Clarkson Hill had its regulatory permissions varied in part due to a failure to show it could pay up to £4.8m in redress to consumers for unsuitable advice.
A supervisory notice dated 23 November has revealed the reasons why the national IFA firm was no longer able to conduct any regulated activities.
It reveals FSA concerns about the firm which date back to September 2009, when a skilled persons report was carried out looking at Clarkson Hill’s compliance, complaints procedure, financial promotions and corporate governance.
The notice states that Clarkson Hill notified the FSA on May 28, 2010 that it had a capital deficit of about £588,000.
The company later told the FSA that the deficit would be plugged by the proposed sale of all or part of the business to another firm and that an offer was likely on or before November 8.
As part of its due diligence process the prospective buyer, unnamed in the notice, reported concerns there were a significant number of cases where Clarkson Hill had given unsuitable advice to clients.
This prompted a review by the FSA in July.
The FSA reviewed a sample of 17 transactions out of a total of 138 files relating to unregulated collective investment schemes, venture capital trusts and enterprise investment schemes.
The 138 files accounted for a total of £8.4m of client investments between June 2008 and May 2010.
The FSA says: “Based on the sample review, the FSA deemed a very high proportion of these cases to be unsuitable, leaving Clarkson Hill potentially being liable for up to £4.8m in redress to consumers.
“This estimated figure is a speculative assessment based on the extrapolation of the sample files considered and taking into account liabilities which are likely to be covered by the professional indemnity insurance policies.”
Clarkson Hill filed its Retail Mediation Activities Return for the period to September 30, 2010, which showed its capital deficit has increased to £622,456.
The FSA adds: “Clarkson Hill has failed to rectify, or demonstrate that it is able to rectify, this deficit other than through the investment by the prospective purchaser.
“Clarkson Hill has also failed to demonstrate that it will be able to make sufficient provisions for redress payments for unsuitable advice which may have been given, in the event that the prospective purchase does not proceed.”
In addition to the lack of capital, Clarkson Hill’s permissions were also varied because it failed to appoint a suitable replacement compliance officer after the current compliance officer announced he was quitting.
Moneygate held takeover talks with Clarkson Hill between October and December last year, but gave up on the deal on December 20 after spending £100,000 on due diligence and advisory costs.
Clarkson Hill appointed Bridge Business Recovery as administrator on December 17. Merchant House Group acquired certain Clarkson Hill assets, excluding the bulk transfer of IFAs and clients, on December 23.