The FSA has fined one stockbroker and censured another in the past week over poor sales practices.
Glasgow stockbroker Direct Sharedeal Limited was fined £101,500 after its appoin-ted representative, First Colonial Investments, used misleading sales pitches which failed to set out the inherent risks of buying penny shares. Earlier in the week, stockbroker Wills & Co was censured and would have been fined £1.5m if it had not been winding down the business, with a large amount of customer redress due.
The FSA says DSL, which specialises in spread betting and share dealing, provided an avenue for FCI to carry out penny share sales and should have made sure that FCI was providing customers with accurate and sufficient advice to make informed decisions about whe-ther to invest in penny shares.
An FSA investigation found that FCI’s sales showed “scant regard” for their customers. The regulator says potentially misleading sales pitches were used to persuade people to buy shares and risks were not outlined.
FCI also placed its customers’ money at risk by holding it in a connected but unregulated firm.
Wills & Co was censured for not correcting the failings previously identified by the FSA in October 2007 when it fined the firm £49,000 for giving poor risk warnings and misleading information to its high-risk penny share customers.
Director of enforcement Margaret Cole says: “The small-cap stockbroking sector has been under increased vigilance by the FSA because of a need to drive up standards of customer treatment in this sector.”
Evolve Financial Planning director Jason Witcombe says: “Any business, whether it is a stockbroker or an IFA, whose sole focus is to flog stuff to people needs to watch out.
“We are all lumped in together in the Financial Services Compensation Scheme and it is extremely annoying when there are firms which are misleading investors on high-risk penny shares.
“But then it is equally annoying when we are lumped with IFAs who have been selling bucketloads of structured products that have gone wrong.”