FCA bans firm partners for SIPP failings

 Mr Rees and Mr Hughes had advised customers to switch into self-invested personal pensions (SIPPs), which enabled those customers to invest in unregulated and often high risk products, regardless of whether those products were suitable for the customers. 1 Stop has now ceased trading and has applied to cancel its FCA permissions.

Between October 2010 and November 2012, Mr Rees and Mr Hughes’ firm advised nearly 2,000 customers on switching their existing pensions (valued at in excess of £112 million) into SIPPs. 1 Stop’s customers used the SIPPs to invest in products such as diamonds and overseas property which were typically not permitted by the customers’ existing schemes.

The two men would have been fined a total of £490,100 but they have instead agreed to pay that amount to the Financial Services Compensation Scheme who are investigating claims that redress may be payable to 1 Stop customers.

Tracey McDermott, Director of Enforcement and Financial Crime at the FCA, said:

“By enabling customers to invest in unregulated and often high risk products without assessing suitability, these men exposed customers to the risk of losing their hard earned pension funds. This was then compounded by the partners’ failure to ensure that their customers fully understood these risks”.

The FCA found that Mr Rees and Mr Hughes failed to comply with the statement of principle for approved persons which states that a SIF must take reasonable steps to ensure that the business for which he is responsible in his accountable function complies with regulatory requirements.

The FCA also found that the partners failed adequately to disclose a conflict of interest, as they were directors and shareholders of EGI, a firm that referred almost a quarter of 1 Stop’s SIPP customers during the relevant period. For these referrals, EGI was paid a fee, meaning that Mr Rees and Mr Hughes were benefitting from both the fees paid by customers for the advice given by 1 Stop and also from the commission received by EGI.

Mr Hughes also failed in his duty to ensure 1 Stop’s compliance with the FCA’s rules by delegating his responsibilities for compliance to an external consultant and failing to provide oversight.

Mr Rees and Mr Hughes, whose firm was located in Haverfordwest, Pembrokeshire, will be writing to all customers who are potentially affected to inform them of the outcome of the FCA’s investigation, and the FSCS’s work on whether redress may be due to some or all of 1 Stop’s customers.