The Financial Conduct Authority has used its suspension power pursuant to section 206A of Financial Services & Markets Act 2000 (the ‘Act’), by banning two firms from recruiting new Appointment Representatives (AR’s) and individual advisers for a period of four and a half months.
The Act grants the FCA the power to suspend permission to carry out regulated activities. The restriction is a disciplinary measure which came into force on 8 August 2010. The two Firms who are subject to the ban are Finance Limited and Investment Limited (the ‘firms’). Both are subsidiaries of the Financial Group.
The ban was imposed after the FCA found that between 20 August 2008 & 30 April 2013, the firms failed to ensure that the AR’s and individual advisors were properly supervised and controlled and that this put the firms’ customers at serious risk of being mis-sold savings products.
The firms escaped a fine of more than £13m as a result of their financial position. Instead the FCA imposed a recruitment ban of four and a half months which was reduced from six months because an early settlement was reached.
The FCA has also ordered Past Business Reviews in relation to the firms’ pension switching recommendations and its promotion and sale of unregulated collective investment schemes.
At its peak the firms were responsible for about 400 AR’s and 500 individual advisors, who provided advice to over 60,000 customers. The FCA found that the firm’s failings were brought about due to a culture of treating the AR’s and individual advisors as the end consumer, rather than the customers.
Tracey McDermott, the FCA’s director of Enforcement and Financial crime said, '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’s disciplinary action in this case reinforces the importance of collating quality MI, embedding risk-focused systems and controls and encouraging a consumer-focused culture.'
This decision suggests that the FCA will use its suspension powers more frequently in the future, especially in cases where businesses found to be in breach of the regulations are in financial difficulties and may not be in a position to pay large fines.
The FCA will be keen to use this case as a deterrent to other businesses, in order to ensure that adequate compliance and control procedures are implemented and risk management frameworks are put in place.
The repercussions of such a ban being imposed may prove highly detrimental. A direct consequence of such an order could be a speedy employee departure and with a company unable to recruit new staff, businesses may quickly collapse.
The powers provided to the FCA under the Act allow them to impose bans, limitations or restrictions on any other regulated activity.
The FCA aims to promote innovation and healthy competition between financial services companies and we help them keep to the rules and maintain high conduct standards. It is highly advisable that companies seek proper expert advice to ensure that they are fully compliant with any relevant regulations to avoid being at risk of prosecution.
If a company has any suspicions that they are in breach and/or subject to an investigation by the FCA, it is advisable that they seek legal advice as soon as possible as credit will be provided for assistance and cooperation.
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