The Financial Conduct Authority (FCA) has confirmed a ban and fine on the director of a firm that gave inappropriate advice on Self Invested Personal Pensions (SIPPs). The individual had referred to the Tribunal the original July 2016 decision by the FCA to fine him £233,600 and ban him from carrying out significant influence and management functions. However, in July 2018, the Tribunal dismissed his appeal against the ban, although it did decide to reduce the fine to £60,000. The FCA has now issued the Final Notice.
The alternative SIPP investments promoted by his firm were typically in unregulated areas such as biofuel oil, farmland and overseas property. Firms advising on SIPPs need to ensure both that the product itself is suitable, and that the underlying investments are also suitable for the client’s financial circumstances.
The FCA therefore contends that:
“The outcome of this model was that, in practice, [name of firm] merely facilitated the transfer of its customers’ pensions into SIPPs so that those customers could invest in the high-risk and generally unsuitable investments that are being promoted by [name of associated firm].”
Specifically regarding the role played by the firm, the Tribunal said:
“It would be readily apparent to any competent financial adviser that for an unsophisticated retail investor with a relatively small pension pot represented either by interests in a defined benefit scheme or in a personal pension invested in a spread of traditional investments, to switch his benefits into a SIPP which was to be wholly invested in either a single or very small number of inherently risky overseas property investments was a wholly unsuitable course of action for that investor to take. It was quite clear from the evidence given by the consumers that those investors were relying on [name of firm] to advise them as to whether the course of action that they were proposing to take was appropriate.”
Although the firm was remunerated via commission from the provider of the alternative investment, typically the customer was not informed by the advisory firm of the payment of this commission, or its amount.
Here the FCA asserts that:
“[Name of firm] failed to comply with its regulatory obligations to manage conflicts of interest fairly and, where appropriate, clearly to disclose them to its customers.”
By failing to disclose his personal conflicts of interest regarding these payments, the director is said to have breached Statement of Principle 7.
On this subject, the Tribunal judgement from Judge Herrington reads:
“The conflict of interest was one that concerned [name of director] personally. The matter was therefore entirely within his own knowledge. In our view, this was an obvious conflict that any reasonably competent director of a regulated firm should have identified, even if he was not an expert in compliance.”
The director had argued that to ban him from senior roles would be disproportionate.
However, the Tribunal again found in favour of the FCA, ruling that:
“We are seriously concerned that [name of director] shows limited insight into the duties of a director and the board of a regulated firm and has given no serious thought to what he would need to do to address his failings. We therefore have no confidence that he would not make similar mistakes again were he able to exercise senior management functions in a regulated firm in the foreseeable future.”
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