Ban Order, Fines Strike Financial Advisers

Jack Humphrey, Regulatory journalist
July 13, 2011 /

The Financial Services Authority (FSA) has fined two former directors of financial adviser network of Alpha to Omega (UK) Limited (A2O), for failing to give customers appropriate investment advice.

Andrew Ruff and Richard Lindley have been fined £28,000 and £14,000, respectively, for widespread compliance failings which led to the risk of customers receiving unsuitable investment advice. In addition, Andrew Ruff has also been banned.

Ruff was A2O’s Compliance Director. He was approved to hold CF 1 (Director), CF10 (Compliance Oversight) and CF11 (Money Laundering Reporting) significant influence functions at A2O from March 26 2003 to January 5, 2010.

Lindley was managing directors of A2O where he was approved to hold the CF1 (Director) significant influence function at A2O from 26 March 2003.

The FSA previously penalized financial services firms Specialist Solutions Plc and The Matrix Model Group (UK) Limited last April for the same offense.

In March 2009, the FSA reviewed some customer files of an appointed representative of A2O resulting in the requirement for A2O to appoint a skilled person to review the compliance systems at the fiancial adviser network.

A2O (Firm Reference Number 214100) was an Independent Financial Adviser network authorised by the FSA in March 2003. It called in administrators on January 25 last year and is now in liquidation. It had 47 appointed representatives which employed a total of 101 financial advisers.

The skilled person found that customers were facing the risk of receiving unsuitable investment advice due to the firm’s widespread compliance failings. Problems could arise when customers had been recommended high risk investments such as certain Unregulated Collective Investment Schemes (UCIS schemes).

UCIS are high risk products and it is essential firms have appropriate systems and controls to avoid them being sold to customers for whom they are unsuitable. The failings of Ruff and Lindley resulted in the inappropriate promotion of unsuitable high risk products to retail clients.

A2O agreed to stop its appointed representatives recommending a number of UCIS schemes. However, A2O failed to make the necessary improvements to its compliance systems and on January 2010 the FSA required the financial adviser to stop all of its regulated activities.

Ruff and Lindley have been fined because they failed to control and monitor the sales made by A2O’s appointed representatives, and to oversee the network of financial advisers resulting in unsuitable advice being given to customers.

The financial adviser network allegedly failed to collect relevant and accurate management information to enable them to adequately identify, monitor and mitigate the compliance risks to which the business was exposed, and failed to take appropriate action to correct the behaviour of appointed representatives when they became aware of potential compliance risks.

Ruff has been banned for failing to ensure that the financial adviser network had adequate compliance monitoring procedures while he was primarily responsible for the compliance arrangements at the firm, being its compliance director.

Tracey McDermott, acting director of enforcement and financial crime, said: ”Lindley and Ruff shared the ultimate responsibility for ensuring the financial advice provided by their network of advisers was suitable for their clients. They both failed in their responsibilities and this resulted in unsuitable advice being provided to some clients.

”Those who oversee networks of appointed representatives need to ensure that they keep a close eye on the advice being given throughout their network, especially where the advice includes high risk products such as UCIS. If there are failings in the way customers are treated anywhere in the network, the principals will be held to account.”

The FSA’s Retail Conduct Risk Outlook 2011 identified that the control and oversight that networks exert over their appointed representatives is a key emerging risk in relation to firms’ business models and behaviours, particularly where the business strategy emphasises moving into new product areas.

It also identified UCIS as an emerging product risk, as it appears that UCIS are increasingly being sold to customers who are not eligible or appropriate for this type of investment.

This is the fifth case the FSA has involving unsuitable advice to customers in relation to UCIS products.

 

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