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FSA fines adviser firm for client money failings

The FSA has fined financial planning and portfolio management firm Christchurch Investment Management £26,600 for failings in relation to the protection of client money.

The firm’s compliance office David Thornberry has also been fined £11,550 and has been banned from acting as a compliance officer or having responsibility for client assets. This is the first time the FSA has prevented an individual from having responsibility for client assets.

Firms are required to carry out daily internal reconciliations of client money balances to ensure that in the event of insolvency client money is separate from the firm’s own assets. The regulator says Christchurch failed to apply the correct standard of daily internal reconciliations of client money balances.

When the FSA visited Christchurch in May 2010, it found the firm had failed to comply with the FSA’s client money rules from November 2007 onwards.  This included failing to put in place adequate trust documentation for any of its 227 client bank accounts, which put client money at risk in the event of the firm’s insolvency. The amount of client money held by Christchurch during the period averaged £1.2m.

The FSA found Thornberry failed to ensure client money and assets were managed appropriately. Thornberry had no formal training for his compliance oversight role, was not aware of the client money rules relating to trust status letters and failed to review and test the existing systems and controls.

He also failed properly to allocate duties for handling client money, giving one individual a wide range of responsibilities without adequate internal checks and balances. This led to an increased risk of fraud and error that could have resulted in clients losing money.  

FSA head of the client assets unit Richard Sutcliffe says: “Christchurch’s failure to engage properly with the client assets rules is unacceptable.  A firm must have adequate systems and controls in place to demonstrate it complies with the client money rules at all times. Otherwise clients are exposed to significant risks in the case of insolvency, fraud or poor handling of client money.

“We expect approved persons and firms to take their regulatory responsibilities seriously, including in relation to client money and assets, and will take action against those who fail to do so. The FSA has repeatedly emphasised the importance of ensuring client money is adequately protected and this remains a regulatory priority.”

The FSA says it has taken into account the fact that Christchurch implemented a number of changes to improve client money handling following the regulator’s visit and that no clients suffered any losses as a result of the rule breaches.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Sounds a bit “heavy” given that no clients were disadvantaged and it was a geniune error….oh hang….FSA staff wages, yes that`ll be right.

  2. Get under the hood of these final notices – note that the penalty against the firm is 3% of average money balance (compare with historical 1% typically) and also the first-ever ban for the new CF10A client assets operational oversight role.

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