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FCA warns DFMs could be used to hide investment scams

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The FCA has warned that it is seeing more scams where discretionary fund managers are being used to hide investments in non-standard assets.

As well as “first generation” scams where unregulated physical assets like property are put up for direct investment and “second generation” scams where these assets are concealed within a special purpose vehicle and purchased with the proceeds of corporate bonds, the FCA is this morning warning advisers and pension scheme operators about “third generation” scams involving DFMs.

The FCA says: “Third-generation scams now use the services of a discretionary fund manager to create an investment portfolio that does not require the direct input of the investor; this portfolio then invests in SPV bonds.”

“The reason for this evolutionary process appears to be to obscure the nature of the ultimate underlying investment.”

Under FCA rules, standard assets must be readily realised within 30 days and appear on its list of standard assets.

The regulator says: “A failure to understand which assets are non-standard may leave a firm vulnerable to exploitation by third parties, and we re-emphasise the need for firms to conduct – and retain – appropriate and sufficient due diligence.”

The FCA expressed concern as far back as July 2014 over Sipp operators’ due diligence on non-standard investments in a “Dear CEO” letter sent to the heads of firms.

The regulator also warned advisers this morning that it had concerns over how pension transfers were being conducted, and issued updated guidance on the subject.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Data? Evidence? Which DFMs? Action plan?

  2. Doubt it is a coincidence that Greyfriars DFM Portfolio Six was suspended a few weeks ago

  3. Weed them out, close them down!!

  4. The FCA must think that all non-standard assets with DFM portfolios are likely to be investment scams. What utter nonsense.

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