FCA disciplinary action puts integrity in the spotlight

May 10th '19

This week (9 May), the Financial Conduct Authority published Decision Notices against three firms and five individuals for ‘acting without integrity’ in relation to their pension advice business and for ‘misleading the FCA’.


What happened, and what lessons can other firms take from the regulator’s robust action?


Why has the FCA issued Decision Notices?

What is a Decision Notice? According to the FCA’s definition, it is a ‘notice issued by the appropriate regulator in accordance with section 388 of the Financial Services and Markets Act 2000’.


The findings in this week’s Decision Notices are provisional; they are being taken to tribunal by the individuals in question. The tribunal will determine what, if any, is the appropriate action for the FCA to take.


The Decision Notices were published in respect of three firms (Financial Page Ltd, Henderson Carter Associates Limited and Bank House Investment Management Limited) and five individuals (Andrew Page, Thomas Ward, Aiden Henderson, Robert Ward and Tristan Freer).


They outline the reasons that the FCA is taking action against the firms and individuals, as well as the sanctions imposed, which include financial penalties and the individuals’ prohibition in the market.


Why did the FCA take issue with the firms and individuals in question?

The regulator highlights a number of concerns relating to the individuals and firms it has penalised:


  • Lack of oversight

The FCA believes that Financial Page Ltd, Henderson Carter Associates Limited and Bank House Investment Management Limited ‘had little meaningful oversight and involvement in the advice provided to customers in their name’.


This goes against a core tenet of FCA regulation. Regulated firms retain responsibility for financial promotions, advice and activity carried out in their name, even when outsourced. Failing to have oversight of this is a major compliance failing. The firms in question ‘adopted a pension review and advice process which involved outsourcing important functions to unauthorised third parties’.


Any regulated firm outsourcing needs to retain oversight of, and accountability for, any firm acting on their behalf. The FCA has clear rules on this and announced in its 2019-20 business plan that it intends to set ‘clear expectations on outsourcing to third party providers’, as part of its work on operational resilience.


  • Misleading customers

The firms in question ‘held themselves out to customers as providing bespoke independent investment advice based on a comprehensive and fair analysis of the whole market, but that did not reflect the reality of the service that was provided’.


Again, this breaks a fundamental FCA rule. The regulator demands that financial promotions and advice are fair, clear and not misleading and meet rules around suitability.


In the case of the firms here, customers ‘were recommended pension switches and pension transfers to products that invested in high risk, illiquid assets which were unlikely to be suitable for them’. The directors in question ‘should have known that the products were unlikely to be suitable for retail customers, except in very limited circumstances, but acted recklessly in closing their minds to the obvious risks’.


  • Providing false and misleading information

The directors also ‘acted dishonestly by providing false and/or misleading information to the FCA, in some cases on more than one occasion’. Clearly this is unacceptable to the regulator. One, Thomas Ward, acted as a director despite not being approved by the FCA to do so, and also ‘deliberately drafted communications that were false and/or misleading’.


Ensure your own firm meets FCA expectations

Clearly, the alleged actions of these firms and individuals are the exception to the rule when it comes to regulation. But there are a few steps you can take to help you stay on the right side of the regulator:


  • Include all key information in your promotions


Make sure all mandatory information is clear and prominent, especially when it comes to terms or conditions, risk warnings or disclaimers.


  • Make sure your communications are appropriate for your market


Suitability is a big focus for the FCA. Your promotions need to meet guidelines on suitability – particularly important if you are communicating with vulnerable consumers.


  • Be transparent and honest


Do not over-promise, particularly when it comes to potential returns. General financial promotions rules, as well as more specific requirements under MiFIDII and PRIIPs, mean that data included in any promotion, including on performance and fees, needs to be highly accurate.


Qualifying text can be used to clarify claims made in promotions, but this information needs to be clearly shown and not contradict any claims made elsewhere in the promotion.


  • Take care when outsourcing


A lack of oversight of outsourced work was a big factor in the FCA’s decision to penalise these firms and individuals.


Whether you entrust elements of your operations, marketing, sales or other functions to other, often non-regulated, providers, you retain regulatory responsibility for them.


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