The FCA has imposed a huge fine on a national advice firm for poor internal controls and misleading suitability letters. The case highlights the importance of effective risk procedures.
Firms with poor regulatory records will find it hard to secure cost-effective professional indemnity insurance, says Brunel Professional Risks.
Chase de Vere was fined £560k by the regulator after it sold around £50 million of Keydata products to nearly 3,000 clients. The FSA closed Keydata in 2009 for breaking tax rules and because the regulator said it was insolvent. Investors lost around £450 million with many claiming compensation from the Financial Services Compensation Scheme.
In its Final Notice, the FCA said that Chase de Vere “failed to put in place adequate systems and controls to ensure that the distinctive features of the Keydata Products were researched to an adequate standard.” The FCA also said that Chase de Vere failed to ensure that its advisers understood the risks of the Keydata products or to make sure they explained the risks properly to their clients.
Chase de Vere’s advisers variously described the Keydata products as having “no investment risk”, a “guaranteed income” and a “high level of capital security”. In fact the products had no guaranteed income and carried risks that should have been described to investors.
“Professional Indemnity Insurance is a ‘licence to trade’ for financial advisers and without it they cannot practice,” said James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “Any firm with a poor regulatory record will find it very difficult to find cost-effective cover. Insurers save their best deals for firms that can demonstrate the highest standards of regulatory and operational management.”