Release Date: 9th October 2014

To access the original FCA document, click here.

Summary

The Financial Conduct Authority (FCA) has issued fines and industry bans to two former directors of Pritchard Stockbrokers Limited, David Gillespie and David Welsby, for severe misconduct involving the mishandling of client funds. The fines are £10,500 and £14,000 respectively, significantly reduced due to demonstrated financial hardship. Without these reductions, the fines would have been £144,000 for Gillespie and £72,000 for Welsby.

The censure stems from their reckless management practices, particularly their reliance on an undocumented and unofficial offshore facility to manage a deficit in the firm’s client money accounts. This mismanagement led to a substantial shortfall, amounting to around £3 million of client funds. Gillespie, as Managing Director, assumed full responsibility for these failings. He was the primary liaison with the overseas entity providing the offshore facility and misrepresented its legitimacy and utility to Welsby, the Finance Director. Welsby failed to verify these claims, relying solely on Gillespie’s assurances.

The FCA’s findings highlighted several violations, including the use of client money to cover business expenses and routine failures to maintain adequate funds in client accounts. Furthermore, the FCA criticised the firm for not informing them when shortfalls occurred, a breach of transparency and regulatory requirements.

Pritchard itself was censured and would have faced a £4,932,600 fine had it not entered Special Administration on 9 March 2012. This administration process underscored the gravity of the firm’s financial mismanagement and its implications for client asset security.

This case underscores the critical importance of adhering to the FCA’s client money rules (CASS), which mandate the segregation of client funds from company funds to protect them in cases of insolvency. The FCA uses such enforcement actions to reinforce the need for stringent internal controls and for firms to ensure they comply fully with regulatory standards to protect consumers and maintain confidence in the financial system.

For other firms in the industry, the key takeaways include

• The necessity of rigorous compliance with client money protection rules.
• The importance of accurate and honest communication with regulators.
• The need for directors to personally ensure all external financial arrangements are legitimate and transparent. This will safeguard against similar failings and subsequent punitive measures.