The FCA has fined and banned two former directors of stockbroking and wealth management firm Pritchard Stockbrokers.
Pritchard managing director David Gillespie has been fined £10,500 and finance director David Welsby has been fined £14,000 for serious failings relating to the protection of client money.
They both provided evidence of serious financial hardship, and otherwise would have been fined £144,000 and £72,000 respectively.
The regulator has also censured the firm for “recklessly” failing to protect client money and committing a number of specific breaches of the FCA’s client money rules.
Pritchard entered special administration in March 2012 and, were it not for its financial position, the FCA would have imposed a fine on it of £4.9m.
FCA director of enforcement and financial crime Tracey McDermott says: “Ensuring that client money is properly protected is a basic, but fundamental, regulatory requirement. Gillespie and Welsby’s conduct fell far short of our standards.
“Their recklessness contributed to a shortfall of £3m of client money and resulted in significant consumer detriment.”
Under the FCA’s CASS rules, client money should be held in a segregated client bank account, to ensure it is protected if a firm becomes insolvent.
The regulator says Pritchard, Gillespie and Welsby recklessly relied upon the existence of an undocumented and opaque offshore facility in order to correct a deficit which had arisen in Pritchard’s client money.
The offshore facility was wrongfully included as an available client money resource when reconciling the amount of client money that needed to be segregated by Pritchard.
As a result of these failings, client money was wrongly used to pay business expenses; Pritchard routinely failed to pay sufficient funds into its client bank account to cover shortfalls in client money; and the FCA was not informed when a shortfall in client money occurred.
This resulted in significant consumer detriment, including a loss of £3m in client money when Pritchard entered into administration. Gillespie has accepted ultimate responsibility for the failings to protect Pritchard’s client money.
He also had the primary contact with the overseas company providing the offshore facility and assured his fellow director Welsby of the existence of the offshore facility.
Welsby relied on Gillespie’s assurances and failed to verify or confirm the existence of the offshore facility.
Mazars was appointed special administrator of Pritchard on 9 March 2012 after the FSA suspended the firm’s permissions.
On the same day, structured product provider Merchant Capital said it would transfer all £350m of clients’ non-cash assets from Pritchard to new custodian Reyker Securities but cash assets were frozen by the regulator.
In May 2012, Money Marketing revealed Mazars had estimated there would be a £3.4m shortfall of cash in Pritchard’s client accounts.