FSA fines Christchurch Investment Management Limited and compliance officer for client money breaches
By Bridging Loan Directory -
The Financial Services Authority (FSA) has fined Christchurch Investment Management Limited (Christchurch), a small firm specialising in financial planning and portfolio management, £26,600 and its compliance officer David Thornberry £11,550 for failings in relation to the protection of client money. Thornberry is also prohibited from acting as a compliance officer or having responsibility for client assets.
Christchurch and David Thornberry had insufficient knowledge and oversight of compliance with the FSA’s client money (CASS) rules which led to serious regulatory breaches. Firms must perform daily internal reconciliations of client money balances to ensure that, in the event of insolvency, client money is clearly separate from the firm’s own assets and there are sufficient segregated funds to aid the prompt return of client money. Christchurch failed to apply the correct standard of daily internal reconciliations of client money balances.
When the FSA visited Christchurch in May 2010, it found that the firm had failed to comply with the FSA’s client money rules from November 2007 onwards. This included failing to put in place adequate trust documentation for any of its 227 client bank accounts, which put client money at risk in the event of the firm’s insolvency. The amount of client money held by Christchurch during the period averaged £1.2 million.
The FSA found that Christchurch’s Compliance Officer, Thornberry, failed to ensure that client money and assets were managed appropriately. Thornberry had no formal training for his compliance oversight role, was not aware of the CASS rules relating to trust status letters and failed to review and test the existing systems and controls. He also failed properly to allocate duties for handling client money, giving one individual an extensive range of responsibilities without adequate internal checks and balances. This led to an increased risk of fraud and error that could have resulted in clients losing money.
The FSA has prohibited Thornberry from acting as a compliance officer or from having responsibility for client assets. This is the first time the FSA has prohibited an individual from having responsibility for client assets.
Richard Sutcliffe, head of the client assets unit at the FSA, said:
“Christchurch’s failure to engage properly with the client assets rules is unacceptable. A firm must have adequate systems and controls in place to demonstrate that it complies with the CASS rules at all times. Otherwise clients are exposed to significant risks in the case of insolvency, fraud or poor handling of client money.
“We expect approved persons and firms to take their regulatory responsibilities seriously, including in relation to client money and assets, and will take action against those who fail to do so. The FSA has repeatedly emphasised the importance of ensuring that client money is adequately protected and this remains a regulatory priority.”
Christchurch and Thornberry agreed to settle at an early stage and therefore qualified for a 30% discount. Without the settlement discount the fine would have been £38,000 for the firm and £16,500 for Thornberry. The FSA has taken into account the fact that Christchurch implemented a number of changes to improve the handling of client money following the FSA’s visit and that no clients of Christchurch have suffered any losses as a consequence of the breaches identified.