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The Financial Services Authority (FSA) has fined Towry Investment Management Limited (Towry) £494,000 for providing misleading information to the FSA and for client money breaches.
The FSA set out its rules on how firms need to treat client money in its Client Asset Sourcebook (CASS). As part of its work to ensure that firms comply with CASS requirements the FSA sent a Dear CEO letter to relevant firms asking for checks to be undertaken to ensure firms understood, and were fully compliant with, the rules.
In its response to the Dear CEO letter Towry stated that it was fully compliant. Towry failed to ensure the response was properly considered before submitting it to the FSA. The reality was that the firm was not compliant and this only became apparent after the FSA, as part of a CASS visit to the firm, discovered the breaches.
Towry’s failure to provide an accurate response to the FSA on this important issue was a breach of Principle 11, which requires firms to deal with the FSA in an open and cooperative manner. The failure of the firm to treat client money in the correct way breached Principle 10.
The FSA considers Towry’s failings to be particularly serious for the following reasons:
•Dear CEO letters are an important regulatory tool used by the FSA to raise significant issues and firms must consider them with particular care;
• The firm failed to ensure the response to the Dear CEO letter was properly considered and checked before being sent, resulting in inaccurate information being provided to the FSA;
• Towry’s CASS breaches could have placed clients’ money at risk of potential loss or delay in distribution if the firm had become insolvent because it failed to maintain adequate records;
• Towry failed to identify the breaches itself. Instead, the matters came to the FSA’s attention during an FSA visit to the firm in November 2010; and
• There has been a high level of awareness in the financial services industry of the importance of handling client money properly since the collapse of Lehman Brothers on 15 September 2008 and failure to do so is not acceptable.
Towry agreed to settle at an early stage entitling it to a 30% discount on its fine.
Tracey McDermott, acting FSA director of enforcement and financial crime, said:
''Open and accurate communication with the FSA is of fundamental importance to the functioning of the regulatory system. It should go without saying that taking steps to ensure information provided to us is properly considered, up to date and correct is a basic regulatory requirement.
''It is very disappointing that Towry failed to do so particularly in an area of such regulatory importance. Firms should be in no doubt about how seriously we regard such failures.''
