The firm, which is in administration, poorly advised people to transfer out of defined benefit (DB) pension schemes, including the British Steel Pension Scheme (BSPS), according to the regulator.

Arthur Cobill, an adviser at IFM, and William Hofstetter, one of its directors, have been banned from advising customers on pension transfers and pension opt outs.

Hofstetter has also been banned from holding any senior management function at a regulated firm.

Cobill and Hofstetter agreed to pay £120,000 and £40,000 respectively to the Financial Services Compensation Scheme (FSCS) to contribute to compensation for IFM’s customers.

The regulator said the firm operated a contingent charging model, which meant it only collected fees if customers transferred out of their DB pension schemes following the firm’s advice. This approach benefitted IFM, Hofstetter and Cobill but risked the long-term financial health and interests of their customers.

Customers transferring out of the BSPS were already in a ‘vulnerable position’ due to the uncertainty surrounding the scheme, the FCA noted.

Out of 307 IFM customers advised to transfer out of their DB pension scheme, 261 completed the process. Cobill advised 245 of those, including 198 members of the BSPS. Hofstetter was responsible for the compliance oversight.

Therese Chambers, joint executive director of enforcement and market oversight, said: ”Pensions are the safety net people spend their lives building. For many customers, their DB pension was their most valuable asset, and it was their only retirement provision other than their state pension.

“As experienced advisers, Mr Cobill and Mr Hofstetter, and IFM should have known better than to unravel this. It is only right that Mr Cobill and Mr Hofstetter contribute towards compensating those affected.”

Hughes has been fined £158,600 by the Financial Services Compensation Scheme (FSCS) to contribute to redress his customers, most of which were members of the British Steel Pension Scheme (BSPS).

With the FSCS paying out over £8.4 million ($10.1m, €9.7m) in compensation to Hughes’ customers for the unsuitable advice they received.

Hughes was solely responsible for the pension transfer advice provided by the firm (which is in liquidation) in his role as pension transfer specialist and financial adviser.

Between April 2015 and May 2019, 232 out of a total of 287 customers were advised to transfer out of their defined benefit pension scheme, including 188 BSPS customers, despite FCA guidance stating that, as a starting point, it should be assumed that such transfers are not in customers’ best interests.

Hughes did not have a reasonable understanding of the alternative options available to BSPS customers and gave undue weight to the customers’ desires to transfer their pension.

He also failed to obtain the necessary information relating to the customers’ financial situation and failed to properly assess whether customers would be reliant on the income from their DB pension and whether they could bear the risks associated with a pension transfer.

He also recommended transfers to customers without adequately considering if the transfer met the customers’ stated objectives.

The FCA found that Hughes failed to act with due skill, care and diligence.

Therese Chambers, joint director of enforcement and market oversight at the FCA, said: “The decision to transfer out of a DB pension scheme is a potentially life changing one and it’s vital that customers get suitable advice. Hughes demonstrated a high degree of incompetence and was grossly negligent in the advice that he provided.

“BSPS customers were particularly vulnerable, and Hughes let them down badly. It is only right that he can no longer hold a senior role in financial services.”

According to compliance firm SteelEye, the UK’s Financial Conduct Authority (FCA) handed out 26 fines in 2022, a stark increase from the 10 of 2021.

The total value dipped however, from £563.3m ($700m, €643m) in 2021 to £215.8m in 2022.

SteelEye believes  this shows a shift in regulatory strategy where in the past the FCA focused on larger-scale breaches by big banks and blue chips, whereas now it is taking in consideration regulatory non-compliance from companies of all sizes.

Between 2020 and 2022, a total of 47 fines were issued by the FCA; 43% (20) mentioned breaches of principle 3 of the watchdog’s Principles of Conduct which relates to management and control of a business.

In 10 cases, (21%), principle 2 was mentioned, relating to conducting business with due skill, care and diligence; followed by nine cases of market abuse; five for customer mistreatment and four for money laundering.

Across the pond

Similarly, the US’ Securities & Exchange Commission (SEC) issued a record $6.4bn (£5.1bn, €5.8bn) in penalties, with $1.1bn recovered from its crackdown of Whatsapp alone.

This came from a total of 760 enforcement actions – up 9% from the previous year.

Brian Lynch, president of SteelEye US, said: “[Unauthorised messaging apps] are becoming ubiquitous in certain markets, and yet SteelEye’s 2022 Compliance Health Check report, which surveyed 170 senior compliance professionals in financial services, found that just 15% of firms are monitoring Whatsapp.

“Even fewer are monitoring Slack (9%) and Signal (3%). If we consider the more expected channels, it is clear that there is significant work to be done, with just 40% capturing Microsoft Teams, and 25% Zoom.”

Europe

Other European regulators also reported several enforcement actions in 2022:

• Germany’s BaFin and the Federal Office of Justice issued 46 fines in the 12 months totalling €24.6m (£21.6m, $26.7m);
• In France, the Autorité des Marchés Financiers raked in a grand total of €95m from 15 fines; and
• The Dutch Authority for the Financial Markets only levied three fines against two firms which brought in €903,000.

Matt Smith, chief executive and co-founder of SteelEye, said: “There remains a lot of work to be done by financial services firms to ensure they do not fall short of their obligations. As regulators get more aggressive in their enforcement action, firms need to really think about how robust their compliance programs and policies are.

“Particularly against the backdrop of recession fears, pressure to perform is mounting. With that, firms of all sizes are putting de-risking strategies in place.

“Meanwhile, regulators are using powerful data analytics tools to identify malpractice more accurately among the companies they regulate, meaning more firms are at risk of scrutiny. Investing in technology is key for firms to ensure they can identify risks, and increasingly, this requires an integrated approach to compliance. As such, we expect many players will up-skill and up-tool in 2023.”

The regulator has imposed a financial penalty of QAR546,182 (£122,000, $150,000, €139,000) and an indefinite prohibition from carrying out any function for firms in the Qatar Financial Centre (QFC).

Laplana was an investment manager for two customers of HCW.

In 2019, the QFC RA took disciplinary action against trust administrator HCW and fined the business QAR30m (£6.8m, $8.2m, €7.8m) for serious legal and regulatory breaches of the anti-money laundering and counter terrorism financing laws and the Financial Services Regulations.

The financial penalty and prohibition imposed on Laplana followed an investigation, which found that he “provided misleading information” to the Qatar regulator during its original investigation of HCW, and “knowingly and recklessly provided” the watchdog “with false, misleading or deceptive information or concealed information where the concealment of such information was likely to mislead or deceive” the QFC RA.

The regulator said: “The actions taken by the Regulatory Authority against Laplana will serve as a strong deterrence to other individuals who are required to provide evidence in investigations by ensuring that the information they provide is not misleading the regulatory authority.”

This comes several months after the Qatar watchdog banned the former director of HCW, Robert Sharratt, from carrying out any function for firms in the QFC.

The commission found that the Blackrock Multi-Sector Income Trust (BIT), co-managed by Robertson, invested up to $75m in Aviron between 2015 and 2019. The US watchdog said Robertson played “a significant role” in recommending loans to the firm’s subsidiaries, while at the same time seeking help from Aviron in advancing his daughter’s acting career.

“Aviron helped Robertson’s daughter obtain a small role in a film produced in 2018. Robertson did not disclose to BIT’s board of trustees or Blackrock’s compliance and legal teams that he asked Aviron to help advance his daughter’s acting career or that Aviron helped his daughter obtain a film role,” the SEC said in a statement.

Robertson, who left Blackrock in February 2020, did not admit or deny the charges, but agreed to pay the fine alongside a censure and cease-and-desist order.

Andrew Dean, co-chief of the SEC enforcement division’s asset management unit, said: “Investment professionals must be forthcoming about any conflicts of interest they may have with the companies in which they invest client funds, including situations involving favours or assistance to family members.

“Investors must be able to know that the advice they receive is free of undisclosed conflicts, regardless of whether the conflict is financial in nature.”

This article first appeared in our sister publication Portfolio Adviser.