The Upper Tribunal (Tribunal) has upheld the decision of the Financial Conduct Authority (FCA) to issue a public censure against Arch Financial Products LLP (Arch), and to prohibit Robin Farrell, its chief executive, and Robert Addison, a senior partner and former compliance officer, from performing any role in regulated financial services. Penalties of £650,000 and £200,000 have been imposed on Mr Farrell and Mr Addison respectively. The Tribunal also upheld the FCA's decision that it would have fined Arch £9 million for its misconduct, were it not for the firm’s financial position.
The judgment was issued by the Tribunal on 19 January 2015 after a hearing during May 2014. It remains open to the parties to appeal this judgment.
The Tribunal found that Arch, Mr Farrell and Mr Addison were reckless as to whether they had managed the conflicts of interest in four specific transactions fairly, and so lacked integrity, and that they failed to ensure that Arch adequately identified and took appropriate steps to mitigate and record the conflicts of interest in its business.
The Tribunal found further deficiencies in how Arch segregated and controlled its access to, and use of, non-public information in its business, and found failures by Arch and Mr Addison in relation to Arch’s compliance monitoring procedures. It did not uphold the FCA’s findings about the liquidity and spread of risk in the CF Arch cru funds managed by Arch.
Georgina Philippou, acting director of enforcement and market oversight, commented:
"We are pleased that the Tribunal agrees that Mr Farrell, Mr Addison and Arch fell short of the standards that we expect, failed to ensure that they put investors' interests ahead of their own and could not demonstrate how conflicts of interest were effectively managed.
"The judgment is a further reminder to those who work in financial services that they have to act with integrity, and, that when they don’t, we will take action to remove them from the industry."
In its judgment, the Tribunal found that:
"There can be no question that we have found AFP [Arch] has committed serious breaches of Principles 1, 3, and 8. Those breaches were repeated and prolonged."
"Mr Farrell’s breaches, in his case of Statement of Principles 1 and 7, were serious, repeated and prolonged. In those circumstances there can be no question that a substantial financial penalty is justified."
"We have found serious failings to act with integrity on the part of Mr Farrell and Mr Addison…Mr Farrell and Mr Addison can no longer be regarded as fit and proper persons to be involved in any regulated activities."
"We characterise the failures with regard to the management of conflicts of interest generally and in respect of the Four Transactions as being particularly serious. The failings demonstrated fundamental flaws in AFP’s [Arch’s] business model which allowed it to take a position of trust as a fiduciary and a manager of large amounts of money raised from retail investors without any proper thought being given as to how to establish effective arrangements for conflict management in light of AFP’s different business strands."
The Tribunal also commented on the standards of behaviour it expected of firms when managing conflicts of interest. Furthermore, it agreed with the FCA that it was able to impose financial penalties on Mr Farrell and Mr Addison within a three year limitation period.
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