The FCA censures Catalyst Investment Group Limited for misleading investors and fines former compliance officer
Published: 04/10/2013 Last Modified: Today
The Financial Conduct Authority (FCA) has censured Catalyst Investment Group Limited (Catalyst) for recklessly misleading investors when promoting bonds offered by ARM Asset Backed Securities SA (ARM) between November 2009 and May 2010. Catalyst has been censured as they are unable to pay a fine and are in default – the FCA would otherwise have imposed a £450,000 penalty.
Catalyst offered bonds issued by Luxembourg-based ARM to investment intermediaries and independent financial advisers (IFAs) in the UK, who in turn promoted and sold them to retail investors. ARM applied for a licence to issue the bonds from the Luxembourg financial regulator, the CSSF.
Catalyst knew that ARM had applied for a licence in July 2009, and had been asked to stop issuing bonds by the CSSF in November 2009 pending a decision. However, Catalyst continued to accept funds from investors without disclosing ARM’s position, or the risk that ARM could be liquidated if its licence application failed. This should have been included in Catalyst’s marketing material for ARM bonds. Catalyst also wrote to IFAs and investors on separate occasions suggesting that ARM’s licence application was voluntary, but did not spell out the implications if the licence wasn’t granted.
To ensure consumers are properly protected, the FCA expects firms and individuals to act with integrity, and communicate clearly and fairly with their customers. Catalyst didn’t follow these principles, exposing investors to significant risks without their knowledge.
Tracey McDermott, the FCA’s director of enforcement and financial crime, said:
"Catalyst showed a reckless disregard for investors' interests, exposing them to significant risks. We expect firms, and their senior managers, to put customers' needs first - and will take tough action against those who fall short of our standards."
Alison Moran, Catalyst’s former compliance officer, has been fined £20,000 for failing to act with due skill, care and diligence. Although she was aware of the issues with ARM’s licence in December 2009, she failed to ensure this was properly communicated to investors.
UK investors have invested £54 million in ARM bonds, including £17.1 million in un-issued ARM bonds, and may lose a significant part of their investment. Those affected should refer to the Financial Services Compensation Scheme for details of how and when to make a claim for compensation.
Notes to Editors
- Final notices for Catalyst and Alison Moran.
- The FCA’s Principles for businesses. Catalyst breached Principles 1 (a firm must conduct its business with integrity) and 7 (a firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading).
- The FCA’s Principles and Code of Practice for Approved Persons. Alison Moran was Catalyst’s compliance officer from August 2006 to October 2011. After she became aware of the issues with ARM’s licence in December 2009, and the risk of liquidation if the application was refused, she failed to ensure this was properly reflected in Catalyst’s financial promotions or communications with investors. This breached Principle 6 (an approved person exercising a significant influence function must act with due skill, care and diligence).
- Catalyst was the primary distributor of the ARM Capital Growth Bond and the ARM Assured Income Plan in the UK. The bonds were listed on the Irish Stock Exchange - trading was suspended in November 2010. These products are a form of ‘Traded Life Policy Investment’ (TLPI) based on life insurance policies purchased in the United States. Typically, securitisation firms purchase these policies from policy holders for a lump sum, and take on responsibility for paying the premiums. When the original policy holder dies, the firm receives the insurance payment.
- The FCA views TLPI, such as ARM bonds, as complex, high risk and unsuitable for most consumers. The FCA has recommended that these products should not be marketed or sold to the mass retail market. More information for consumers on TLPI.
- The FCA has declared Catalyst to be in default. This means that the FCA takes the view that Catalyst is likely to be unable to satisfy claims made against it – further information.
- The Luxembourg financial regulator is the Commission de Surveillance du Secteur Financier (CSSF).
- The Financial Services Compensation Scheme (FSCS) will oversee compensation arrangements for affected investors. Consumers do not need to take action yet - the FSCS expects to publish information on how to make a claim against Catalyst by the end of the year. Additional information for ARM investors.
- On the 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- Find out more information about the FCA, as well as how it is different to the PRA.
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