FCA imposes ban on the Financial Group

Ryan Fowler

July 23, 2014

The regulator has banned two of the Financial Group’s Financial Limited and Investments Limited, from recruiting new ARs and individual advisers for four and a half months after it “failed to ensure that their ARs and individual advisers were adequately supervised and controlled to minimise the risk of mis-selling and the provision of unsuitable advice to consumers”.

Tracey McDermott, director of enforcement and financial crime at the FCA, 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.

“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’s disciplinary action in this case reinforces the importance of collating quality MI, embedding risk-focused systems and controls and encouraging a consumer-focused culture.”

The FCA found 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 FCA found that the firms’ failings were directly attributable to the firms’ cultural focus which viewed the ARs and individual advisers, rather than their customers, as the end consumer.

Of significant concern to the FCA was the firms’ inadequate systems and controls relating to the recruitment, training, monitoring and control of its ARs and the firms’ compliance and file checking processes which did not adequately identify and assess risks.

Were it not for the firms’ financial position, the FCA would have imposed a penalty of £12,589,134 on Financial and £621,583 on Investments.

The FCA recognises that the Group now has a new and more experienced Board in place which has engaged with the FCA and an external consultant to effect material changes to its systems and controls and risk management framework in line with an agreed remedial action plan.

The FCA has required the firms to conduct further Past Business Reviews (PBR) in relation to its pension-switching recommendations and its promotion and sale of UCIS. The ongoing PBRs may result in redress being paid to consumers.

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

Commenting, Brian Galvin, chief executive officer of Financial Ltd and Investments Ltd, said: “We respect the FCA’s findings and regret that we fell short of expectations. We have cooperated fully and have introduced new controls and made significant changes to processes and systems to address the FCA’s concerns.

“Our underlying business remains strong and profitable and we will continue to support our members so that they can provide clients with the best possible advice and service.”

Addressing the key issues in today’s announcement, Galvin went on to say: “We are confident that we now have strong, effective and compliant systems and processes in place – and our ambition is to set industry-leading standards for the supervision of advisers:

• In order to put the consumer at the heart of our organisation, we have introduced new controls and made significant changes to processes and systems to address the FCA’s concerns.

• All prospective member firms are subject to a rigorous application process which also includes a three day induction course and training prior to approval with the FCA.

• Our file-checking process has been overhauled with all member firms having to apply for licences to submit business on a post- sale basis.

• We have put all file-checkers through an onerous retraining programme.”

At its peak, the network was responsible for approximately 400 ARs and 500 individual advisers (CF30s), who gave advice to over 60,000 customers, including in relation to high risk transactions such as UCIS, pension switching and occupational pension transfers.

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