and scheme operators to ensure that schemes are being promoted in the appropriate manner. Earlier this month this blog reported on the FCA’s case against the operators and promoters of two unauthorised Collective Investment Schemes.