The FSA has fined and banned the two partners of investment firm Clark Rees for failing to ensure the firm made suitable recommendations to its customers regarding unregulated collective investment schemes (Ucis).
Paul Clark was fined £10,500 and Ceri Rees was fined £17,500. They were also banned from performing senior roles and also from selling Ucis to customers for two years.
The FSA says both partners failed to make themselves aware of the statutory requirement on the promotion of Ucis to retail customers.
Ucis cannot be promoted to retail investors unless they meet specific exemptions, for example if the customer can be shown to be a sophisticated or high net worth investor. The FSA says neither partner was aware of these restrictions and as a result, promoted and recommended Ucis to ordinary retail investors.
In one case a customer who was near to retirement invested 60% of his portfolio in a Ucis and another retired customer invested 55% of his retirement lump sump in a Ucis.
In total, the FSA identified 11 customers of Clark Rees who were advised to invest in one or more Ucis. One of the Ucis they were advising their customers to invest in had been set up by the partners, Clark and Rees, who had failed to adequately disclose and manage their conflict of interest. (article continues below)
The FSA says Clark and Rees did not make themselves aware of the FSA’s capital requirements and had wrongly relied on their own personal assets to meet these requirements.
Both Clark and Rees agreed to settle at an early stage of the investigation and qualified for a 30% discount. Without the reduction, the fines would have been £15,000 for Clark and £25,000 for Rees.
Linda Woodall, the director of smaller firms and contact division at the FSA, says: “By their nature, Ucis can be very risky products.
“Within the industry there is a lack of consideration as to which customers this product is suitable for. A review we conducted identified serious concerns in the quality of advice given in promoting and recommending a Ucis as an investment.
“The onus is on the firms to make sure they understand the specific requirements associated with Ucis and so we will remain vigilant in taking action against firms who fail to recommend Ucis to the right investors, making them review their Ucis sales and taking enforcement action in the more serious cases.”