Pearl companies pay fines of 100,000

The fines on Pearl Unit Trusts Limited and Pearl Assurance Plc were imposed for not carrying out customer orders on a timely basis and for failing to establish and maintain procedures to achieve this, over the period from October 1993 to April 1999. Pearl identified the problem and reported it to IMRO in 1999.

The delays in carrying out customer orders were caused by the late submission of documents to the Head Office by the Pearl salesforce. The firms have had to compensate customers for the losses arising from these failures. The disciplinary action was taken under the rules of two of the FSAs subsidiaries, IMRO and PIA, under the auspices of the FSA. This enabled a common enforcement approach to be taken to the investigation.

Background

Pearl companies offered a free share exchange service called Sharewise where Pearl would sell shares for clients, without commission, and invest the proceeds either in a product offered by Pearl Unit Trusts Limited (PUTL, an IMRO regulated firm) or a product offered by Pearl Assurance Plc (PAP, a PIA regulated firm).

Breaches

The breaches under IMRO and PIA rules were that:

• between October 1993 and April 1999 PUTL and PAP failed to carry out a significant number of orders to sell shares for investment on a timely basis; and

• between October 1993 and October 1998 PUTL and PAP did not establish and maintain procedures to meet regulatory requirements to carry out share sales and invest the sale proceeds on a timely basis. In particular, there were no procedures to monitor the timeliness of submission of Sharewise applications for the sale of customer shares.

The submission procedures for Sharewise applications were referred to for the first time in compliance literature on 21 May 1999, when Pearl wrote to its Area Managers about the timely submission of Sharewise applications.

From February 2000 there was a formal training programme for Pearls field representatives in relation to the timely submission of Sharewise applications.

Compensation

As a result of the above failures, PUTL and PAP have had to make compensation payments of around 345,854 to 1617 investors.

Costs

PUTL and PAP will also pay costs to IMRO and PIA in a total sum of 18,343

Notes for editors

1. The 100,000 fine is made up of a 65,000 IMRO fine and a 35,000 PIA fine.

2. A full list of the charges against Pearl Unit Trusts Limited and Pearl Assurance Plc is available on request from the Financial Services Authority (FSA), which undertakes regulatory services for IMRO and PIA, its subsidiaries. The Government announced on 20 May 1997 that it would create a single regulator for all financial markets merging nine regulatory bodies including IMRO and PIA. On 1 June 1998, the FSA began to supply regulatory services under contract to the Self Regulating Organisations (SROs) IMRO, PIA and SFA. In addition, the staff of IMRO, SFA and PIA and the Supervision & Surveillance Division of the Bank of England took up their new posts as employees of the FSA.

3. Pearl Unit Trusts Limited of The Pearl Centre, Lynch Wood, Peterborough has been regulated by IMRO since 23 February 1988. Pearl Assurance Plc of the same address has been regulated by PIA since 15 May 1995.

4. IMRO Charge 1: failure in timely execution of Customers Orders in particular Rule 3.7(1) of Chapter II of the IMRO Rules 1991.

5. IMRO Charge 2: failure in compliance arrangements in particular Rule 1.1(1) of Chapter IV of the IMRO Rules 1991.

6. PIA Charge 1: failure to ensure that transactions were processed on a timely basis in breach of Rule L3.13 of the PIA Rules.

7. PIA Charge 2: failure to ensure that the firm had appropriate compliance monitoring procedures to ensure that it complied with the applicable Rules in breach of Rule 7.1.2 of the PIA Rules.

8. IMRO was set up under the Financial Services Act 1986 as the regulatory organisation covering the field of investment management. It regulates around 1200 firms and over 22,000 individuals. The firms include fund management organisations, banks, pension fund managers, unit trust managers and trustees (including trustees of unit trusts) and investment trust managers. Funds managed by IMRO-regulated firms have an estimated total value of around 2,500 billion. IMRO aims to protect approximately 15 million investors.

9. Since the beginning of the year, the PIA has taken disciplinary action against 54 firms, resulting in fines totalling 1,552,000.

   A total of 46 million has been set aside by firms for compensation. Of those cases where disciplinary action has been taken, 15 related to pensions review failings, totalling 348,000 in fines.

   The PIA has also suspended 17 firms for failing to renew professional indemnity cover and 3 on the grounds that they may not be fit and proper to carry on investment business. 2 registered individuals have been terminated on the grounds that they are no longer fit and proper to carry on investment business. 8 firms have been expelled and 3 have been suspended from PIA on the grounds that they no longer meet financial resources requirements.