In a previous article dated 7 June 2013, we reported that the Financial Conduct Authority’s ("FCA") enforcement activities would continue to be driven by the policy of "credible deterrence" taking tough, targeted, effective enforcement action against misconduct in the regulated sector as a way of changing marketing behaviour.

We also suggested that we could expect to see a further FCA crackdown on advisers with a pattern of ever higher fines on those that break FCA rules.

Less than two weeks later, on 19 June 2013, the FCA announced that it has imposed its largest ever fine on a sole trader in a retail business.

Mr Gurpreet Singh Chadda ("Mr Chadda") has been fined almost £1million and banned from working in the financial services industry as a result of significant failings when conducting sale and rent-back agreements.

The FCA investigated Mr Chadda’s involvement in seven sale and rent-back transactions between June 2009 and January 2010 and found serious failings in all of them.

They included misleading the sellers of properties, who were Mr Chadda’s customers, by telling them he would be buying their homes when, in fact, the purchases were for other people. Mr Chadda failed to tell the sellers that these purchases were not authorised or regulated by the FCA, meaning that they were not covered by the regulatory protections.

Mr Chadda was also found to have helped purchasers to obtain mortgages in the knowledge that they were giving misleading information to mortgage lenders and to falsely claim that the price the sellers would get for their properties would be based on independent valuations.

He also misled the sellers about what their properties were worth and charged them grossly unfair and excessive hidden fees.

In the seven sales and rent-back transactions that were investigated by the FCA, there was no independent valuation and that Mr Chadda assigned values to the properties based on the purchaser’s mortgage valuations or on his own opinion. He assigned two properties a market value which was significantly less than actual market value. In one case, he or his representatives fabricated a mortgage valuation to make it look as though the seller’s property was worth substantially less than its real value.

The FCA believes that Mr Chadda earnt £695,277 from the seven transactions as a result of his misconduct and that these charges were unfair and excessive. The FCA penalty includes the disgorgement of this sum.

The FCA’s Tracey McDermott (Director of Enforcement of Financial Crime) pulled no punches in her comments:

"Chadda’s misconduct is the most shocking we have seen from a home finance arranger. He is a disgrace to financial services. He deliberately misled his clients for his own personal gain and then repeatedly and cynically lied to the FCA. Chadda is not fit to work in regulated financial services and he presents a serious risk to customers and lenders alike with his dishonest and unscrupulous actions. The unprecedented level of fine for a sole trader reflects our determination to deprive him of the gains he made as a result of his misconduct."

Ms McDermott’s comments reflects the FCA’s intention to "get tough" on advisers in the sector.

Also worth noting is the FCA’s complete disdain for Mr Chadda’s attempts to mislead the FCA both before and during the investigation.

They included informing his FCA supervisors that he had purchased the properties himself using a £1 million credit facility which he later admitted was misleading; providing the FCA with limited documents evidencing the transactions despite a compelled request from the FCA for full disclosure; providing the FCA with misleading ban statements; and providing the FCA with incorrect contact details for some of the sellers of the properties.

The FCA stated Mr Chadda’s actions had "aggravated his original misconduct" and serve as a clear warning for those who try to mislead FCA supervisors or the enforcement team.