The Financial Conduct Authority (FCA) has refused an authorisation application from a Birmingham-based firm that was seeking permission to advise in a number of higher risk areas, including pension transfers and investments such as contracts for difference (CFDs), equities and commodities.
The FCA was particularly concerned as to the competence of the person nominated by the firm to carry out the controlled functions of CF1 (Director), CF10 (Compliance Oversight) and CF11 (Money Laundering Reporting Officer). These concerns led to wider issues over whether the firm could satisfy some of the FCA’s Threshold Conditions, including 2D (Appropriate Resources) and 2E (Suitability).
The FCA has previously communicated its concerns about firms offering CFDs, which include:
The risk of “rapid, large and unexpected losses” for investors in these products
Ordinary retail clients taking out CFDs and trading in them when they do not have a sufficient understanding of how the products work
Firms not putting in place sufficiently rigorous anti-money laundering controls in place to manage the increased risks posed by higher risk clients
The nominated individual, referred to as Employee A in the FCA’s Final Notice, does not hold any recognised financial services qualifications. According to the authorisation application, she is intending to take the ICA Advanced Certificate in Compliance, but her existing experience consists of nothing more than a few online courses and seminars. She has been employed in compliance roles in the past, but the FCA describes these as being “in an ‘administrative/ compliance support’ capacity without regulatory responsibility for, or substantive involvement in, ensuring regulatory compliance.”
At an interview with the FCA, the individual failed to demonstrate that she understood the nature of the permissions the firm would require, could not explain what anti-money laundering controls the firm would use, and did not appear to understand the CFD product in any great detail.
The FCA’s Final Notice reads:
“The interview panels considered that Employee A was unable to demonstrate the expected level of knowledge in key areas, including being unable to provide a response to a number of important questions.
“On a number of occasions, Employee A was only able to provide responses to questions that should have been within her knowledge by referring to written material brought with her to interview.”
It is no surprise that the FCA subjected an application for CFD permissions to the highest level of scrutiny. The FCA has conducted a review of CFD sales, covering the period between July 2015 and June 2016, and found that 76% of retail consumers who bought CFD products during this period suffered some form of loss.
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.