The Financial Conduct Authority (FCA) has fined and banned David Gillespie, Managing Director, and David Welsby, Finance Director, of stockbroking and wealth management firm, Pritchard Stockbrokers Limited (Pritchard) for serious failings in relation to the protection of client money.
The FCA has also censured Pritchard for recklessly failing to protect client money and committing a number of specific breaches of the FCA's client money (CASS) rules. Pritchard entered Special Administration on 9 March 2012 and, were it not for its financial position, the FCA would have imposed a fine on it of £4,932,600.
Tracey McDermott, FCA Director of the Enforcement and Financial Crime Division said:
Ensuring that client money is properly protected is a basic, but fundamental, regulatory requirement. Gillespies and Welsby's conduct fell far short of our standards. Their recklessness contributed to a shortfall of £3 million of client money and resulted in significant consumer detriment.
Under the FCA's CASS rules, client money should be held in a segregated client bank account. The rules are intended to protect client money if a firm becomes insolvent. Pritchard, Gillespie and Welsby failed to protect client monies for which they were responsible.
Pritchard, Gillespie and Welsby recklessly relied upon the existence of an undocumented and opaque offshore facility in order to correct a deficit which had arisen in Pritchard's client money. The offshore facility was wrongfully included as an available client money resource when reconciling the amount of client money that needed to be segregated by Pritchard. As a consequence of Pritchard, Gillespie and Welsby's reckless failings:
- client money was wrongly used to pay business expenses;
- Pritchard failed routinely to pay sufficient funds into its client bank account to cover shortfalls in client money;
- Pritchard placed reliance upon the offshore facility as a client money resource despite the fact that such a facility was not permitted to be included; and
- the FCA was not informed when a shortfall in client money occurred.
This behaviour resulted in significant consumer detriment including contributing to a loss of approximately £3 million of client money by the time Pritchard entered into Special Administration.
Gillespie has accepted ultimate responsibility for the failings to protect Pritchard's client money. He also had the primary contact with the overseas company providing the offshore facility and assured his fellow director, Mr Welsby, of the existence of the offshore facility. Welsby relied on Mr Gillespie's assurances and failed to verify or confirm the existence of the offshore facility.
In addition to being banned from the financial services industry, Gillespie and Welsby have been fined £10,500 and £14,000 respectively. They both provided verifiable evidence of serious financial hardship. Had it not been for this reduction and a discount for agreeing settlement of their cases, their penalties would have been £144,000 and £72,000 respectively.
Notes to editors
- The Final Notices for David Gillespie, David Welsby and Pritchard Stockbrokers Limited
- Pritchard entered the Special Administration Regime (SAR) on 9 March 2012 and Timothy Ball, Roderick Weston and Alistair Wood at Mazars LLP were appointed joint special administrators.
- 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).
- 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.