The FCA Issues £76m in Fines and a Ban from Regulated Financial Services

 

On 16 January, the FCA published its Final Notice in respect of Stewart Owen Ford (Ford) and Mark John Owen (Owen), respectively the former CEO and Sales Director at Keydata Investment Services Ltd (Keydata).The FCA has fined Mr Owen £3.24 million and Mr For £76 million for their respective failings, and both of them have been prohibited from performing any function relating to any regulated activity.

The Final Notice follows the Upper Tribunal’s decision in November 2018, to uphold the FCA decision notices issued in November 2014 to Owen and Ford (and to Peter Johnson, Compliance Officer, and Craig McNeil, Finance Director).

The FCA found that starting in 2005 Keydata designed and sold investment products to retail investors via Independent Financial Advisers (IFAs). The products were underpinned by Keydata’s investment in bonds issued by Luxembourg special purpose vehicles called SLS Capital S.A (SLS) and Lifemark S.A (Lifemark). In turn SLS and Lifemark invested in portfolios of US life settlement policies. The products were sold as eligible for ISA (Individual Savings Account) treatment, although they were not. Ford replicated the SLS structure using a company, Lifemark, of which he was the beneficial owner, earning himself £73.3 million in fees out of the £373m invested in Keydata’s ‘Lifemark’ funds. Ford personally paid Owen undisclosed “commissions” of more that £2.5 million, based on the volume of sales of the Lifemark products. Despite being made aware of various concerns about the SLS and Lifemark products, Ford and Owen failed to disclose these to investors, IFAs or the regulator. Keydata collapsed in 2009 hundreds of millions in claims were subsequently paid out by the Financial Services Compensation Scheme.

In the FCA’s opinion Ford and Owen failed to act with integrity in carrying out controlled functions, and misled the then Financial Services Authority, the FCA predecessor, IFAs and investors on a number of occasions, including compelled interviews, in relation to the performance of the investment products. They continued selling the Lifemark-backed products to retail investors, although they were aware that it was highly likely the products did not comply with the ISA regulations, that the financial promotions were unclear, incorrect, and misleading, that the due diligence on the products was inadequate, and that there were problems with the performance of the portfolio ultimately underlying the products. They received feed and commissions from the sale of Lifemark products, without properly disclosing these commissions nor adequately managing the conflict arising from them. The FCA established that Ford personally benefitted by over £72.4 million, and also considered that additional earnings from Keydata over the relevant period account to over £ 1.3 million.

Ford and Owen referred their Decision Notices to the Upper Tribunal (the Tribunal) which could have upheld, varied, or cancelled the FCA’s decisions. The Tribunal unanimously concluded that the actions taken by the FCA were fully justified. However, the Tribunal concluded that Ford’s misconduct was materially more serious than that of Owen and reduced the fine for Owen from £4 million to £3.24 million.

What is noteworthy in this case is that the fine imposed on Ford is the largest fine imposed against an individual. This reflects the FCA’s view on the seriousness of the individual breaches and behaviours, which include deliberately misleading the regulator by making false representations, and causing consumer detriment. “Recklessly” and “deliberately” are terms often used in Decision Notice to describe Ford’s behaviour. What lesson can we learn from this case?

The FCA has sent a clear message that there is no place for misconduct in the financial services industry. Misleading investors, misleading the regulator, not fulfilling responsibilities, especially when carrying out controlled functions is not accepted or condoned. The effective disgorgement of Ford’s income from this activity should give anyone pause from behaving in a similar fashion.

With only few months to go before the Senior Managers and Certification Regime (SM&CR) comes into effect for solo regulated firms, it is critical for firms in scope of the new regime to understand and ensure that misconduct should find no place in their organisation. Acting with integrity, being open with the regulator, and ensuring the conduct of business brings no detriment to consumers are key for everyone in the industry.

Should you wish to discuss this case further, or to understand how the SM&CR requirements apply to your firm, please do not hesitate to get in touch with us (on 02034 573 283 or by email at srb@objectivus.com), or visit our SM&CR dedicated webpage.