Investment Manager Fined £494,900 for Incorrect Information, Client Money Breaches

Jack Humphrey, Regulatory journalist
September 29, 2011 /

The Financial Services Authority (FSA) has fined Towry Investment Management Limited (Towry) £494,900 for giving a misleading information to the FSA and for breaching the money of its clients.

Towry is a fee-based, independent discretionary investment manager providing investment management services to private individuals and pensions and employee benefits advice to small and medium sized enterprises.

The FSA set out its rules on how firms need to treat client money in its Client Asset Sourcebook (CASS). As part of its work to ensure that firms comply with CASS requirements the FSA sent a Dear CEO letter to relevant firms asking for checks to be undertaken to ensure firms understood the rules.

failure of the firm to treat client money in the correct way violated Principle 10 of the FSA’s handbook, which provides that a firm must arrange adequate protection for clients’ assets when it is responsible for them. Principle 11, which was violated through the breaches, adds that a firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.

“The protection of client money and custody assets (client assets) is a regulatory priority. The FSA’s response to the financial crisis and the issues it uncovered was to increase the level of resource devoted to the protection of client assets,” the FSA said.

Responding to the Dear CEO letter, Towry said it was fully compliant. But Towry failed to ensure the response was properly considered before submitting it to the FSA. The firm actually was not compliant and this only became apparent after the FSA, as part of a CASS visit to the firm, discovered the breaches.

The FSA considers Towry’s failings to be particularly serious because Dear CEO letters are an important regulatory tool used by the FSA to raise significant issues and firms must consider them with particular care.

The FSA went on to say that the firm failed to ensure the response to the Dear CEO letter was properly considered and checked before being sent, resulting in inaccurate information being provided to the FSA.

Towry’s CASS breaches could have placed clients’ money at risk of potential loss or delay in distribution if the firm had become insolvent because it failed to maintain adequate records, the FSA added.

Further, Towry allegedly failed to identify the breaches itself. Instead, the matters came to the FSA’s attention during an FSA visit to the firm in November 2010. Moreover, there has been a high level of awareness in the financial services industry of the importance of handling client money properly since the collapse of Lehman Brothers on 15 September 2008 and failure to do so is not acceptable, the FSA said.

Tracey McDermott, acting FSA director of enforcement and financial crime, said: “It is very disappointing that Towry failed to do so particularly in an area of such regulatory importance. Firms should be in no doubt about how seriously we regard such failures.”

The FSA established the Client Asset Unit to lead specialist and intensive supervision of client assets and improve compliance with the aim of ensuring that firms have robust systems in place to ensure the swift return of client assets and money in the event of firm insolvency.

 

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