The Financial Conduct Authority has decided to ban and fine three individuals for mistreatment of pension funds.
Demetrios Hadjigeorgiou, David Stephen and Kulvir Virk ran SVS Securities Plc, a discretionary fund manager.
According to a notice from the FCA, Virk, former chief executive of the firm “recklessly” caused SVS to use a complex business model intended to maximise the flow of customer funds into high-risk illiquid bonds.
These bonds were operated by directors of SVS and a close business associate of Virk.
The business model involved inducements to SVS and unauthorised introducers with undisclosed commissions of up to 12 per cent of the customers’ investments.
It created systematic conflicts of interests and inappropriately prioritised income to SVS over the best interests of customers, according to the regulator.
Some 879 customers paid in a total of £69.1mn but the bonds they were invested in by SVS have since defaulted, meaning customers are unlikely to receive more than a fraction of their investment back, the FCA has said.
The regulator has decided to fine Virk £215,500; Hadjigeorgiou, £84,600; and Stephen, £52,100.
It has also banned Virk from working in financial services, and has decided to ban Hadjigeorgiou and Stephen from holding senior management roles.
In the FCA’s view, Stephen, who was head of compliance, failed to fulfil his responsibilities to ensure SVS was following the rules.
The FCA view is that Hadjigeorgiou, SVS’s former finance director then chief executive, also failed to fulfil his responsibilities to manage conflicts of interest and ensure proper due diligence was carried out.
The FCA has decided that the three individuals acted recklessly in deciding to mark down customers’ valuations when they disinvested from fixed-income assets, with the result that SVS kept 10 per cent of customer funds.
This then allowed them to generate £359,800 in income for SVS at the expense of its customers.
Therese Chambers, joint executive director of enforcement and market oversight, said: “These three individuals and SVS were a central part of a tangled web which concealed the fact that customers’ pension money was being invested into high-risk bonds.
"Customers were entitled to trust that SVS would act in their best interests, but it repeatedly prioritised income for itself and its associates.
“The actions of those in charge threatened the ability of their customers to enjoy a secure and comfortable retirement. This kind of behaviour has life-changing consequences for consumers.”
Hadjigeorgiou and Stephen have referred their decision notices to the upper tribunal and will present their respective cases while Virk has not referred his notice to the upper tribunal.
According to the FCA: "To the extent that Kulvir Virk’s final notice contains criticisms of Demetrios Hadjigeorgiou and David Stephen, they have received decision notices, which set these out.
"They dispute many of the facts and any characterisation of their actions in Kulvir Virk’s final notice and have referred their decision notices to the Upper Tribunal for determination. The Tribunal's decision in respect of the individuals' references will be made public on its website."
