Release Date: 30th September 2013

To access the original FCA document, click here.

Summary

The Financial Conduct Authority (FCA) has censured Catalyst Investment Group Limited (Catalyst) for its role in misleading investors regarding bonds issued by ARM Asset Backed Securities SA (ARM). Had Catalyst not been in default and financially unable to pay, the FCA would have imposed a £450,000 fine. Catalyst’s actions involved the promotion and sale of Luxembourg-based ARM’s bonds through investment intermediaries and independent financial advisers (IFAs) in the UK.

The critical issue stemmed from Catalyst’s knowledge in July 2009 that ARM had applied for a necessary licence from the Luxembourg financial regulator (CSSF) and was subsequently asked to halt bond issuance pending a decision. Despite this, Catalyst continued to accept investor funds from November 2009 to May 2010 without adequately disclosing the risks or the potential implications of the licence application not being granted. This misleading information suggested that the licence application was a formality rather than a critical approval, which was misleading.

In addition to Catalyst’s censure, the FCA fined Alison Moran, Catalyst’s former compliance officer, £20,000 for failing to ensure these risks were communicated to investors. Despite being aware of the licensing issues and potential liquidation risks as of December 2009, she did not take adequate steps to reflect this in communications with investors.

The FCA’s action against Catalyst and Moran highlights several critical reminders and lessons for other firms:

• Integrity and Clear Communication: Firms must act with integrity, ensuring that all communications with customers are clear, fair, and not misleading, especially regarding the risks involved.
• Responsibility of Compliance Officers: Compliance professionals are expected to act with due skill, care, and diligence, ensuring all significant risks are properly communicated to protect investor interests.
• Monitoring and Reporting: Effective internal controls and oversight are crucial, particularly in monitoring compliance with regulatory requirements and in the handling of critical communications to investors.

UK investors had placed £54 million in ARM bonds, with £17.1 million invested in bonds that were never issued, potentially resulting in significant losses. Affected investors are advised to look to the Financial Services Compensation Scheme for possible compensation.

This enforcement by the FCA underscores the necessity for firms to adhere strictly to regulatory standards and to maintain high levels of transparency and diligence in their operations to prevent misleading investors and violating financial regulations.