FSA fines Charterhouse £122,500 for portfolio mismanagement

LOSSES & LAWSUITS

Charterhouse regularly switched a number of clients between funds, although the firm did not have permission to operate in this way. The FSA investigation found that Charterhouse would often send clients an email before 6.30am proposing the switching of funds and requiring a response by 8.00am. Switches would then take place without any further instruction from the client.

Charterhouse also failed to record sufficient client information to demonstrate the suitability of its advice, failed to ensure transactions were appropriate for its customers' attitude to risk; and failed to communicate with its clients in a clear and fair manner that was not misleading.

In handing down the fine, the FSA took into account mitigating steps taken by Charterhouse to improve its business activities, including the cessation of business activities falling outside its permitted remit. As a result of agreeing to settle at the earliest opportunity, Charterhouse received the maximum 30% discount afforded under the FSA's Discount Scheme. The fine would otherwise have been £175,000.

"It is unacceptable for a firm to operate in effect as a discretionary portfolio manager without appropriate FSA authorisation. The switching of clients between funds in a way that was outside their declared attitude to risk could have resulted in their suffering large and unexpected financial losses," said Jonathan Phelan, head of retail enforcement at the FSA.

"The disciplinary action we have taken sends out the clear message that firms wishing to offer wealth management services must ensure they operate in a compliant way, which includes ensuring they have the appropriate regulatory permissions for their business activities," Phelan added.

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