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Not a Risk Worth Taking – FCA Fines and Bans Pensions’ Advisor

Earlier this month, the FCA fined a former advisory firm director £23,400 for overseeing the transfer of £112m of pension retirement funds in to risky investments. The FCA is concerned about unsuitable advice around pensions’ transfers and this latest action sends another strong regulatory message to the market about the FCA’s “get tough” approach towards ther non- compliant in this area.

FCA

Background

Lloyd Pope was a director of collapsed advice firm TailorMade Independent (“TMI“). The FCA blamed Mr Pope, along with his fellow director, for regulatory failures, which allowed 1,661 client transfers of over £112 million from pension funds into unsuitable self-invested personal pensions (“SIPPs“) between 2010 and 2013.

This saw clients’ investments placed into unregulated and risky investments such as green oil, biofuel oil, farmland and overseas property.

TMI stopped advising customers on SIPPs in January 2013 following an alert by the FCA, before entering liquidation in October of the same year. It was subsequently declared in “default” by the Financial Services Compensation Scheme a year later.

Failings

The FCA took action against Mr Pope alleging that was in breach of Statement of Principle 7. In a press release last week, the FCA said that Mr Pope “failed to ensure TMI assessed the suitability of nvestments…”. Indeed, Mr Pope admitted that TMI had failed to carry out any risk assessment of the underlying products.

The FCA went on to say that the outcome of these failings was that Mr Pope, “exposed customers to risky investments without considering if these products met their needs. Their actions mean many customers face losing all of their hard earned pension funds and fell woefully short of the standards we expect of senior individuals“.

These failings were compounded by a number of conflicts of interest, including commission payments received when investment products were sold to customers through an unregulated firm that had introduced customers to TMI for SIPP advice. No adequate disclosures were made about these conflicts of interest and Mr Pope failed to act promptly when warned to do so by external consultants.

Action

The FCA originally imposed a financial penalty on Mr Pope in the sum of £134,000 in 2015, which was reduced by 30% to £93,800, as a result of Mr Pope’s willingness to settle at an early stage of the Authority’s investigation. However, following a three-year legal challenge by a fellow TMI director, Mr Pope’s fine was lowered again to £23,400 to reflect the decision in that closely linked case.

The FCA also made an order prohibiting Mr Pope from performing any senior management function or any significant influence function in relation to any regulated activity.

Comment

The FCA has done extensive work in recent years to take action around pension investments and wrote specifically to CEO’s of all SIPP firms asking them to take action to ensure their business operates within the FCA’s rules. We believe that the FCA is planning increased enforcement activity, especially around defined benefit transfers, and more disciplinary action is in the regulatory pipeline.

© Copyright 2020 Squire Patton Boggs (US) LLP

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About this Author

Garon Anthony, Squire Patton Boggs, litigation attorney
Partner

Garon Anthony is a partner in the Litigation Practice Group. He has specialised in dispute resolution work since he qualified as a solicitor and has considerable experience in general corporate and commercial litigation work, acting for both private and public sector clients.

Garon regularly resolves disputes for clients in the financial services/insurance sector. That encompasses professional negligence, fraud issues/recovery processes, dealing with claims and complaints by customers of the mis-selling of retail products, handling insurance policy coverage disputes for corporate...

44 121 222 3507
Rose Chaudry, Squire Patton, Commercial Litigation Lawyer, Tortious Contracts Attorney
Associate

Rose Chaudry is an associate in the Litigation team with expertise in general commercial litigation. Rose qualified in September 2015 after completing her training contract with the firm.

Rose regularly acts for a diverse client base, including individuals and companies, from SMEs to PLCs. Rose has experience advising on a wide-range of matters of both a contractual and tortious nature, including breach of contract, breach of warranty, debt recovery, professional negligence and insurance.

44 121 222 3146