In February this year, the regulator sent the notices to the individuals, who were all senior managers at a discretionary fund manager.
In the notices, published by the FCA yesterday (May 18), the regulator said it considers that the individuals were all involved in a co-ordinated arrangement in place at the firm that led customers to suffer financially, from which the firm benefitted.
The FCA said a business model was set up in order to maximise the flow of retail customer funds for onward investment into high-risk illiquid bonds operated by connected people and business associates.
“This model was driven by the financial benefit that the firm derived from commissions,” the regulator said.
Two of the individuals were warned over their behaviour between January 2016 and August 2019, and the third for actions between January 2017 and August 2019.
The first individual, known as individual A, was accused by the FCA of failing to act with integrity by entering the firm into agreements with bond providers by which the firm committed to invest customer funds in return for commission payments.
The FCA said this seriously compromised the firm’s independence and ability to act in the best interest of its customers, as did the individual’s actions in entering the firm into commission-driven agreements with unauthorised introducers.
The individual also led a decision to apply a mark-down to the customer’s valuation when they disinvested from fixed income assets in order to generate more income for the firm at their expense.
Finally, the individual (as well as the second individual, known as individual B) failed to disclose personal conflicts of interest, and did not address the FCA’s concerns about concentration risk in a particular bond provider.
The regulator said individual B also failed to act with integrity by supporting the decision to introduce a mark-down, failed to ensure the FCA’s concerns about concentration risk in a particular bond provider.
The individual also failed to ensure the timely provision of accurate customer statements and disclosure of commission charges and failed to ensure the firm’s compliance with the FCA’s rules in relation to inducements, according to the regulator.
The third individual, known as individual C, failed to act with integrity by approving the disinvestment mark-down, even though concerns were raised that it was unfair to its customers.
The regulator said the individual also failed to ensure that conflicts of interest were identified and managed appropriately, they did not address the FCA’s concerns about due diligence conducted on high-risk fixed income bond investments and concentration risk in a particular bond provider, and failed to ensure the firm’s compliance with the FCA’s rules in relation to inducements.
The warning notice is not a final decision of the FCA, and the firm now has the right to make representations to the regulatory decisions committee, which will decide on the appropriate action and whether to issue a decision notice.
If a decision notice is issued, the firm has the right to refer the matter to the upper tribunal, which reaches an independent decision.