The Financial Conduct Authority (FCA) has fined Mr McNeil £350,000 and prohibited him from performing any significant influence function for failing to comply with Statements of Principle 4 and 6 of the FCA’s Statements of Principle and Code of Practice for Approved Persons.
Keydata Investment Services Ltd (Keydata) designed and sold investment products to retail investors via IFAs. The products were underpinned by Keydata’s investment in bonds issued by Luxembourg special purpose vehicles, including one called SLS Capital S.A (SLS). In turn, SLS invested in portfolios of life settlement policies. After Keydata was put into administration in June 2009, Keydata’s administrators discovered that SLS had failed to make certain payments that were due to Keydata in respect of the products since early 2008 and that Keydata had instead funded £4.2 million in income payments to investors from its own company resources. This had the effect of masking problems with SLS and the performance of the SLS portfolio. In his role as Keydata’s finance director, Mr McNeil was aware that Keydata continued to make such payments and failed to ensure that Keydata reported the matter to the FCA or to inform the FCA himself when he knew that the matter had not been reported.
Further, as finance director, Mr McNeil failed to challenge a decision in late 2008 to enter into a complicated transaction which attempted to obtain security for the missed SLS income payments. He permitted the release of £500,000 of Keydata’s corporate funds without having a clear understanding of the transaction or its risks. Although Keydata paid the funds to the seller, Keydata did not, in fact, obtain the security.
The FCA has found that from 5 February 2009 to 19 June 2009 Mr McNeil failed (in breach of Statement of Principle 4) to disclose information of which the FCA would reasonably expect to have been given notice regarding the failure of SLS to make the income payments due to Keydata. Mr McNeil also failed (in breach of Statement of Principle 6) to act with due skill, care and diligence in relation to the security transaction and the release of Keydata’s corporate funds by failing to take sufficient steps to inform himself about the transaction or to understand the risks that were involved.
Georgina Philippou, acting director of enforcement and market oversight at the FCA, said: “The FCA relies on senior directors such as Mr McNeil to let us know about significant risks in their firms, especially when they have a direct bearing on customers’ investments. It was not reasonable in the circumstances for Mr McNeil to rely on the fact that other directors might eventually tell us what was happening. If Mr McNeil had acted, and acted quickly, concerns about SLS may have come to light sooner. Further, as Keydata’s finance director, Mr McNeil should have understood the risks of the transactions he was authorising.”
Mr McNeil agreed to settle at an early stage of the FCA’s investigation and therefore qualified for a 30% (stage 1) discount. Were it not for this discount, the financial penalty would have been £500,000.
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