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Financial Group hit with FCA recruitment ban

Wednesday 30th July 2014

The Financial Conduct Authority (FCA) has made use of its suspension powers for the first time, banning two of the Financial’s Group subsidiaries from recruiting new Appointed Representatives (ARs) and individual advisers for a total of four and a half months.

The firms, Financial Limited and Investments Limited, failed to make sure that their ARs and individual advisers were sufficiently supervised and controlled to reduce the risk of mis-selling and the delivery of unsuitable advice to consumers.

The disciplinary sanction is designed to have a financial impact on the Financial Group, which creates income from its ARs by way of fixed fees. The ban put in place aims to deter the firms and other comparable network firms in the market from committing similar breaches.

Tracey McDermott, the FCA’s director of Enforcement and Financial crime, said: “This is the first time the FCA has used its suspension or restriction powers to punish a firm for serious misconduct. In this case, it is a direct intervention by the FCA in the way the firm runs its business.”

She went on to add: “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 discovered 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 firms’ failings were directly linked to a culture that existed which viewed the ARs and individual advisers, instead of the customers, as the end consumer, the FCA found. This culture fostered an environment which allowed poor standards of business to persist for a significant period of time.

The network, at its peak, was responsible for nearly 400 ARs and 500 individual advisers (CF30s). They offered advice to over 60,000 customers, including on high-risk transactions such as UCIS, pension switching and occupational pension transfers.

The Financial Group was referred to the FCA’s Enforcement Division after a risk assessment in May 2012. The FCA was particularly concerned about the firms’ inadequate system and controls relating to the recruitment, training, monitoring and control of its ARs, as well as the firms’ inadequate compliance and file checking processes. If the two firms’ financial positions weren’t so perilous, the FCA would have imposed a penalty of £12,589,134 on Financial Ltd and £621,583 on Investments Ltd.

The FCA has acknowledged the new and more experienced Board put in place by the Financial Group, and their willingness to engage with the FCA and an external consultant to introduce material changes to its systems, controls and risk management framework in line with an agreed remedial action plan.

Lastly, the Financial Group agreed to settle the case at an early stage of the investigation and, as a result, qualified for a 30% discount. Without the discount the recruitment ban would have been imposed on each of the firms for 6 months.

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Editorial Contact Details - Conor Shilling
0845 672 6000
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