The Jersey Financial Services Commission (JFSC) has reached a settlement with Brooks Macdonald International (BMI) over the firm’s failure to comply with the investment business codes.
The investigation carried out between 2014 and 2018 focused specifically on “certain historic investments”, according to Brooks Macdonald.
The group announced in July 2017 that it would “deal proactively with certain legacy matters arising from the former Spearpoint business which it acquired in 2012”.
This issue related to both a number of portfolios managed formerly by Spearpoint, then by BMI’s Jersey branch, and a Dublin-based fund, for which Spearpoint acted as investment manager.
Findings
The Jersey watchdog said on 23 October that BMI failed “to demonstrate that in all cases it had appropriate record keeping arrangements in place for the period under review”, and information obtained and maintained by BMI about clients “lacked adequate relevant detail”.
There was a lack of records held by BMI to demonstrate whether “advice or exercise of discretion was suitable”, updates were given to clients and “information regarding fees, charges and commissions was provided” prior to client transactions.
A lack of records resulted in BMI being “unable to demonstrate its conflicts of interest procedure was fully effective and/or fully adhered to”.
In the absence of adequate records, BMI “failed to demonstrate that for certain clients it upheld its internal complaint handling policy. Of the documentation available, the investigation concluded that complaints were not handled transparently, fairly and independently”.
BMI could “not demonstrate that it had assessed certain clients as retail or professional clients”.
Suitability
Martin Moloney, JFSC director general, said: “Our investigation looked at a specific period of conduct which identified failings in controls during the period under review.
“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.”
Since the period under investigation, BMI has made significant investment and improvements to its operations in Jersey, the regulator added.
Finances
The firm made a total provision of £12m ($15.6m, €13.2m) in the financial results for the years to 30 June 2017 and 30 June 2018, and as at 30 June 2020, the remaining balance of the provision was £600,000.
It is “not making a further provision in relation to these matters and it intends to deal with any residual issues as part of business as usual”.
Brooks Macdonald said in a statement: “The group has continued to be in discussions with all stakeholders, including relevant regulators, as it seeks to bring these matters to a conclusion.
“While the group accepts no legal liability in these matters, Brooks Macdonald is committed to treating customers fairly and seeking to protect its clients’ best interests.”
Brooks Macdonald has confirmed that it was not given a financial penalty or fine from the regulator in the settlement.
