An investigation by Hong Kong’s Securities and Futures Commission (SFC) revealed that between March 2009 and October 2011 John David Lawrence sold the fund to 31 client accounts, even though the PFC had classified the fund as “execution-only” and had stipulated that the fund should not be promoted to clients.
In a transaction that amounted to HK$28m, Lawrence sold the fund to a significant number of elderly clients, despite the risks surrounding liquidity and the deferral of redemption requests associated with the product.
The SFC said that the representative of PFC, an advisory business, had failed to ensure the suitability and disclose the risks of the fund to his clients, and had not set appropriate standards for his staff to follow to ensure products met his clients’ requirements.
The SFC said: “Lawrence’s misconduct calls into question his fitness and properness to remain a licensed person.
“He blatantly disregarded the firm’s due diligence result and ignored his fundamental duty to ensure the suitability of his investment recommendations, and to present balanced views regarding the fund.”
The SFC made a decision on Lawrence’s penalty based on his financial position, his cooperation, and his otherwise clean disciplinary record.
“Toxic”
Funds investing in traded life policies, or life settlements funds, were controversially described as “death bonds” in a 2011 warning by the UK’s Financial Conduct Authority, which urged retail investors to avoid the products.
In that announcement, the regulator also described the products as “toxic”, saying it had found “significant problems with the way in which they were designed, marketed and sold to UK retail investors”.
In a highly unusual step last month, the regulator issued a statement targeting the EEA fund specifically, urging investors to “make a complaint to the firm which sold the investment”, before time runs out.
The FCA’s actions have been met with considerable derision, most notably by the EEA Investor Group, an action group representing investors into the fund, which criticised the regulator for “continuing to harm” advisers.
The group said that, rather than “victimising” IFAs by urging investors to make complaints against them, the FCA should have worked with the Guernsey Financial Services Commission to prevent the Guernsey-based fund from being sold incorrectly.
This story was updated on 13/10/14 to reflect that the FCA was not just targeting EEA, but the entire asset class, when it made its initial announcements in 2011.
