JFSC's six-year battle with wealth manager concludes

Tuesday 30 June 2020

A long-running battle between the financial services regulator and a wealth management firm it wrongly accused of giving bad advice has finally come to an end.

The conclusion to the six-year saga between the JFSC and SWM was announced in a ‘public statement’ published by the regulator yesterday.

But, rather than documenting a mutual solution to the dispute, which saw the Royal Court take SWM’s side three times over the JFSC, it explained that SWM was now having to close its business after failing to secure professional indemnity insurance, as a direct result of the case. 

The dispute started in 2014 when the regulator became concerned over advice SWM was giving its clients in respect of two alternative investment funds following a questionnaire. 

The following year, the JFSC asked Grant Thornton to review the advice being given. It concluded that assessments of the funds as “low risk” were “flawed” and that clients had therefore received “unsuitable” advice.

Pictured: The Royal Court supported SWM three times in its battles with the JFSC. 

Concerns were also raised about the investigation of a complaint, as there was little evidence about what had happened. 

SWM rejected those findings, and refused to reopen an investigation into the complaint. It asked the JFSC to appoint an independent entity to give a second opinion. 

The request was refused, and the JFSC ordered SWM to contact all its clients who they said had received “unsuitable advice”.

SWM got both decisions thrown out in 2016 after appealing to the Royal Court. At the time, the Court “expressed sympathy” with SWM’s suggestion that the JFSC “appeared already to have made up its mind that there had been mis-selling." 

However, in 2018, the JFSC decided to revoke SWM’s company registration, saying it was not “fit and proper” and that it had “displayed a lack of competence” by not maintaining and following appropriate procedures for advising clients, failing to maintain adequate insurance and handle complaints properly and receiving prohibited third party payments.

Pictured: SWM is one of the very few firms to have successfully challenged the JFSC through the Courts.

That decision was then thrown out following another successful challenge from SWM in the Royal Court, which ordered the JFSC to reconsider its penalty.

Yesterday’s public statement was the result of that reconsideration.

In it, the JFSC reiterated its view that SWM demonstrated a “lack of competence” in its record-keeping and failure to maintain professional indemnity insurance, and that it did not handle complaints properly.

However, it said that it went to inspect SWM’s offices following the judgment in June and found that the company was “in the main… operating in accordance with its policies and procedures.” 

In the end, the JFSC – which also has the ability to impose rules on companies, give fines and refer matters for criminal prosecution – concluded that there was no need to impose a sanction beyond issuing a public statement.

It noted that SWM was already closing down under its supervision and that all its clients had already been transferred to new providers.

“In the JFSC’s reconsideration of sanction, it has noted the number of material and substantial findings made and contraventions of the IB Code which were upheld by the Royal Court,” the public statement read.

“The JFSC has further considered the mitigation available to SWM arising since the Board’s decision. In particular, in the Judgment the Royal Court had urged SWM to adopt a less adversarial approach to its dealings with the JFSC going forward.  Subsequent to the Judgment, SWM’s level of cooperation with the JFSC’s Supervision Division improved, and this was to its credit.

“The JFSC has concluded that the issuing of a public statement as a regulatory sanction against SWM is reasonable, proportionate and necessary, and that it is desirable given SWM’s material contraventions of Codes of Practice.”

Pictured top: The Jersey Financial Services Commission (JFSC).