AIFA issues case checking warning after Park Row censure

Financial advice firms are being urged to revisit their business checking procedures in the wake of the public censure and £7.8m customer redress ruling at IFA Park Row.

The Association of IFAs (AIFA) says the FSA has "raised the regulatory hatchet a notch or two" in the last 18 months as it seeks to demonstrate its "more intrusive" style of rule.

Director general Chris Cummings says firms would be wise to assess their systems and controls procedures, particularly on case checking and record keeping, to ensure what the FSA considered TCF two years ago would still be considered so today.

It follows the censure last week of the former Royal Liver-owned distribution business Park Row, which was ordered to redress up to £7.8m to customers. Its former CEO, Peter Sprung, was also fined £49,000.

According to the regulator, Park Row, currently in the process of being wound down, recklessly failed to ensure proper advice was given on pensions, mortgages and investments.

It later emerged the company reduced the number of cases it checked for compliance in 2008, despite multiple warnings from the FSA.

In July of that year, the network scaled back its desk based monitoring (DBM) compliance checks from 35% of cases submitted to 25%, despite numerous letters of concern from the FSA dating as far back as 2006.

"We live in a different regulatory regime now," Cummings says. "The FSA's whole culture and approach towards systems and controls has changed dramatically.

"Things it may have considered acceptable 18 months ago may now lead to enforcement action.

"The FSA has raised the regulatory hatchet a few notches [and] it would be timely for all firms to cast a wary eye over their systems and controls, particularly case checks and record keeping."

The day after the Park Row censure, on 25 February, the FSA fined RSM Tenon Financial Services £700,000 for mis-selling complex financial instruments created by Lehman Brothers.

It represented the first enforcement action imposed by the FSA following its review last year of Lehmans structured products.

The FSA said that Tenon, which provides financial advice to high-net worth individuals, failed to properly "assess" the risks of the investment vehicles.