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The Financial Services Authority (FSA) has fined W Deb MVL Plc (WDM) £560,000 for widespread failings in its systems and controls resulting in poor accounting systems and inadequate client money protection. The failings occurred over a four and a half year period from 1 December 2001 to 3 May 2005.
The primary effect of these failures was that WDM was unable to monitor its own financial position or to comply with its financial reporting requirements adequately. This resulted in the firm making total provisions of £66.3 million in its accounts for 2004 and 2005 in respect of assets viewed as irrecoverable. These provisions in turn led to concerns about the firm's solvency and to its former parent company, ING, waiving loans totalling £58 million to ensure it remained adequately capitalised.
The FSA found that WDM had breached four of the FSA Principles for Business as well as relevant FSA rules on client money as it had:
- failed to establish and maintain accurate accounting records capable of producing the required statutory accounting and regulatory reports (Principle 3);
- failed to establish and maintain adequate systems and controls and/or records in relation to its accounts, cash balances and stock positions; (Principle 3);
- failed to act appropriately on repeated warning signals about the systems and controls failings identified by both internal and external auditors over a four and a half year period (Principle 2);
- failed to establish and maintain effective client money procedures leading to its failure to carry out the calculation and segregation of client money for a five month period from 1 November 2004 to 31 March 2005 (Principles 3 and 10); and
- failed to inform the FSA it had not carried out the client money calculation for a five month period (Principle 11).
There is no evidence that any clients have suffered any actual loss as a result of the firm's failings.
FSA Director of Enforcement, Margaret Cole, said:
"The FSA expects regulated firms to organise themselves so that they are capable of meeting their regulatory requirements and client obligations, this includes having appropriate systems and controls for monitoring its own financial position and safeguarding client money.
"The implementation and maintenance of appropriate systems and controls is essential to maintaining market and consumer confidence in the financial system and individual firms. A firm that fails to meet these basic requirements can pose significant risks to its clients and ultimately its own financial health."
In determining the level of penalty the FSA has taken into account the fact that WDM and ING identified potential regulatory issues at the firm in 2005 and acted properly and responsibly in reporting these to the FSA. The firm, ING and, since it acquired the firm, Evolution Group plc, have been open and co-operative with the FSA in bringing this investigation to a prompt conclusion.
By agreeing to settle at an early stage of the FSA investigation WDM qualified for a 30% discount under the FSA’s Executive Settlement Scheme and consequently the fine was reduced from £800,000 to £560,000.
Background
- The full text of the Final Notice, dated 15 January 2007, is available on the FSA website. This includes the background to the case, the relevant statutory provisions and the regulatory requirements contravened and the factors taken into account when settling the level of the fine.
- W Deb MVL was formerly known as Williams de Broe Plc.
- FSA Principle for Business 2 states: A firm must conduct its business with due skill, care and diligence.
- FSA Principle for Business 3 states: A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
- FSA Principle for Business 10 states: A firm must arrange adequate protection for clients’ assets when it is responsible for them.
- FSA Principle for Business 11 states: A firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.
- 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.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.
