The FCA’s final notice to Financial Ltd reveals a catalogue of failings relating to the recruitment and supervision of advisers.
The regulator has today banned Financial Ltd and Investments Ltd from recruiting new ARs and individual advisers for four and a half months after identifying “systemic weaknesses” in the networks’ systems and controls.
Were it not for the firms’ financial position, the FCA would have imposed a £12.6m fine on Financial Ltd and a £621,583 on Investments Ltd.
The regulator says the network did not take sufficient steps to assess prospective ARs’ business models and practices to determine whether they were suitable.
Financial Ltd did not routinely carry out any structured due diligence or risk assessment before recruiting ARs.
It also hired advisers without requesting a copy of their CV or assessing their knowledge and skills through a structured interview process.
The FCA says this meant that, upon joining the network, ARs were allowed to follow their own sales processes and use their own tools, including fact finds and risk profile questionnaires, which Financial Ltd had not assessed and deemed fit for purpose.
Once advisers joined the network, Financial Ltd failed to carry out a suitable assessment of their knowledge and skills to determine their competence before they began advising customers.
In addition, the network failed to ensure its advisers were appropriately and effectively supervised.
Supervisory staff were not given sufficient training, and the frequency of supervision was not driven by the actual risk an adviser posed to customers.
For example, the results of pre-sale checking did not influence advisers’ risk rating and post-sale file checks did not have sufficient weighting, meaning advisers could have poor results but not be rated as high risk.
The regulator found that file checking was not consistent and the network’s grading system for post-sale file checks was not effective, largely because there was no clear definition of unsuitable advice.
Financial Ltd also failed to implement effective processes to enable senior management to identify and manage risks. The FCA says management information provided to the board was too high level to enable it to consider direct risks to consumers.
The firm’s board and senior management team also focused on dealing with issues that had already materialised rather than proactively identifying and monitoring ongoing risks.