The Financial Conduct Authority (FCA) has placed regulatory restrictions on London-based independent investment manager CFS Management.
In a notice published on 20 April, the regulator said it had “serious concerns” about the firm’s business and its compliance with the watchdog’s principles for business (PRIN), as well as with the rules in its client assets sourcebook (CASS).
The concerns focused on the firm’s failure to ensure that client money was held in a segregated client money account and that the firm had failed to obtain appropriate acknowledgement letters for client bank accounts where client money is held.
The FCA said the restrictions should take immediate effect − as the matters set out in the notice show that the firm “is unable to manage its affairs in a sound and prudent manner” and is “putting consumers at risk”.
CFS, a wealth manager and retail investment broker, is now not permitted to accept any new client money or new custody assets from existing or new clients, in any of its business areas. It is also now prevented from disposing of, withdrawing, transferring, dealing with or diminishing the value of any of its own assets and any client money and custody assets it holds for clients, in the UK and elsewhere.
This includes any custodian accounts, client transaction accounts or any other account operated by or held with third parties on the company’s behalf. This does not apply to monetary payments made by CFS from its own monies, in the course of its business, up to a limit of £5,000 ($6,216, €5,650).
Client money
The firm’s client money has reduced significantly since the start of 2023, according to the FCA. On 31 January, this stood at £13.8m but had reduced to just over £10m at the end of February. By 10 March, this had dropped to just under £2.5m.
It told the FCA that, as of 13 March 2023, the client money of £1.4m remaining within one its bank accounts had been withdrawn. It did not state its current location.
The FCA noted that if it had been returned to clients, this would take the total client money held by CFS to under £1m.
The firm has been told to provide the regulator with a plan showing how it would return all client money and assets held for clients.
Failures
The regulator also said that the firm had merged templates and amended the contents of the client bank account letter and client transaction letter in a way that CASS does not allow.
It added that the firm failed to appropriately remediate the CASS failings identified in the feedback letter and had failed to take steps to mitigate the risks posed to client assets in money. It also reported that the firm had not put appropriate resources and systems in place to manage the risks created by its breach of the CASS rules.
In addition, the FCA said that the firm may not have taken reasonable care to organise and control its affairs responsibly and effectively and ensure that it has adequate risk-management systems. The FCA also highlighted that the firm may not have arranged adequate protection for clients’ assets.
