The Isle of Man Financial Services Authority (IOMFSA) has imposed a £62,996 ($80,794, €69,342) fine on financial advisory firm Island Financial Solutions (IFS).
The regulator found that the company and its directors failed to exercise appropriate oversight, governance and compliance controls on its practices.
It grew concerned about the business after a supervisory inspection in November 2018, where it pointed out issues related to the provision of financial advice.
After interviewing both former and current IFS members of staff, as well as customers and other parties related to the business, the IOMFSA identified several failures.
The main issues related to the treatment of defined benefit (DB) pension transfers, the signing of documents, and fee transparency.
Series of failures
The regulator discovered that:
- IFS, as a standard practice for UK DB scheme transfers, disaggregated the advisory process – treating the pension transfer process as ‘execution only’. Although the clients were provided with UK FCA-authorised advice regarding the transfer, this was a false partition of the true nature of the transaction. These practices were contrary to regulatory requirements and failed to ensure the suitability of the overall advice provided to its clients;
- IFS misused its own group pension scheme – regular contributions only – with such activity being contrary to the terms agreed with the product provider, and without ensuring that its clients were fully informed of the product into which they were exposed;
- IFS had an ineffective compliance regime that failed to prevent the backdating and pre-signing of documents;
- An ex–IFS financial adviser applied a client’s signature, on the client’s behalf, to a client file with no recorded rationale, authority or instruction; and,
- IFS failed to ensure that its employees, on every occasion, adequately disclosed its commission or fee arrangements to clients, contrary to the regulatory regime with which they were required to comply.
As a result, IFS was handed a nearly £90,000 fine, which was then reduced to £62,996 – a 30% reduction – as the advisory firm cooperated with the regulator and agreed on a settlement.
Deterrent
The IOMFSA said: “The Authority is satisfied that the imposition of the civil penalty on IFS reflects the serious nature of the regulatory, directional, governance, control and compliance failings identified by the investigation, and that this public statement will encourage others to comply with the legal and regulatory requirements and obligations that are fundamental to the conduct of business in the regulated sector.
“The Authority is satisfied that the directors of IFS recognise and accept their failings.
“In accordance with the Authority’s enforcement decision-making process, IFS entered into settlement discussions with the Authority and, having accepted the investigation conclusions, sought to finalise matters expeditiously.”
