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The Financial Services Authority (FSA) has fined Glasgow-based stock broking firm Direct Sharedeal Limited (DSL) £101,500 after its appointed representative, First Colonial Investments LLP (FCI), used misleading sales pitches which failed to set out the inherent risks of buying penny shares.
DSL specialises in spread betting and share dealing. It provided an avenue for FCI to carry out penny share sales, and should have made sure that FCI was providing customers with accurate and sufficient advice to make informed decisions about whether to invest in penny shares.
However, an FSA investigation found FCI’s sales showed scant regard for their customers. Potentially misleading sales pitches were used to persuade people to buy shares, regardless of whether those shares were suitable. FCI failed to mention the risks associated with their recommendations, and made misleading statements about the companies they were advising people to invest in.
FCI also placed its customers’ money at risk by holding it in a connected, but unregulated, firm. As a result, DSL was fined £101,500 for failing to monitor FCI’s customer treatment, along with that of other former appointed representatives.
Margaret Cole, FSA director of enforcement, said:
"It is totally unacceptable for customers to be given misleading information, particularly when it relates to the risks of investing in penny shares. This applies whether that misleading information is given by an FSA authorised firm or by its appointed representatives.
“The small cap stock broking sector has been under increased vigilance by the FSA because of a need to drive up standards of customer treatment in this sector.
"“This fine should serve as a warning to firms with similar business models that they need to be vigilant about what is going on at their appointed representatives - the responsibility lies with the authorised firm."
DSL agreed to settle at an early stage of the FSA’s investigation. Had this not been the case, the financial penalty would have been £145,000. DSL has also agreed to contact FCI’s clients and provide redress where appropriate.
DSL has voluntarily varied its regulatory permissions, meaning that it can no longer take on new appointed representatives.
Background
- The Final notice for Direct Sharedeal Limited can be found on the FSA website.
- First Colonial Investments LLP was a stock broking firm based in London and had customers from around the UK. It advised on, and dealt in, shares that have been admitted to trading on the Alternative Investment Market (AIM) and PLUS market, as well as shares in companies that were seeking to be admitted to these markets.
- First Colonial Investments LLP has now been struck-off and is being administered by the Official Receiver.
- First Colonial Investments LLP is not being fined or censured because Direct Sharedeal Limited acted as its principal firm, and allowed First Colonial Investments LLP to carry out specific functions under Direct Sharedeal’s permissions. This made First Colonial Investment LLP an appointed representative of Direct Sharedeal. As an FSA regulated entity, Direct Sharedeal has ultimate responsibility for overseeing the conduct of its appointed representatives.
- Consumers who are thinking of buying penny shares are reminded of four simple measures to help protect themselves:
- Challenge the advice a broker gives you. Ask why a penny share is suitable for your particular circumstances;
- Research and verify that advice;
- Make sure you know the risks attached to the shares; and
- Ask what commission the broker will get for arranging the sale.
- 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 for consumers; and fighting financial crime.
