The Financial Services Authority (FSA) has today announced fines for one firm and two individuals for failures in relation to the sale of Lehman-backed structured products between November 2007 and August 2008.
Dundee based law firm Thorntons Law LLP (‘Thorntons’), which provides investment advice to customers under the brand name ‘Thorntons Investment Services’, has been fined £35,000, with a separate fine of £10,500 for one of its partners, Michael Royden. A third fine of £28,000 has been given to Robert Peter Yarr, at McClelland Yarr Financial Services Limited, an IFA firm based in Belfast.
This enforcement action comes following an FSA review of the marketing and distribution of structured products, particularly those backed by Lehman Brothers, concluded in October 2009.
The FSA found that, in relation to its sales of Lehman-backed structured products, Thorntons did not give suitable advice to its customers in some cases. In particular, Thorntons:
- made recommendations to customers to invest in structured products, when those customers could not afford to lose money;
- recommended that a high concentration of customers’ savings and investment portfolios be placed in structured products which, in one case, resulted in a customer having 45% of his wealth invested in a single structured product;
- used misleading phrases to describe structured products in letters to customers such as “absolutely no risk to capital”; and
- failed to implement and maintain appropriate compliance monitoring.
Michael Royden, the partner at Thorntons responsible for compliance oversight, had no financial services experience prior to taking responsibility for Thorntons Investment Services. Royden failed to adequately inform himself about Lehman-backed structured products prior to Lehmans’ insolvency. Royden also delegated day-to-day compliance tasks to another person and failed to put in place adequate systems and controls to collate management information about Lehman-backed structured products.
The FSA has also fined Robert Peter Yarr, a financial adviser at McClelland Yarr. Not only did Robert Yarr not fully understand and warn customers of the counterparty risk associated with structured products, he also failed to keep adequate records, conduct product research and ensure sufficient compliance oversight and management at the firm.
Margaret Cole, managing director of enforcement and financial crime, said:
“Firms and individuals giving investment advice must properly assess their clients’ needs and make suitable recommendations– they must also have the necessary systems and controls in place to ensure that this happens. This is vital when it comes to products which put customers’ capital at risk and we have repeatedly reminded firms that the risks must be communicated to customers in a way which is fair, clear and not misleading.
"Where we find evidence that firms are giving unsuitable advice to investors relating to complicated investments such as structured products we will not hesitate to take action."
Thorntons, Royden and Yarr cooperated fully with the FSA investigations. They agreed to provide redress where appropriate and also settled at an early stage, qualifying for a 30% discount.