Out-Law News 2 min. read
28 May 2015, 3:37 pm
The Financial Conduct Authority (FCA) said that Stewart Ford, along with two other former members of Keydata's senior management, had "failed to act with integrity" over the sales and had misled regulators about the performance of the investments. All three men have appealed the FCA's decisions to the Upper Tribunal, while Ford is also bringing a separate action against the FCA, according to the Independent.
The collapse of Keydata in 2009 led to significant changes in the way in which compensation paid to investors when financial firms fail is funded. The FCA has also since banned the sale of traded life policy investments (TLPIs), known as death bonds, and other unregulated investments to ordinary retail investors.
Between 2005 and 2009 Keydata sold over £475 million worth of retail investments via tax-advantaged individual savings accounts (ISAs). These products were backed by the firm's own investments in bonds issued by two special purpose vehicles in Luxembourg, which in turn had invested in TLPIs. These products were sold as eligible for ISA status, when in fact they were not.
According to the FCA's decision notices against Ford; Keydata's former sales director Mark Owen; and Peter Johnson, the firm's former compliance officer; the three individuals permitted the products to be sold despite being aware that it was "highly likely" that they did not comply with ISA regulations. In addition, each manager received significant fees and commissions on the sales of the products which, in Owen's case, were not properly disclosed. There were also conflict of interest issues arising from the payments made to Ford which were not adequately managed, the FCA said.
The three men also "deliberately misled" regulators about the performance of the investment products during its investigations, having already failed to disclose issues with the investment portfolio, the FCA said. Johnson also failed to ensure that the FCA was aware of problems with the products and their promotion escalated to him by the firm's professional advisers, and that Ford and Owen failed to disclose the "significant personal benefits and commissions" they received from the sales after they became aware of FCA concerns, according to the regulator.
Owen has been fined £4m, while Johnson was fined £200,000, the FCA said. It also intends to ban all three from any future roles in financial services. The Upper Tribunal may uphold, vary or cancel the FCA's decisions when it hears the appeals, after giving both the Keydata managers and the regulator the opportunity to present their cases.
TLPIs are pooled investments into funds which invest in life insurance policies, usually of citizens in the US where policyholders are permitted to sell these policies on. They are highly risky products because if the policyholders live longer than expected, the investment will not return as much money as anticipated.
Then regulator the Financial Services Authority (FSA) published interim guidance warning against the promotion of TLPIs to ordinary retail investors because of their complexity and risk, and urging firms to assess previous sales for compliance with regulatory rules and principles, in 2012. A wider ban on the promotion of unregulated collective investment schemes (UCIS), including TLPIs, to these investors came into force on 1 January 2014.