Tribunal upholds FCA fine on firm for misselling complex investments

Published: 27/11/2013     Last Modified: 17/12/2013

The Upper Tribunal (Tribunal) has upheld the decision of the Financial Conduct Authority (FCA) to fine Scottish firm Westwood Independent Financial Planners (Westwood) £100,000 for communications and suitability failings in relation to geared traded endowment policies (GTEPs).

The judgment was issued by the Tribunal on 22 November 2013 after 9 days of hearing in April and May 2013 relating to Westwood’s sale of GTEPs.

The Tribunal agreed with the FCA that Westwood breached two of its Principles for Businesses and a range of FCA rules in relation to its sale of GTEPs, which are complex, long term financial products. Often Westwood advised investors to remortgage their home to invest in GTEPs. 

The Tribunal found that, in relation to all customers whom had given evidence at the hearing, Westwood had not taken reasonable care to ensure its recommendations to customers to invest in a GTEP plan were suitable, having regard to what it knew about those customers. It found that, for all but one of the customer witnesses, Westwood had not provided information in a clear and fair way.

These customers included a teacher, married to a self-employed writer, who took out a larger mortgage than they needed for their new home, in order to buy GTEPs on Westwood’s recommendation. The Tribunal stated:

"Our view of Mr and Mrs [X] is that they were unsophisticated investors, with little, if any, understanding of the nature of the risks of the GTEP plan… the information about the Integrity GTEP plan communicated by Westwood to Mr and Mrs [X] was weighted towards the positive with insufficient emphasis and inadequate explanation of the risks so that, although it was not misleading, it was not clear and fair… In our view, the Integrity GTEP plan was clearly unsuitable for Mr and Mrs [X] for the general reason that, given their attitude and circumstances at the time, […]  they should have been regarded as low or medium risk investors and the GTEP plan was a high risk investment product."

In finding that Westwood should be fined £100,000, the Tribunal stated:

"We note that Westwood made £509,123 commission from the sale of 50 GTEPs during the relevant period. We consider that the amount of the penalty should be set at a level that both punishes Westwood for the breaches and deters others from similar conduct. We take the view that a penalty of £100,000 or more is a significant amount and would be an effective deterrent to others."

Many of the GTEP plans sold by Westwood to customers have fallen significantly in value, although in most cases the underlying endowment policies still have a number of years left to maturity. All of the customers who gave evidence at the hearing have been forced to assign other investments to their GTEP plans, or inject cash into them. The evidence at the Tribunal also showed that some Westwood GTEP customers have already received compensation from Westwood’s PI insurers and the Financial Services Compensation Scheme.

Westwood no longer carries on any regulated activities, having been placed into sequestration (a Scottish term for bankruptcy) on 18 October 2011. It remains open to Westwood to appeal the judgment.

Update 17/12/2013: Westwood will not appeal the judgment, and the FCA has issued a Final Notice to Westwood.  

Notes to Editors

  1. Westwood’s Decision Notice was issued on 31 May 2011 and Westwood referred the matter to the Tribunal on 23 June 2011.
  2. The Tribunal’s judgment can be found online.
  3. Westwood is the latest firm to be disciplined as a result of the FSA’s thematic review into GTEPs. Other firms disciplined were Integrity Financial Solutions Limited, Knowlden Titlow Financial Services Limited, Derrick Hales Financial Planning, The Garrison Finance Centre Limited, and The Matrix Model Group UK Limited.
  4. On the 1 April 2013 the Financial Conduct Authority (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).
  5. 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.
  6. Find out more information about the FCA, as well as how it is different to the PRA.

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