FSA bans David Aaron in clampdown over bond mis-selling

Click to follow
The Independent Online

The Financial Services Services Authority (FSA) said yesterday that it had banned David M Aaron (Personal Financial Planners) Ltd for the widespread mis-selling of so-called precipice bonds to nearly 8,000 customers. This is the first time the FSA has banned a firm for mis-selling, and probably ends the financial services careers of many Aaron executives, including David Aaron himself.

The Financial Services Services Authority (FSA) said yesterday that it had banned David M Aaron (Personal Financial Planners) Ltd for the widespread mis-selling of so-called precipice bonds to nearly 8,000 customers. This is the first time the FSA has banned a firm for mis-selling, and probably ends the financial services careers of many Aaron executives, including David Aaron himself.

Although the firm has not traded since the end of last year, and is in liquidation, this automatically means that all ex-employees would have to re-apply to the FSA to have their licences renewed. This is regarded as unlikely, and the FSA is still considering whether to punish individuals further, either through fines or suspensions.

The ban relates to the sale of precipice bonds between January 1998 and June 2003, in which Aaron was the adviser linked with these products. They were bonds which used derivative contracts to improve potential returns, but also heighten the risk of total loss of an investor's money: hence the notion of falling off a precipice.

An FSA investigation found that the Aaron firm: failed to issue advertisements and financial promotions that were clear, fair and not misleading - this material included product endorsements presented as "independent" but which were, in fact, paid for; failed to carry out satisfactory risk assessments or make suitable recommendations - the risk of the bonds was actively downplayed; failed to maintain adequate records, particularly of risk assessment meetings and sales records; andfailed to ensure its staff observed FSA compliance regulations.

The FSA decided these failings warranted the cancellation of the firm's Part IV permission, which removes David M Aaron Ltd's right to conduct business.

Andrew Procter, the FSA's director of enforcement, said: "This is one of the most serious cases of mis-selling the FSA has investigated, and the first time the FSA has banned a firm for mis-selling. The problems within David M Aaron Ltd were systemic.

"We have been very active in stamping out mis-selling of precipice bonds. We have ensured that David M Aaron Ltd can never again function as a business, and we are considering the roles of the individuals involved with the firm. The message is clear: firms that do not treat customers fairly are not wanted in this industry."

The firm was founded by Mr Aaron in 1971 and latterly had a mailing list of 160,000 potential customers. Between January 1998 and June 2003, it sold more than 53,500 regulated products, of which 14,995 were structured. The FSA believes the firm sold at least 7,900 precipice bonds.

Comments