UK-based wealth firm SVS Securities has been banned from carrying out any regulated activities after the Financial Conduct Authority (FCA) found significant issues in the way the business operated.
Regulated since 2003, the firm offered advisory, management and asset administration services. It entered special administration on 5 August 2019.
The most significant issues were flagged in its DFM operation, which pushed financial advisers to promote its “custom” portfolios to clients who had made a DB pension transfer or a Sipp switch.
The UK watchdog said it was concerned customers suffered as a result of the high level of fees, some charged in excess of 20% of the total investment, with cases where clients’ funds were reduced by up to 25%.
But high fees and charges appear to be the tip of the iceberg when it comes to SVS’ potential regulatory breaches.
Lack of control
The wealth firm had been warned about the high concentration of illiquid and high-risk bonds in its model portfolios and was urged by the FCA to amend its allocation in January 2018.
A year later, the firm not only failed to reduce the level of risk, but it increased the portfolios exposure to these bonds.
While the firm sought to reassure the FCA that it conducted due diligence into the products in its portfolios, the regulator’s supervisory team found evidence to the contrary.
“SVS committed to invest in these products without carrying out any evident relevant and timely due diligence assessment,” the FCA said.
Around 90% of SVS’ DFM clients are invested in those portfolios having received pension switch or transfer advice.
Fingers in too many pies
According to the FCA, this lack of due diligence also stems from several conflicts of interest where senior managers of the firm were involved, either directly or indirectly, with the bond issuers SVS was working with.
“SVS worked closely with third parties […] to help generate and sustain demand for the investment products offered through SVS, including its DFM portfolios,” the regulator added.
The company also received commission from the bond issuers.
The regulator found no evidence that these conflicts of interests were either flagged or addressed by SVS itself, as the challenges always came from independent third parties such as Sipp trustees and providers.
Misleading the FCA
The financial watchdog has also found that the company’s chief executive, Demetrious Christos Hadjigeorgiou, lied to the regulator.
He said that exposure to illiquid fixed-income bonds was limited to SVS’ model portfolios.
But that was not the case, as the FCA found out that the firm’s advisory, Isa and online trading pool were also exposed to such assets.
“The [FCA] is concerned that SVS has not been open and cooperative in its engagement with [the FCA Supervision Department], and failed to disclose full information regarding its customers’ exposure to illiquid fixed-income bonds.”
As a result, SVS was not found to be fit and proper to carry out regulated activities, and was banned from performing them.
The firm, however, can appeal the regulator’s decision to the tribunal within 28 days from when the first supervisory notice (which stripped SVS from the ability to carry out regulated activities) was issued.