FSA fines Scotts Private Client Services Ltd for serious failings
11/06/2004
The Financial Services Authority (FSA) has fined Scotts Private Client Services Ltd (Scotts) 25,000 for serious failings which led to the firm introducing US$ 9.7 million ( 6.7 million see notes for editors) of investors' funds into an unauthorised and apparently unlawful investment scheme. The FSA would have imposed a much more substantial financial penalty, were it not for Scotts very limited financial resources and the desire of the FSA that those resources should be used substantially to assist in obtaining redress for investors.
Between December 2001 and October 2002 Scotts failed to carry out adequate due diligence and introduced 34 investors to an investment scheme operated by Nottingham accountants Dobb White & Co, which has subsequently been subject to separate insolvency action by the FSA.
Scotts also failed to have proper systems and controls in place; to pay due regard to investors' information needs; and to ensure (where appropriate) the suitability of its advice.
Andrew Procter, FSA director of enforcement, said:
"We warn investors repeatedly of the dangers of investing with unauthorised firms promising high returns at low risk. Schemes that sound too good to be true usually are. It is a sad irony that in this case it should be Scotts, an authorised firm, that let down investors by introducing their money to an unauthorised firm without carrying out adequate checks."
The FSA accepts that Scotts, at the time of placing the funds into the scheme, did not consider that it was unauthorised and apparently unlawful and did not intentionally put investors' funds at risk. The Managing Director of the firm invested his own funds in the scheme before Scotts introduced other investors.
The FSA would have cancelled Scotts' permission to carry on investment business were it not for the steps the firm has taken to significantly improve the structure and organisation of its business.
As a result of an internal review the firm voluntarily limited the nature of its regulated business to arranging deals in investments via other authorised firms. Also recently, the firm has applied to cancel the entirety of its authorisation on the basis it no longer carries on regulated investment business.
Notes for editors
The full text of the Final Notice dated 9 June 2004 is available on the FSA website here. This includes the background to the case, the relevant statutory provisions and the regulatory requirements contravened and the factors taken into account by the RDC when setting the level of the fine.
Financial penalties are not treated as income by the FSA. They are applied for the benefit of authorised persons (or the issuers of securities admitted to the official list) as appropriate, and so given back to the industry in subsequent years.
the FSA's Principles for Businesses are a general statement of the fundamental obligations of firms under the regulatory system. Scotts breached the following:
Principle 2 Skill, Care and Diligence
A firm must conduct its business with due skill, care and diligence.
Principle 3 - Management Control
A firm must take reasonable care to organise and control its affairs responsibly and effectively with adequate risk and management systems.
Principle 7 Communications with Clients
A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.
Principle 9 Customers: Relationship of Trust
A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement.
Scotts Private Client Services Limited is a company incorporated in Scotland with registered offices at 3 Rubislaw Terrace, Aberdeen AB10 1XE.
On 18 May 2004 as a result of a related investigation the FSA withdrew the approval to perform controlled function 21 (investment adviser) from a Scotts employee Richard Bernard Charles.
On 2 December 2003 the FSA obtained a winding up order against Dobb White and the FSA issued a consumer alert on 5 December 2003. The Liquidator is Baker Tilly (0207 061 1355).
The equivalent figure is based on the exchange rate at the time the funds were placed in the scheme.
The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.
The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.