Two subsidiaries of Financial Group, including one of the largest adviser networks in the UK Financial Ltd, have escaped fines of more than £13m from the regulator for failing to have adequate controls in place over appointed representatives.
In two final notices, published today (23 July), the Financial Conduct Authority said Financial Ltd and Investments Ltd failed to ensure ARs and advisers were adequately supervised and controlled to minimise the risk of mis-selling and the provision of unsuitable advice to consumers.
Fines totalling £13.2m - made up of a £12.6m penalty for Financial Ltd and more than £620,000 for Investments Ltd - were rescinded on the basis of the firms “financial position”. This is despite claims from Brian Galvin, chief executive of Financial and Investments, that the firm is “strong and profitable”.
However, the FCA has imposed its first ever recruitment ban under new suspension powers that came into force in April 2013. A ban of six months was reduced to four and a half months due to early settlement.
The city watchdog has also ordered past business reviews in relation to the group’s pension-switching recommendations and its promotion and sale of unregulated investments, which may result in redress being paid to consumers.
The regulator found that between 20 August 2008 and 30 April 2013 there were systemic weaknesses in the design and execution of the firms’ systems and controls and risk management framework.
The failings were directly attributable to the firms’ cultural focus, which the FCA said viewed its ARs and individual advisers as the end consumer. At its peak, the network was responsible for approximately 400 ARs and 500 individual advisers (CF30s), who gave advice to over 60,000 customers.
The group was referred to the FCA’s enforcement division following a risk assessment in May 2012 and a Financial Services Authority thematic review of firms’ practices in respect of the promotion and sale of Ucis.
The regulator said it did recognise that the group now has a new and more experienced board in place, which has engaged with the FCA and an external consultant to effect “material changes” to its systems and controls and risk management framework in accordance with an agreed remedial action plan.
Charles Palmer, the group’s chief executive, was the subject of a previous final notice in 2010, for failing to take the steps needed to manage the risk of advisers giving unsuitable advice.
Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “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.”
Mr Galvin said: “We respect the FCA’s findings and regret that we fell short of expectations. We have cooperated fully and have introduced new controls and made significant changes to processes and systems to address the FCA’s concerns.
“Our underlying business remains strong and profitable and we will continue to support our members so that they can provide clients with the best possible advice and service.”
Addressing the FCA’s key issues, the group responded that it is confident a that strong, effective and compliant systems and processes in place and it will now set “industry-leading standards for the supervision of advisers”.
The group outlined that all prospective member firms are now subject to a rigorous application process which also includes a three day induction course and training prior to approval with the FCA.
The firms’ file-checking process has been overhauled, with all member firms having to apply for licences to submit business on a post-sale basis, and all file-checkers have been put through an onerous retraining programme, Mr Galvin said.
The action against Financial comes after rival Sesame was fined £6m by the FCA last year for failing to ensure the advice it gave was suitable on Keydata recommendation,s and over broader systems and controls weaknesses.
The network later revealed losses had doubled in 2013 on the back of a past business review it was similarly forced to launch into pension transfer advice.
Additional reporting by Donia O’Loughlin and Ashley Wassall
