Compliance Officer Prohibition

The publication of three Final Notices reminds us that the FCA may not simply restrict its actions to authorised firms (in this case Financial Ltd and Investments Ltd) but can also pursue an individual Compliance Officer (Mr Stephen Bell).

Although the firms in question together formed an adviser network of around 250 Appointed Representatives (AR) and 300 Registered Individuals (RI), the basic principles behind the findings within the Final Notices will be relevant to many firms.

Mr Bell was the Compliance Director at both firms and at various times his roles also included the CF10 (Compliance oversight) and CF11 (Money laundering reporting) functions.

Not for the first time at the heart of the Final Notices was an issue with poor systems and controls.

In Mr Bell’s case the Notice highlights inadequate training and development of RIs, including competency assessments and a failure to identify and manage risks that the firms might be exposed to.

Whilst the Final Notice acknowledges that Mr Bell worked within the context of the firms’ business model and cultural focus; that he instigated improvements to file checking; and that he “took significant steps … to introduce and improve the firms’ compliance systems and controls”, these were deemed ‘ultimately insufficient’ to ensure that the firms complied with the relevant regulatory regimes.

The Notice also explains that the firms have previously been subject to investigation by the Regulator (in connection with a thematic review of pension-switching) and a subsequent Skilled Persons Review.

In a press release Georgina Philippou, the FCA’s acting director of enforcement and market oversight Division, said that “this action shows that a compliance director of a network has an important role in terms of ensuring that systems and controls across the network are focussed on minimising the risk of mis-selling and the provision of unsuitable advice to consumers.

“We view Mr Bell’s failings as particularly serious because he had been put on notice of the need for significant improvements in the firms’ systems and controls and compliance”.

If one removes references to ‘network’ and ‘mis-selling’ this is effectively  a reminder of the FCA’s expectations placed upon the shoulders of ‘senior management’ and in particular those with a responsibility for compliance with the regulatory regime.

Mr Bell was subjected to both a financial penalty, after an ‘early stage’ 30% discount, amounting to £33,800 and an order prohibiting him from performing the CF10 Compliance function; the Final Notice does not specify any time period.

For the record, the FCA considered that a financial penalty of £12,589,134 on Financial Ltd was appropriate but because of the financial hardship that this would cause the penalty was reduced to nil.  However the FCA also imposed a 126 day restriction on the firm from appointing any AR or RI.  A similar approach was taken with Investments Ltd (where the penalty would have been £621,583).

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