The Financial Conduct Authority (FCA) has given notice of its intention to impose an outright ban on a former debt management firm director, preventing him from carrying out any regulated activity anywhere in the financial services sector.
The sanction was imposed after he illegally used money from clients to purchase the firm of which he was a director. The individual has said he intends to appeal the FCA’s decision to the Upper Tribunal.
He used the sum of £322,500, some or all of which was client money, to purchase the firm from the former owner. By May 2014, the firm’s client money shortfall stood at £7,156,036, and as the sole director, he has been held responsible by the FCA for that shortfall. In its Decision Notice, the FCA contends that he knew that his conduct was wrong, and that the monies in the client account should only have been used for the benefit of the firm’s customers.
The firm in question was never regulated by the FCA, as at the time the FCA became the regulator of consumer credit and debt management in 2014, the firm had already been stripped of its Consumer Credit Licence by former regulator the Office of Fair Trading (OFT). This action was taken after the OFT uncovered evidence of “deceitful, oppressive, improper and unfair business practices.” Issues identified included:
- Not being sufficiently transparent when describing its services
- Failing to explain the risks associated with the firm’s rather unusual method of attempting to reduce customer debts
- Not providing suitable advice
The firm’s licence was finally revoked on July 29 2013, and was permitted to carry on trading, subject to conditions, until October 18 2013. The plan was for customers to have been transferred to another firm from that date, however the transfer never took place. The firm instead continued to receive payments from customers until it was placed into administration in May 2014.
The banned director’s firm used a different method of dealing with customer debts than most debt management firms. The standard approach involves customers making monthly payments to the debt management firm, who then distribute the payment amongst the individual’s creditors. Instead, this firm sought to challenge the enforceability of debt agreements, or to set off mis-selling claims against certain debts, or to negotiate an overall settlement of the debts. In order to make an offer for “full and final settlement”, the firm built up a pot of money for each customer, and it is these pots that the director is said to have mis-appropriated.
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