The FCA was made aware of a conflict of interest between two firms which resulted in the loss of an individual’s entire pension but took no regulatory action, says the Complaints Commissioner.
Commissioner Antony Townsend says a complainant received advice from an FCA-regulated adviser between 2009 and 2015.
In 2010, while the adviser was employed by Firm A, the complainant’s pension pot totalling £77,200 was invested in unregulated funds at Company A.
The complainant says the adviser failed to follow due diligence processes and invested their funds in high risk products without consent.
Company A declared insolvency in 2017 while Firm A is in voluntary liquidation.
While the complainant recovered a sum of £34,000 from the Financial Services Compensation Scheme, a direct investment of £20,000 was not redressed.
The complainant had launched a six-part complaint to the FCA of which five parts were not upheld.
The commissioner has agreed with the regulator’s decision in a final report ruling.
The complainant alleged the following:
- Part 1: That FCA and its predecessor the Financial Services Authority failed to regulate Firm A because they authorised it when it seemed to exist only to take money from the public to fund the unregulated Company A.
- Part 2: That FCA and FSA should not have authorised Firm A as its owners, along with the operators of Company A, had a track record of phoenixing.
- Part 3: That FCA and FSA failed to assess Firm A’s financial position before authorising it.
- Part 4: That the FCA overlooked the conflict of interest from Firm A and Company A having the same owners who had worked together previously at failed firms.
- Part 5: That the FCA did not adequately supervise Firm B – a firm to which the complainant’s files were novated prior to Firm A entering liquidation – and which also employed the same adviser from Firm A.
- Part 6: That the FCA knowingly approved the authorisation of the complainant’s adviser to become a directly authorised IFA in 2016 following these events.
Phoenixing – where firms and individuals deliberately avoid their liabilities to consumers or poor conduct history by closing down firms only to re-emerge in a different legal entity – remains a common occurrence in the industry.
Townsend says: “The director of Firm B was aware of a conflict of interest in the Company A investments and indicated that the advice you had received was unsound. Despite this, he employed the same adviser who had provided you with financial advice at Firm A.”
“In [the complainant’s] view Firm B was therefore party to ‘unsavoury’ business practices and should not have been allowed to take on Firm A’s clients.”
The FCA did not uphold parts one, two, three, five or six of the complaint.
Townsend says: “The FCA had been unable to locate evidence that would substantiate your allegations in relation to parts one, two and three of your complaint, and that there was ‘insufficient reason’ to uphold these.”
Part four was upheld on the basis that there had been a failure by the FCA’s supervision division to correctly review and follow up information received about Firm A regarding conflicts of interest.
Townsend says the reason for parts one, two and three not being upheld is due to the FCA being unable to locate Firm A’s authorisation documents. The firm was authorised in 1999 under the Personal Investment Authority.
The commissioner agreed with the FCA’s decision to not uphold the complaints, stating Company A was formed in 2009 and none of the failed business directorship examples identified predate 1999.
Of part four of the complaint, which was upheld, he says: “I note with considerable concern the supervision failings that the FCA has identified, particularly following substantiated referrals from the Financial Ombudsman Service. This has clearly hampered regulatory action to some extent.”
Towsend agreed not to uphold part five of the complaint regarding the supervision of Firm B.
He says: “The FCA was not aware of, nor was it required to approve, the transfer of your client file from Firm A to Firm B in 2015.
“Its investigation report notes that advice about your final investment in Company A seems to have been given before this transfer.
“The complaints response also said that there was no evidence that the FCA had failed to supervise Firm B. Based on the files I have seen, I am satisfied that this was a reasonable response.”
Townsend says he agrees with the FCA’s decision not to uphold past six of its complaint as the complainant’s adviser had no personal liability to them for the advice provided.
He says: “I appreciate [the complainant’s] understandable concern that the FCA has authorised the individual who gave such unsuitable advice.
“The FCA agreed that the failures of supervision identified in relation to Firm A could have affected the authorisation decision. The complainant was told that regulatory work has been carried out in relation to Firm C [the adviser’s own IFA practice] and your former adviser, and decisions reached.”
The FCA has labelled its supervisory failings “unacceptable” in a response to the commissioner’s findings and feedback.
The watchdog said: “The commissioner has recommended that the FCA takes urgent steps to ensure that all its supervisory staff understand the serious consequences that inadequate supervision and insufficient follow-up can cause to consumers.
“We have outlined to the commissioner the steps that have been taken in response to this recommendation.
“Over the past couple of years, we have made significant changes to the way we supervise firms, have strengthened our rules and guidance around the provision of financial advice and carried out extensive supervisory work in relation to financial advisers.”