The FCA has censured Catalyst Investment Group for “recklessly misleading” investors when promoting bonds issued by Luxembourg-based life settlement vehicle ARM Asset Backed Securities.
Catalyst has been censured as it is in default and is unable to pay a fine. The FCA would have otherwise imposed a penalty of £450,000.
The FCA is also seeking to ban Catalyst chief executive Timothy Roberts and fine him £450,000, and to ban Catalyst director Andrew Wilkins from senior financial services roles and fine Wilkins £100,000. Both men have referred their cases to the Upper Tribunal.
Catalyst was the UK marketing and distribution agent for ARM, and offered bonds issued by ARM to UK advisers, who in turn sold them to retail investors. The bonds, which were backed by life settlement policies, were sold to investors in the UK and Europe without ARM having the appropriate permissions.
UK investors have invested a total of £54m in ARM bonds.
The FCA says Catalyst knew ARM had applied for a licence from the Luxembourg regulator the CSSF in July 2009, and had been asked to stop issuing bonds in November 2009 pending a decision.
However, Catalyst continued to accept funds from investors without disclosing ARM’s position, or the risk that ARM could be liquidated if its licence application failed.
Catalyst also wrote to advisers and investors on separate occasions suggesting ARM’s licence application was voluntary, but did not spell out the implications if the licence was not granted.
The company’s former compliance officer, Alison Moran has been fined £20,000 for failing to ensure the issues around ARM’s licence were communicated properly to investors, despite being aware there were problems since December 2009.
FCA director of enforcement and financial crime Tracey McDermott says: “Catalyst showed a reckless disregard for investors’ interests, exposing them to significant risks. We expect firms, and their senior managers, to put customers’ needs first – and will take tough action against those who fall short of our standards.”
Rockingham Independent, which was declared in default in November, advised at least 200 sales of ARM bonds to UK investors. ARM bonds were one of the underlying investments behind Rockingham’s Rita product, a 10-year annuity product wrapped in a Sipp.
In March the Financial Services Compensation Scheme rejected compensation claims from Rockingham clients on the basis that the cause of the investors’ losses was the decision of the Luxembourg regulator to reject ARM’s application for authorisation, rather than poor investment advice.
The FSCS is now reviewing its decision to reject claims in light of new evidence.
The FSA fined Rockingham £35,000 in September 2011 and imposed partial bans on its directors over sales of ARM bonds and unregulated collective investment schemes.