The FCA has issued a warning about the conduct of three individuals at an unnamed Discretionary Fund Manager (DFM).
The firm and the individuals have not been named while investigations continue.
If the investigation upholds the concerns in the warning notice the individuals may face fines or other penalties. They can also appeal the findings.
The warning notices were issued in February but have only been made public now.
The FCA has not disclosed the reason for the delay.
The individuals were senior managers at the DFM and the FCA says it considers that they breached the Principle 1 (integrity) and Principle 6 (due skill care and diligence) rules in the FCA’s Statements of Principle for Approved Persons (APER) when carrying out their controlled functions.
The regulator says it believes the individuals were involved in a “coordinated arrangement” at the firm that led to customers suffering financially, while the firm benefited.
The watchdog said the firm’s business model was set up to maximise the flow of retail customer funds for onward investment into high-risk illiquid bonds operated by connected persons and business associates. This model was driven by the financial benefit that the firm derived from commissions, the FCA alleges.
Of the three individuals covered by the warning notice, one is accused of failing to act with integrity by entering the firm into agreements with bond providers to invest customer funds in return for commission payments, “seriously compromising the firm’s independence and its ability to act in the best interests of its customers.”
A second individual was in charge of compliance oversight and money laundering reporting and is accused of failing to act with integrity. They are accused of supporting a decision to introduce a mark-down in the valuation of fixed income disinvestments in order to generate more income for the firm at its customers’ expense. The person is also accused of failing to act with due skill, care and diligence.
The third person, holding the director and chief executive controlled functions, is accused of failing to act with integrity by approving the disinvestment mark-down. The person is also accused of failing to act with due skill, care and diligence by failing to ensure that conflicts of interest were identified and managed appropriately.
An FCA warning notice is not the final decision of the FCA. If a decision notice or final notice is published in due course the firm and individuals may be named.
