The Financial Services Authority (FSA) has issued its largest ever retail fine of £10.5 million to HSBC because of inappropriate investment advice provided by one of its subsidiaries, NHFA Limited (NHFA) to elderly customers.

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FSA fines HSBC £10.5million for mis-selling products to elderly customers

The specialist in investing in the fine wines of Bordeaux is set to announce plans to raise £30m for a fund, making it the first group poised to float on the junior market in 2011

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Wine Investors joins the party on Aim

The Financial Services Authority (FSA) has taken its foot off the pedal with a lull in the number of fines imposed in October.

The FSA have fined three mortgage brokers over £400,000 and banned them due to mortgage fraud.

Mark bates of Pace Financial Management in Sheffield has been fined £74,683 disgorgement fine included in the overall fine of £264,683. He has been banned from working in regulated financial services.

Alan Hill of Pace has been fined £150,000 and banned from working in regulated financial services for breaching principle 1.

Waqarul Hassan Shah of K S Financial Services in Manchester has been banned from working in the regulated financial services world for inflating his income from £11,700 to £65,000 on a buy-to-let mortgage. He would have been fined £40,000 had it not caused him serious financial hardship.

96 Mortgage brokers have now been banned by the FSA. Perhaps you will be buying a used car from them sometime???

Fines imposed by the Financial Services Authority have reached a record level of £84,391,297 for the year so far. This figure dwarfs the total amount fined for the entire year in 2009 when fines meted out by the regulator totalled £35,005,523.34.

The fines are on track to meet the prediction made by Wolters Kluwer Financial Services earlier this year that by the end of the year FSA fines will have trebled that of the previous year.

As the end of the year approaches there has been no let up from the FSA’s enforcement team as the figure for total fines in 2010 rose to £84,391.297 by the end of September up from £66,798,197 at the end of August.

Mary Stevens, regulatory manager at Wolters Kluwer said while one fine of £17,500,000 took the credit for most of this increase, the remaining £93,100 was again spread across smaller firms .

She said this reconfirmed that the FSA was still chipping away at all sectors and all firms for all manner of reasons regardless of size.

Ms Stevens said: “When we analyse the reasons for most firms being penalised in recent months then senior management systems and control failures come out on top every time.

“Other clear reasons for enforcement action amongst other are: failure to protect client money; fraud and money laundering; market abuse and failure to cooperate or provide accurate timely information to the regulator.

“The FSA is sending a clear message that it will take enforcement action for breaches in its rules and regulations very seriously with firms and individuals alike being advised to take this message seriously if they are to avoid reputational and financial risk.”

An FSA spokesperson said: “Enforcement penalties are a powerful tool to help change behaviour in the industry.

“In line with our philosophy of credible deterrence, we believe that hitting companies and individuals in the pocket sends a powerful message making it clear that non-compliant behaviour will not be tolerated.”

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Prepare properly for your regulatory viosits, use S166.co.uk or CEI Compliance.

GET YOUR FREE S166 GUIDE (AND HOW TO AVOID THEM) HERE

That is over 3 times last year! Figures released by Wolters Kluwer Financial Services under the Freedom of Information Act found that the FSA has already issued fines worth £941,500 directed at IFAs, during the first half of 2010, which is a significant increase from the £236,676 that IFAs coughed up to the City regulator in 2009.

Last year, IFA fines amounted to just 0.7 per cent of the total penalties. But this has now spiked to 1.5 per cent of total issued in 2010 so far.

Mary Stevens, regulatory editorial UK manger from Wolters Kluwer Financial Services, said: “Even though we are only part way through 2010 the fines percentage is well over double last years’ final total reflecting the FSA’s increased pressure on IFAs as it gears up for the retail distribution review implementation.”

Lee Werrell, CEO of CEI Compliance Consultancy said “The FSA fines are not always a measure of findings as many investigations take a long time to materialise or fizzle out. There is no doubt that S166 activity is increasing, and that is derived from many reasons. Many distributors still stick their head in the sand and pretend that it won’t happen to them but they need to be aware that S166 actions can cost them well into 6 figures for a modest organisation of only a few advisers. Prevention is always cheaper than cure.”

CEI have recently produced a Guide for Senior Managers on S166 Reports and this can be downloaded free from HERE.

The Financial Services Authority, in their wisdom have increased their enforcement activity and a surge of S166 Skilled Persons Reports demands have arived through the doors of many authorised firms in the UK.

As many people are aware, the S166 Report is a tool used by the FSA to better understand what goes on within a company in its treatment of customers, front and back office procedures and to ensure consistency between policy and practice for all advisers.  

 This tool can be used for diagnostic, monitoring, preventative or redial purposes and this will vary depending on the level of perceived risk and the standard of evidence previously collected and assessed by the FSA. If general and specific concerns are apparent, the FSA may instruct investigators under Section 167 or Section 168 of the FSMA 2000 and sometimes these may be separate investigating teams.

While the report can sometimes be seen as a personal attack on advisers or the companies they work for, as well as being an undesirable cost, there are a number of benefits that can be gleaned from the experience. Benefits could be;

• Comfort that the firm’s contemporary written procedure has been adopted and embedded within the sales process and that there is or was general adherence to it.
• Identification of any potential systemic errors, inconsistencies and anomalies that have occurred through evolution, legacy practices or habit, but may remain masked by local knowledge and practice
• Provide a focus and direction for recommendations on rectification and remedial actions that may already have been started and are designed to enhance or strengthen the already robust system.
• Identification of any areas and placing them on the tactical radar and which may need review or revision, providing a firm with a more accurate risk from a purely regulatory perspective.
• Show the firm where blindspots exist in their current practices or governance

No one likes criticism, and especially not from an almost faceless bureaucracy that appears to descend out of the blue for a few hours, pick holes in seemingly robust and happy client files, note every absence of ideal documentation and then respond with a S166 Skilled Persons Report demand some time afterwards with no other notification in the meantime.

The S166 process can appear daunting and expensive – get the facts straight, get the process right and take control. Use a firm that is not just a one person outfit, but a firm that can provide a skill match to your business and a Quality Assurance and project oversight, steering everything toward a positive and accurate report for the FSA. If the content is lacking, they will either order another S166 at your cost, or enter into supervisory proceedings, suspension or worse. Get it right first time, get CEI Compliance.

Details of S166 can be found at wwwS166.co.uk.

The Financial Services Authority (FSA) has banned Martyn Powsney, the former director of Powsney & Co Ltd, an IFA firm based near Manchester, from holding positions of significant influence in any FSA authorised firm. Pownsey, who failed to put in place systems and controls to ensure that customers received suitable advice and failed to take sufficient remedial action, was found to be not fit and proper to run an authorised firm.

 Following an initial visit in 2007, the FSA required Powsney to take action to rectify serious failings at Powsney & Co Ltd but, despite employing a compliance consultant to assist with the remedial work, he failed to take prompt, adequate action. A subsequent assessment by the FSA in 2008, as part of its assessment programme for small firms, identified similar concerns to the 2007 visit.

The FSA has concluded that Powsney failed to:

•  establish appropriate systems and controls at the firm;
• demonstrate that the firm was providing suitable financial advice; and
• fully appreciate or adequately undertake remedial action required by the FSA.

Lee Werrell, MD of CEI Compliance, the UK leading consultancy in its class said; “Whenever there is remedial action to be implemented it pays to get the right help and to follow their direction.” He added “It is vital you use specialist compliance consultants who are qualified in compliance and not just advice, and, I would recommend, who are members of the Association Of Professional Compliance Consultants.”

The APCC can be contacted at www.apcc.org.uk

According to research by Eversheds, a over quarter of financial services firms of all sizes do not have robust systems in place to prevent bribery that would match the standards required by the new laws. Nearly half were unaware of the criminal liability being owned by directors and businesses. CEI has been warning firms of this risk since last summer when the details were first made public.

The Bribery Bill – currently awaiting Royal Assent – could catch all sizes of financial services companies unawares.

This survey found has uncovered a real lack of awareness, understanding and preparation in the financial services sector in relation to the Bribery Bill and that many businesses aren’t set up to minimise their exposure to corrupt business practices.

The laws, expected to come into force later this year, will require all businesses to have ‘adequate procedures’ in place to prevent bribery and corruption, with clearer rules on corporate entertainment and gifts. If in doubt, concult your professional compliance consultant or call us on 07092 289901.

Clients of CEI Compliance who use their compliance manual already have a section for recording ‘Gifts and Entertainment’ and this can be adapted to suit the company concerned. For larger companies a specific policy may be required and a matrix of authority and responsibility established.

The Compliance Manual can be purchased HERE

RSM Tenon Financial Services Limited have been fined £700,000 by the FSA for failings in its advice and sales processes for Lehman-backed structured products. The FSA also found there were failings in preventing unsuitable advice on structured product and pension switching.

Further to this fine, Tenon will also have to buy back any products from customers who who received unsuitable advice and reimburse them for the amount originally invested plus interest.

This is the first enforcement action resulting from the FSA’s review of the marketing and distribution of structured products concluded in October 2009.

The FSA found that, in relation to its sales of Lehman-backed structured products between November 2007 and August 2008, Tenon failed to treat some of its customers fairly and failed to fully and correctly assess the risks of structured products. They failed to ensure advisers considered those risks when providing advice to customers.

More suprisingly for this compliance consultancy, Tenon

• failed to provide suitable advice to its customers
• failed to demonstrate the suitability of its advice by recording insufficient personal and financial information on customers’ files
• failed to implement and maintain appropriate compliance monitoring to control the use of non-compliant direct offer financial promotions.

Whilst a lot of on-lookers will say it was a failing of a big player who thought they were bigger than the FSA, the more important fundamental errors of suitability, insufficient KYC and basic financial promotions rules being flouted are even more worrying.

FSA director of enforcement and financial crime Margaret Cole says: “We take failure in this area very seriously and the fine and other actions announced today demonstrate our commitment to credible deterrence.

“This is the first action we have taken for advice failings relating to Lehman-backed structured products following our recent review, and we acted swiftly and decisively in order to return money to investors as quickly as possible.  We will continue to take tough action where we find evidence that firms are giving unsuitable advice to investors.”