IFA firm John Joseph Financial Services Limited has been fined £20,000 by the Financial Conduct Authority for failings relating to the sale of Keydata products.
The final notice, published today (30 September), said that JJFS recommended Keydata products to a total of 29 customers in two separate periods between August 2005 and June 2006 and between November 2008 and December 2008.
The products were underpinned by Keydata’s investment in bonds issued by Luxembourg special purpose vehicles, including one called SLS Capital S.A (SLS). SLS invested in portfolios of life settlement policies.
The FCA found that JJFS failed to “adequately assess” the needs of customers and their appetite for risk, and “did not disclose adequately” all “material risks” of the Keydata products to customers.
The regulator also said that the IFA did not take “sufficient care” to establish and maintain effective systems and controls for compliance with the regulatory system and did not create and retain adequate records of matters.
In addition, in the first period JJFS did not take “reasonable care” to ensure its advice to customers was suitable by failing to properly recognise the risks arising from lack of diversification of investments and failing to properly disclose these risks to customers.
The FCA said JJFS’s breaches were “serious” as many of its clients were approaching or were already in retirement and “faced difficulties in rebuilding their portfolios”.
The final notice said out of 27 sales, 25 customers received compensation from the Financial Services Compensation Scheme in relation to Keydata. The FSCS in separate litigation sought repayment of this sum plus additional sums from JJFS to cover the losses suffered by JJFS’s customers.
However,18 customers’ investments exceeded the FSCS compensation threshold of £48,000, by a total of over £4.9m.
Earlier this month, the regulator fined Keydata’s finance director Craig McNeil £350,000 and prohibited him from performing and significant influence function.
After Keydata was put into administration in June 2009, Keydata’s administrators discovered that SLS had failed to make certain payments that were due to Keydata in respect of the products since early 2008 and that Keydata had instead funded £4.2m in income payments to investors from its own company resources.
The regulator ruled this had the effect of masking problems with SLS and the performance of the SLS portfolio and Mr McNeil should have warned the City watchdog that this was going on.
In December 2014, the FCA published a factsheet explaining what traded life policy investments are and the marketing restriction rules applying to their distribution to retail investors in the UK.
The paper confirmed that firms should not promote traded life policy investments to ordinary retail clients.