Financial Crime Summary: September 2021 (Q3 Edition)
Laven regularly reports on the most interesting and relevant financial crime news to give an idea of the ongoing regulatory approach taken against money laundering and terrorist financing.
Posted on 1 Sep 2021
Consumer warning on Northern Provident Investments
On 20 August 2021, Northern Provident Investments Ltd (“NPI”) entered creditors’ voluntary liquidation. Jason Baker and Geoff Rowley of FRP Advisory Trading Limited (“FRP”) were appointed as joint liquidators. NPI had operated a platform where retail customers could buy debentures (a debt instrument that is not backed by any collateral and usually has a term greater than 10 years) and shares to hold in different savings accounts.
In the past, NPI had approved financial promotions for issuers of mini-bonds (find out more about mini-bonds in our article). However, in February 2020, following NPI’s application to the FCA, the FCA imposed requirements on the firm to cease approving any further financial promotions. As part of these requirements, NPI also placed a statement on its website that it would no longer be offering this service.
Further to NPI’s liquidation, the FCA has sought to warn consumers to be alert to the possibility of fraud. They have advised that, given the large number of mini-bonds that NPI distributed via their platform, they believe there is a high risk that scammers will try and take advantage of NPI’s liquidation to try and defraud customers. A potential way this could be achieved is through fraudsters posing as authorised firms and asking customers for money in return for the money they have invested through them. These ‘clone firms’ pose a significant risk as once money is given to them, consumers lose their access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS).
FCA publishes final rules to strengthen investor protections in SPACs
The FCA has published final rules and changes to its Listing Rules for certain Special Purpose Acquisition Companies (SPACs) which will come into force on 10 August 2021. A SPAC is a company with no commercial operations that are formed strictly to raise capital through an IPO to acquire an existing company. For instance, venture capitalist Chamat Palihapitya’s SPAC Social Care Hedosophia Holdings bought a 49% stake in Virgin Galatic for $800m before the company was listed in 2019.
On 30 April 2021, the FCA consulted on proposals to remove the presumption of suspension for SPACs that meet certain criteria. The proposed changes were intended to strengthen the protections for investors and to provide an alternative approach for SPACs that must otherwise provide detailed information about a proposed target to the market to avoid being suspended.
The final rules aim to provide more flexibility to larger SPACs, provided they embed certain features that promote investor protection and the smooth operation of FCA-regulated markets. Some of these additional safeguards, which the FCA will require SPACs to provide to benefit from the alternative approach, include requiring shareholder approval for any proposed acquisition and ensuring money raised from public shareholders is ring-fenced. SPAC issuers unable to meet the conditions, or those choosing not to, will continue to be subject to a presumption of suspension. Private companies listing in the UK via a SPAC will also still be subject to the full rigour of the FCA’s listing rules and transparency and disclosure obligations.
Despite the introduction of these rules, the FCA continues to advise investors on the risks associated with SPACs and emphasise the need to carefully consider all available information before deciding whether to invest in a SPAC, regardless of whether a SPAC has structured itself to comply with the new rules and guidance.
FCA stops BDSwiss from offering contracts for differences (CFDs) to UK customers
The FCA has acted to stop BDSwiss Holding Plc and other members of the BDSwiss Group from offering high-risk contracts for differences (CFDs) to UK investors.
The BDSwiss Group previously used the fact that one of its firms was regulated in the UK to convey legitimacy on the group, despite 99% of UK consumers trading through the group’s overseas entities. These overseas firms had no authorisation to provide regulated services in the UK and failed to comply with various FCA regulations.
The FCA identified serious concerns with the sales and marketing practices of the BDSwiss Group, including the use of misleading financial promotions and the Group and its affiliates frequent contact with its consumers via social media platforms. The latter of which showed the affiliates leading an opulent lifestyle which they falsely claimed was being funded through imitable trading. As a result of the activities of the BDSwiss Group and their affiliates, numerous UK consumers have lost significant sums of money. Sarah Pritchard, Executive Director of Markets at the FCA, warned consumers that they ‘should be very wary of those on social media making promises which look too good to be true.
The FCA has required BDSwiss Holding Plc to stop conducting any regulated or marketing activities in the UK and has directed it to take all reasonable steps to stop other members of the BDSwiss Group from doing the same. It has also ordered the firm to close all trading positions and return the money to customers.
How can we help?
At Laven, our consultants are on hand to help identify the actions your firm needs to take to ensure you comply with new regulations and are aware of all the risks outlined in this report. Whether this is through assisting with new policies and procedures that need to be put in place or providing online/in-person training for staff to make them fully aware of the regulatory burden.
Laven has also built Laven Tech, a unique Regulatory Technology (RegTech) solution that leverages advanced technology combined with our vast subject matter expertise. Our RegTech solution is designed to assist fund managers, service providers and investors to meet today’s growing demands.
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