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FCA imposes recruitment ban on Financial Limited

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. 

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. £12.6m? That puts Sesame’s £6m to shame doesnt it? Is this right that they havent actually imposed the fine due to Financial’s “financial position”? Is that the modern culture – if we haven’t been prudent and put money away, we will be best treated?

  2. Is this the same Charlie Palmer that used to put videos on the Financial website that were highly critical of the FSA? Allegedly he had been warned off and that’s why you’ll find no critical videos there today.

    Obviously this is just hearsay and completely unrelated to the appalling crimes detailed above which warranted a fine similar to that given to Santander. Remarkable how a smallish network like Financial can cause a similar amount of risk and consumer detriment as a big bank like Santander.

    1984.

  3. It’s regrettable that the fine was withheld, but surely it’s better to leave the business solvent than to push it into insolvency and leave clients without a regulated adviser. As soon as it’s insolvent, more compensation claims would land with the FSCS, which we would all pay for.

  4. @ Truthseeker – It sounds like imposing the fine would cause the network to collapse leading to job losses and potential consumer detriment. As it was likely to be only a few to blame, it wouldnt be fair if everyone suffered. I think this is a reasonable approach and done in the best intrests of stakeholders.

  5. I am not a member of Financial but I always found their broadcasts and updates 1st class. I take no joy in this news.

    The Lord’s Prayer has 66 words.
    The Ten Commandments have 179 words.
    The Gettysburg Address is just 286 words.
    The small FCA handbook 400,000 words
    The FCA handbook has approx 4,000,000 words.

    Even the smaller rulebook is 1,000 pages long – about the same size as Tolstoy’s War and Peace. My guess is that there is not a single regulated firm that would stand up to that level of scrutiny & it is certainly the case that Charlie raised his head over the parapet and called a spade a spade – in return the FCA started with chapter 1 and worked through.

  6. Martin Bamford 23rd July 2014 at 3:12 pm

    I’m in favour of the FCA waiving the fine and the network remaining solvent, as the alternative would likely mean claims falling on the rest of us to pay (via the FSCS); not a particularly pleasant thought.

  7. John Cartlidge 23rd July 2014 at 5:44 pm

    The 80% is the number of cases were more information is needed, not the number of compensation cases. Notwithstanding, PI is in place and covers these cases anyway.

    The fine is the recruitment ban of 4.5 months or 126 days, so end of November.

    The monetary fine figure quoted relates to the entire network turnover* for a 5-year period and not Financial Limited’s own turnover of around £5m. (All firms / AR’s, this ranges from around £25m in the year to March 2011, to around £36m in the year to March 2014.)

    Financial is profitable, and provision for potential redress has reduced significantly over the last few years as identified issues have been resolved / settled etc.

    Yes, I am an AR of Financial Limited, and have the facts to hand, as should whoever writes this uninformed sensationalist drivel and a fair few of those commenting here.

  8. Julian Stevens 23rd July 2014 at 9:10 pm

    I imagine a 4½ month recruitment ban is hardly necessary. From what we read elsewhere, firms are hardly likely to be queuing up to join Financial.

  9. Conversely Julian, you can argue that as they have an excellent proposition and, probably, now the best systems and controls out there, its just the right time to join ! UCIS is already provisioned for, FCA seem to like the new board, PI insurer is on board, profitable and money in the bank. What’s not to like ? I’m a glass half full sort of chap. Others should take note of what the FCA are saying and start looking inside rather than outside, to make sure they aren’t next.

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