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The Financial Services Authority (FSA) has today fined Rowan Dartington & Co Limited £511,000 for failing adequately to protect and segregate client money for over two years.
Under the FSA’s client money rules, firms are required to keep client money separate from the firm's money in segregated accounts with trust status. This protects client money in the event of the firm's insolvency.
The systems and procedures firms use are critical in protecting their clients’ monies. Rowan Dartington put in place a new software system in May 2007 but failed to properly test and implement it, which led to a breakdown in Rowan Dartington’s reconciliation processes. The resulting problems meant that the firm could not rely on the accuracy of its internal books and records, and so could not be confident it was segregating the right amount of its clients’ money. It also contributed to Rowan Dartington being unable at the time of the FSA’s investigation to demonstrate the recoverability of up to £1.4 million of its own net assets in its accounting records.
In a series of breaches between May 2007 and September 2009, Rowan Dartington also placed its clients’ money at risk by failing to segregate client money for contingent liability business, including spread bets and options. The firm also failed to properly ensure it had the correct trust letters from its banks and counterparties.
Margaret Cole, FSA director of the enforcement and financial crime division, said:
“Rowan Dartington & Co Ltd committed a serious breach of our client money rules by failing to protect its clients’ money. The breaches took place over a long period and the risks they posed were compounded by the fact that this was a period of market turmoil.
“Ensuring the necessary client money safeguards are in place is a key element of consumer protection, and firms of all sizes must ensure that any client money they hold is properly segregated.”
Rowan Dartington worked in an open and co-operative way with the FSA during the investigation and agreed to settle the matter at an early stage. In doing so the firm qualified for a 30% discount. Without the discount the firm would have been fined £730,000. No clients have suffered actual financial loss as a result of these issues.
The FSA has established a new unit to enhance and strengthen existing capabilities in the area of client money and assets. The unit consists of teams responsible for specialist supervision, policy, data analysis and risk management.
Background
- At the time of the FSA’s investigation, the firm was unable to demonstrate the recoverability of £1.4 million. The firm has since written off £1.036 million of the £1.4 million net assets.
- The Final Notice for Rowan Dartington & Co Limited.
- The FSA has recently fined JPMorgan for client money breaches.
- In January 2010 the FSA published a dear CEO letter and a Client Money and Assets report for all firms that have the permission to hold client money and assets. This was followed up by a further dear CEO letter on 20 May 2010.
- The FSA regulates the financial services industry and has five 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; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
