FSA

FSA Fines IFA for Advising Clients to Invest in Unsuitable Products

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On 30 May 2012, the FSA announced that it had fined independent financial adviser (IFA) Patrick Francis O’Donnell of P3 Wealth Management Limited, £60,000 for advising his clients to invest in unsuitable non-mainstream investments and Unregulated Collective Investment Schemes (UCIS). Non-mainstream investments include, amongst other things, traded life policy investments and unlisted shares. Mr. O’Donnell has also been banned from performing any function in relation to any regulated activity in the financial services industry.

The FSA found that around two thirds of Mr. O’Donnell’s clients invested over 75% of their available funds into UCIS and other non-mainstream investments. Many of his customers received advice that was unsuitable for them. UCIS cannot be promoted to the general public in the UK, and should be marketed to limited people such as sophisticated investors and high net worth individuals. The FSA has previously taken action against a number of firms and individuals in relation to UCIS, including Rockingham Independent Limited, Moneywise IFA Limited and Specialist Solutions Plc. Final Notice for Mr. O’Donnell.

FSA Levies Record Fine of £3 Million on Hedge Fund Manager Micalizzi

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On 29 May 2012, the FSA published a decision notice indicating that it had decided to fine Alberto Micalizzi, CEO of Dynamic Decisions Capital Management Ltd (DDCM), a hedge fund management company based in London, £3 million and ban him from performing any role in regulated financial services for not being fit and proper. The FSA also decided to cancel the permission of DDCM to conduct regulated business.

Between 1 October 2008 and 31 December 2008, the master fund (the Fund) managed by DDCM suffered catastrophic losses of over USD390 million, approximately 85% of its value. In the FSA’s opinion, in late 2008, to conceal the losses, Mr. Micalizzi lied to investors about the true position of the Fund and entered into a number of contracts, on behalf of the Fund, for the purchase and resale of a bond (the Bond contracts). The FSA believes that the bond was not a genuine financial instrument and that Mr. Micalizzi was aware of this when he entered into the Bond contracts. This is the biggest ever penalty for an individual in the case of non market abuse imposed by the FSA. Decision Notice for Mr. Micalizzi.  Decision Notice for DDCM.

Blue Index Trio Plead Guilty to Insider Dealing

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On 28 May 2012, the FSA announced that three defendants with links to Blue Index Ltd, a contract for difference brokerage, pleaded guilty to charges of insider dealing. These are James Sanders, a director of Blue Index, Miranda Sanders, his wife, and James Swallow, another director of Blue Index. Two further defendants were acquitted.

The prosecution alleged that inside information was leaked by Arnold McClellan, a senior partner in Deloitte Tax LLP, who was an insider to a number of mergers and acquisitions in US securities listed on the NYSE and NASDAQ exchanges, or by his wife, Annabel McClellan, who is the sister of Miranda Sanders. The information was used by James and Miranda Sanders to commit insider dealing. James Sanders disclosed the information to other people including James Swallow, who also used the information to commit insider dealing. The three defendants will be sentenced on 19 June 2012. FSA Announcement.

FSA Investigating Mis-selling of Swaps to SMEs

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On 23 May 2012, the Treasury Select Committee published a press release on correspondence between its chairman, Andrew Tyrie, and Lord Turner, chair of the FSA, and Sir Nicholas Montagu, Financial Ombudsman Service (FOS) chairman, on the potential mis-selling of interest rate swap products to small businesses by major banks. In his letter, Lord Turner stated that the FSA is “doing more work to understand…the types of products that have been sold” and that if the FSA finds “widespread evidence” of breaches of its rules or mis-selling it “will take action”. Press Release and Correspondence.

FSA Bans Introducer Appointed Representative Following Upper Tribunal’s Decision

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On 22 May 2012, the FSA published a final notice issued to appointed representative Derek William Wright. The notice prohibits Mr. Wright from performing any function in relation to any regulated activity on honesty, integrity and competence grounds.  Mr. Wright was the controller of Moorgate Insurance Agencies Ltd, a small insurance broker. Mr. Wright had acted dishonestly, with a lack of integrity and was found to have a reckless attitude to compliance with regulation. He had been disciplined by the Lloyd’s Disciplinary Tribunal for conducting insurance business in a discreditable manner. He had also performed controlled functions without approval, submitted inaccurate and misleading capital information to the FSA and failed to co-operate with the FSA.

Mr. Wright had referred the FSA’s original decision notice to the Upper Tribunal (Tax and Chancery Chamber). The Tribunal had dismissed the reference and directed the FSA to issue a prohibition notice against Mr. Wright. Final Notice.

Upper Tribunal Upholds FSA Decision to Ban and Fine Former UBS Advisers

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The Upper Tribunal (Tax and Chancery Chamber) has upheld an FSA decision to ban and fine two former UBS advisers in relation to an unauthorised trading scheme.  The FSA were directed to fine Sachin Karpe £1.25 million and Laila Karan £75,000 and ban them for performing any role in regulated financial services for failing to act with integrity, in breach of Principle 1 of the FSA’s Statements of Principles and Code of Conduct for Approved Persons and for not being fit and proper persons as they lacked honesty and integrity.

Mr. Karpe was Desk Head of the Asia II Desk at UBS AG’s international wealth management business in London. He had carried out substantial authorised trading and made unauthorised transfers and loans between client accounts to conceal the losses. Mr. Karpe was Ms. Karan’s line manager. She assisted him in concealing the unauthorised activity and prepared false attendance notes. UBS paid compensation of over US $42 million to 21 customers who has suffered substantial losses as a result of the scheme.  Decision for Mr. Karpe.  Decision for Ms Karan.

FSA Guidance on the Practice of PFOF

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On 14 May 2012, the FSA published guidance on payment for order flow (“PFOF”) arrangements. These are arrangements where a broker receives payment from market makers in exchange for sending order flow to them. Firms should manage conflicts of interests and tell customers about the PFOF arrangements and put relevant procedures in place to make sure that payments led to better service. Orrick’s Client Alert. Finalised Guidance.

FSA Issues Decision Notice Against Former BGC Senior Executive

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On 16 May 2012 the FSA published a decision notice which it has issued to Anthony Verrier, a former senior executive at BGC Brokers LP. The FSA decided to prohibit Mr. Verrier from performing any function relating to any regulated activity. It considered that Mr. Verrier was not a fit and proper person due to concerns over his honesty, integrity and reputation. Decision Notice.

Financial Industry Alert: FSA Releases Finalised Guidance on Payment for Order Flow Arrangements

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On 14 May 2012, the FSA issued its finalised guidance on payment for order flow (“PFOF”) arrangements following its October 2011 guidance consultation. The guidance appears to have been issued on substantially the same basis as the original consultation which stated that “PFOF arrangements create a clear conflict of interest between the clients of the firm and the firm itself. Therefore it is unlikely to be compatible with our inducements rule and risks compromising compliance with best execution rules”. Click here to read more.