RegulationJan 31 2023

FCA places restrictions on IFA firm over unauthorised client fee withdrawals

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FCA places restrictions on IFA firm over unauthorised client fee withdrawals

The Financial Conduct Authority has imposed a number of restrictions on Nexus Independent Financial Advisers and Nexus Investment Managers, preventing them from carrying out any regulated activities.

In a first supervisory notice published today (January 31), the FCA said it has very serious concerns about the conduct of the firms and is concerned that the firms’ sole director may have deducted sums from clients without authorisation or without their knowledge.

It said the firms’ director may have taken a total of £2.07mn in unauthorised and/or inappropriate withdrawals from clients of the firms. 

The FCA said the conduct appears to relate to multiple clients, and to have spanned at least the period from September 2021 to December 2022. 

“There is evidence to suggest that on or around January 14, 2023, the firms’ director was able to access bank accounts held by the firms and withdraw a further £50,000 which was transferred to their personal bank account,” the FCA wrote.

“Consequently, the authority considers it necessary and proportionate to impose the requirements to address the ongoing risk of further dissipation and to preserve the firms’ assets and provide an appropriate degree of protection for the firms’ customers.”

As of January 25, the regulator restricted access to the firms’ assets and said each firm must immediately cease carrying on all regulated activities for which each has a Part 4A permission, other than where it has the express written consent of the regulator.

The firms must, within 72 hours of the receipt of the notice, write to all clients and all platforms upon which its clients have funds placed, informing each of them of the imposition of the requirements and their effects.

Once this has been done, within 24 hours, the firms must provide the regulator with a list of all parties to whom notifications have been sent and confirmation that, to the best of their knowledge, the firms have sent the specified notifications to all relevant parties.

The FCA said the imposition of the requirements should take immediate effect because the matters set out demonstrate that the firm is “unable to manage its affairs in a sound and prudent manner, and is putting consumers at risk”.

The investigation

Nexus IFA utilises the services of Platform N and each of Nexus IFA and Nexus IM use the services of Platform S. 

Under the arrangements between the firms and the platforms, where the firms provide advice to a client, they can deduct fees from the client’s funds held on the relevant platform. 

The firms can instruct ‘ad hoc payments’ of fees to be deducted (as compared to more regular fee payments) from each of Platform S and Platform N.

To deduct ‘ad hoc payments’, a client will be asked to provide signed instructions to confirm the fee, or will be sent a letter referring to the deduction of the fee to the client’s address on file. 

Between September 2021 and December 2022, it appears that approximately £2mn has been withdrawn from client investment accounts held with either Platform N or Platform S and transferred to the firms’ business accounts. 

“Initial analysis by the authority suggests that, between September 2021 and December 2022, approximately £1,141,000 was then transferred, from the relevant business account held by one of the firms, to the firms’ director’s personal bank accounts,” the regulator said.

The FCA was notified on December 13 by the firms that an internal investigation had identified concerns relating to the solvency of Nexus IFA and the deductions of significant “fees” from a client.

The firms subsequently informed the FCA that there appeared to be no tasks associated with the “ad hoc” fees deducted, which appeared to have been in excess of £1.75mn, and it appeared that at least one other client had been subject to deductions of “ad hoc” fees totalling approximately £66,000. 

On January 16, the firms informed the authority that they had contacted one of the affected clients, who informed them that they had no knowledge of the fees being deducted from the accounts and had not authorised any such ad hoc fees. 

The firms informed the authority that a further £50,000 appeared to have been removed from one of the firms’ bank accounts by the firms’ director on or around January 13, 2023. 

The FCA said: “There appears to be evidence that the firms, specifically the firms’ director, has on multiple occasions taken substantial sums in 'fees' from clients to which they were not entitled. 

“These sums have then appeared to have been used to fund personal expenditure. The authority has very serious concerns that the firms are not fit and proper persons having regard to all the circumstances and therefore may not be meeting the threshold condition.”

FTAdviser has approached Nexus for comment. 

Nexus Independent Financial Advisers and Nexus Investment Managers are in no way associated, affiliated or have any connection with Nexus Global IFA Network or Blacktower Financial Management Group.

sonia.rach@ft.com

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