Local investment company breached business conduct code

Tuesday 27 October 2020

A local investment company has been called out by the financial regulator for failing to give “suitable and sufficient information” to all clients and handle complaints independently.

The Jersey branch of Brooks Macdonald Asset Management International (BMI) has since reached a settlement with the Jersey Financial Services Commission (JFSC) following an investigation into its conduct.

The probe was launched in July 2018 after the JFSC received information that “gave rise to concerns regarding the conduct of BMI."

It focused on BMI’s compliance with the Investment Business Code between January 2014 and July 2018, especially in relation to advice on 'alternative asset classes', which are types of non-traditional investments ranging from real estate to foreign currency, art and other collectibles.

Pictured: The JFSC found that BMI had failed to maintain adequate records.

The JFSC found that BMI had failed to maintain adequate records, with gaps identified in terms of the financial and personal information of certain clients. In addition, it was found that BMI could not prove it had assessed certain clients as Retail or Professional Clients, as required by the IB Code.

The company’s poor record keeping also meant they couldn’t demonstrate they had given all clients “sufficient or sufficiently accurate information and (where relevant) commentary” to enable them to make fully informed investment decisions, conducted due diligence for all the products, or that the conflicts of interest procedure was fully effective or adhered to.  

The investigation also concluded that complaints were not handled transparently, fairly and independently. 

As a result of those findings, the JFSC concluded BMI had breached three of the principles of the IB Code.

“Our investigation looked at a specific period of conduct which identified failings in controls during the period under review,” Martin Moloney, JFSC Director General, commented.

“This meant that BMI couldn’t demonstrate that in all cases it gave suitable and sufficient information to its clients. In addition for certain clients, BMI couldn’t demonstrate whether they were retail or professional investors nor could it demonstrate that it managed client complaints independently.

“Other market participants need to be very clear that we view failure to keep adequate client records as an increasingly serious breach of our requirements.”

Pictured: Martin Moloney, JFSC Director General.

In a public statement published last week, the JFSC noted that since the period under review, the Board of BMI had largely changed and had been fully open and co-operative with the investigation. 

In addition, the company hired an independent consulting firm to review its business operations, leading to the creation of a new Risk Management Framework.  

Finally, the JFSC said BMI has made “significant investment in and improvements” to the operation of its business, including increased focus on governance, compliance and risk resources, policies and procedures and staff training. 

Responding to the regulator's findings,BMI described many of the JFSC’s concerns as relating to “legacy” issues linked to its acquisition of a business in 2012.

In a statement, the firm said it had developed a £12m plan to resolve these matters and remained in discussion with all stakeholders, including relevant regulators, as it seeks to bring matters to a conclusion.

"I am pleased the JFSC’s investigation has concluded and that both our co-operation and the significant investment and improvement we have made in our risk management and operational framework have been recognised," Brooks Macdonald Group CEO Caroline Connellan said.

"Since we first announced our response to the legacy issues in July 2017, we have sought to deal proactively with these matters in a way that reflects our deep commitment to treating customers fairly. [The 23 October] announcement supports the continued reinvigoration of our International business under the leadership of Andrew Shepherd.”