The FCA has banned adviser networks Financial Limited and Investments Limited from recruiting new ARs and individual advisers after finding “systemic weaknesses” in the firms’ systems and controls.
The FCA says were it not for the firms’ financial position, it would have imposed a £12.6m fine on Financial Ltd and a £621,583 fine on Investments Ltd.
In the first time the regulator has used its suspension power, it has banned the subsidiaries of Financial Group from taking on ARs and advisers for four and a half months.
The FCA has had the power to impose suspension or restrictions on firms since 2010, but would normally to seek to fine businesses in the event of misconduct. In this case, Financial Ltd could not afford the fine that the regulator wanted to impose.
The regulator says the firms failed to ensure their ARs and individual advisers were adequately supervised and controlled to minimise the risk of misselling and the provision of unsuitable advice to consumers.
FCA director of enforcement and financial crime Tracey McDermott says: “This is the first time the FCA has used its suspension or restriction powers to punish a firm for serious misconduct.
“In this case, it is a direct intervention by the FCA in the way the firm runs its business. The sanction is intended to send a message of deterrence to the rest of the industry, and serve as a reminder that the FCA takes systems and controls failings very seriously and is able to respond with sanctions that target the specific revenue streams of different types of business.”
The FCA found that, between 20 August 2008 and 30 April 2013, there were “systemic weaknesses” in the design and execution of the firms’ systems and controls and risk management framework.
The FCA says the failings were directly attributable to the firms’ cultural focus which viewed the ARs and individual advisers, rather than their customers, as the end consumer.
It says this culture created an environment which allowed poor standards of business to continue for a significant period of time.
In 2010 Financial Ltd director Charles Palmer was fined £49,000 for management failings which resulted in poor compliance monitoring on pension switching advice.
In June, the network’s accounts revealed it was under investigation by the FCA over pension transfers.
At its peak, the network was responsible for 400 ARs and 500 individual advisers, who gave advice to over 60,000 customers, including in relation to unregulated collective investment schemes, pension switching and occupational pension transfers.
The group was referred to the FCA’s enforcement division following a risk assessment in May 2012 and the FSA’s thematic review of Ucis sales.
The FCA says both of these raised “serious concerns” about weaknesses in the group’s systems and controls and risk management framework.
The FCA says it recognises that the group now has a “new and more experienced” board in place which has engaged with the FCA and an external consultant to effect material changes to its systems and controls and risk management framework in line with an agreed remedial action plan.
The FCA has required the firms to conduct further past business reviews in relation to its pension-switching recommendations and its promotion and sale of Ucis. The regulator says this may result in redress being paid to consumers.
Financial Group agreed to settle the case at an early stage of the investigation and therefore qualified for a 30 per cent discount. Without the discount the recruitment ban would have been imposed for six months.
Financial Ltd and Investments Ltd chief executive Brian Galvin says: “We respect the FCA’s findings and regret that we fell short of expectations. We have cooperated fully and have introduced new controls and made significant changes to processes and systems to address the FCA’s concerns.
“Our underlying business remains strong and profitable and we will continue to support our members so that they can provide clients with the best possible advice and service.”
Financial Ltd currently has 299 ARs and 342 registered individuals, while Investments Ltd has four ARs and six registered individuals. Investments Ltd also has permissions for dealing in investments, allowing it to offer discretionary investment management services.