The UK's Financial Conduct Authority (FCA) has issued warnings to three senior managers at an unnamed discretionary fund manager (DFM) for breaching two principles within its Statements of Principle for Approved Persons.
The warning notice statement shows Principle 1 (integrity) and Principle 6 (due skill care and diligence) were the areas of conduct breached by the trio.
The FCA stated it "considers that the individuals were involved in a coordinated arrangement that was in place at the firm that led to customers suffering financially, whilst the firm benefited".
A business model was set up by the trio which the watchdog said was "intended to maximise the flow of retail customer funds for onward investment into high-risk illiquid bonds operated by connected persons and business associates".
"This model was driven by the financial benefit that the firm derived from commissions," it added.
The director of the DFM - labelled ‘Individual A' by the regulator - failed to uphold the FCA's integrity principle by "seriously compromising the firm's independence" with the action of entering the firm into agreements with bond providers that would have seen it receive commission payments for investment client funds.
The FCA said Individual A had also entered into commission-driven agreements with unauthorised introducers, failed to disclose conflicts of interested, and marked-down various customers' valuations when disinvesting in order to generate extra income.
The second DFM senior manager, ‘Individual B', held compliance oversight and money laundering permissions at the firm and was found to have agreed with Individual A's actions in marking down customer valuations, as well as failing to ensure the regulator's due diligence concerns around high-risk fixed income bond investments were addressed.
Individual B also failed to ensure the DFM's compliance with the FCA's inducement rules and failed to provide accurate customer statements and disclosure of commission charges.
The third manager, ‘Individual C', holds director and chief executive control functions at the DFM, the regulator confirmed.
Individual C has also been warned about failing to ensure conflicts of interest were identified in the DFM's work, not addressing the FCA's concerns about due diligence, and failing to follow rules in relation to inducements.
The FCA confirmed it was "proposing to take action in respect of the conduct summarised" in the statement.
