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FCA regulation and pensions advice



Syedur Rahman of Rahman Ravelli outlines a case that emphasises the important distinction between regulated and unregulated firms regarding pensions advice.

The High Court has ruled in favour of the Financial Conduct Authority (FCA) in a civil action against two firms and their directors who induced clients to transfer their pensions into Self-Invested Personal Pensions (SIPP’s) and alternative investments without FCA authorisation.

The case concerned two unregulated companies, Avacade Limited (Avacade) and Alexandra Associates trading as Avacade Future Solutions. The two firms provided pension services to consumers while not having the required FCA authorisation. The FCA alleged that the two companies provided a pension report service that had crossed into pensions advice and that they made misleading statements that persuaded customers to transfer their pensions into SIPP’s and alternative investments such as HotPods (office space available for rent), tree plantations and property developments.

At the end of 2017, the FCA launched civil proceedings against Avacade and Alexandra Associates, and their directors. According to the regulator, more than 2,000 clients transferred a total of approximately £91.8M from their pensions into the SIPP’s. Of this money, about £68M was invested in products promoted by Avacade and approximately £905,000 was invested in a product promoted by Alexandra Associates; a fixed rate bond relating to a Brazilian property development.

For these investments the unregulated firms earned commissions in the region of £10.8M. Many of the underlying investments have since failed or are in liquidation. Avacade entered liquidation in 2015.

The Ruling

On 30 June 2020, in the judgement handed down by Adam Johnson QC, the High Court found that the firms’ activities were unlawful as they had “engaged in the regulated activities of arranging and advising on investments” and, therefore, the “perimeter breaches alleged by the FCA … are made out…”. It also found that the companies had made unapproved financial promotions through their websites, their promotional material and in telephone calls to consumers, as well as making false or misleading statements. The ultimate consequence for the firms and their directors is yet to be determined.

Conclusion

This judgement is important for any anyone in the financial services sector that relies on introducers. Such activity can all too easily crossover into advice. That is why great care is needed to ensure there is clear demarcation between the services provided.  Independent legal advice should always be obtained from the point when introducers are either used or being considered. The same too applies where promotional material is used or advertised.

This article was also featured on Lexology.com.

Syedur Rahman

Syedur Rahman

Legal Director

syedur.rahman@rahmanravelli.co.uk
+44 (0)203 910 4566 vCard

Specialist Areas of Practice: Fraud and Business Crime, Compliance and Regulatory, Civil Recovery, Civil Fraud, Corporate Investigations

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