A firm of financial advisers has been fined nearly £90,000 after having an ineffective compliance regime and misusing its own group pension scheme.

Financial watchdog body the Isle of Man Financial Services Authority imposed a civil penalty of £89,994 on Island Financial Solutions Ltd (IFSL).

But the fine was discounted by 30% to £62,996, reflecting the fact that the company co-operated with the authority and agreed settlement at an early stage.

The FSA identified a number of regulatory failings in relation to the company’s financial advice to its customers, following an inspection in 2018.

Island Financial Solutions Ltd (IFSL) is based at Hillary House, Prospect Hill, Douglas.

The FSA said that it undertook interviews with relevant IFSL personnel (former and present) as well as customers and other parties with whom it undertakes business. The investigation identified a ’range of issues that brought into question IFSL’s fitness and propriety’.

The FSA found that the firm, as a standard practice for UK Defined Benefit Scheme transfers, disaggregated the advisory process by treating the pension transfer process as ’execution only’.

Although the clients were provided with UK FCA (Financial Conduct Authority) authorised advice regarding the transfer, this was ’a false partition of the true nature of the transaction.

’These practices were contrary to regulatory requirements and failed to ensure the suitability of the overall advice provided to its clients.’

The FSA investigation established that the firm ’misused its own group pension scheme’ (regular contributions only), with such activity being contrary to the terms agreed with the product provider, and without ensuring that its clients were fully informed of the product into which they were exposed.

In addition the firm had an ’ineffective compliance regime that failed to prevent the backdating and pre-signing of documents’.

An ex-IFSL financial adviser applied a client’s signature, on the client’s behalf, to a client file with no recorded rationale, authority or instruction.

IFSL failed to ensure that its employees on every occasion adequately disclosed its commission or fee arrangements to clients, contrary to the regulatory regime with which they were required to comply.

The statement from the FSA pointed out that despite the company’s shortcomings, customers interviewed by the authority ’appeared to be content with the suitability of the pension and investment products recommended to them’.

The authority concluded that, in all the circumstances, apart from the civil penalty, no further regulatory sanction was necessary in respect and therefore it remains permitted and licensed to carry on undertaking the regulated activity for which it is currently licensed.

The FSA says the issues are serious, but accepts the directors of IFSL have recognised and accepted their failings.

The firm has already implemented new procedures to address the problems, and has been actively working with the FSA to ensure compliance with its regulatory obligations.

The FSA says that among the key learning points for the finance industry is that ’the overriding culture pervading all financial advisor businesses needs to be that of ensuring that customers are treated fairly’.

Island Financial Solutions Limited was approached by Isle of Man Newspapers and a spokesman said they were not saying anything other than the information supplied in the FSA’s statement.

In August we reported that the FSA had fined Isle of Man Assurance Limited (IOMA) £87,108 for failings.