The Financial Conduct Authority (FCA) has imposed an outright ban on a debt management firm director who knowingly used client money to buy the firm of which he was a director.
The individual in question was the sole director of the firm between October 2013 and May 2014, and as a result of his actions, around 4,000 customers collectively lost more than £7 million. The individual had previously indicated he would appeal the original FCA decision, made back in May 2018, to the Tribunal.
As with all firms in the consumer credit sector, the disadvantaged customers have no recourse to the Financial Services Compensation Scheme.
The FCA says that the director knew both that his actions were wrong, and that the firm had a significant client money shortfall.
The firm in question had something of a chequered history. The married couple from whom the banned director acquired the firm were themselves banned by the FCA for mis appropriating client money, and the firm itself had its Consumer Credit Licence revoked by the former credit regulator, the Office of Fair Trading (OFT):
Issues identified by the OFT 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 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.
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.
Mark Steward, executive director of enforcement at the FCA, said:
“[name of director] blatantly used customers’ money to fund the purchase of [name of firm] from [name of former owner]. This was dishonest and showed a complete lack of integrity. [name of firm] was meant to help people manage their debts, but [name of director]’s actions put them one step backwards and in a worse position than before.
“He is not a fit and proper person and poses a serious risk to consumers. This is the strongest action we can take and will prevent him from operating in financial services again.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article