The Financial Conduct Authority (FCA) of UK has censured Catalyst Investment Group for recklessly misleading investors when promoting bonds offered by ARM Asset Backed Securities between November 2009 and May 2010.
Catalyst has been censured as they are unable to pay a fine and are in default – the FCA would otherwise have imposed a £450,000 penalty.
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Catalyst offered bonds issued by Luxembourg-based ARM to investment intermediaries and independent financial advisers (IFAs) in the UK, who in turn promoted and sold them to retail investors. ARM applied for a licence to issue the bonds from the Luxembourg financial regulator, the CSSF.
Catalyst knew that ARM had applied for a licence in July 2009, and had been asked to stop issuing bonds by the CSSF in November 2009 pending a decision. However, Catalyst continued to accept funds from investors without disclosing ARM’s position, or the risk that ARM could be liquidated if its licence application failed.
This should have been included in Catalyst’s marketing material for ARM bonds.
Catalyst also wrote to IFAs and investors on separate occasions suggesting that ARM’s licence application was voluntary, but did not spell out the implications if the licence wasn’t granted.
To ensure consumers are properly protected, the FCA expects firms and individuals to act with integrity, and communicate clearly and fairly with their customers. Catalyst didn’t follow these principles, exposing investors to significant risks without their knowledge.
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By GlobalDataTracey McDermott, director of enforcement and financial crime at FCA, said: "Catalyst showed a reckless disregard for investors’ interests, exposing them to significant risks. We expect firms, and their senior managers, to put customers’ needs first – and will take tough action against those who fall short of our standards."
Alison Moran, Catalyst’s former compliance officer, has been fined £20,000 for failing to act with due skill, care and diligence. Although she was aware of the issues with ARM’s licence in December 2009, she failed to ensure this was properly communicated to investors.
UK investors have invested £54 million in ARM bonds, including £17.1 million in un-issued ARM bonds, and may lose a significant part of their investment. Those affected should refer to the Financial Services Compensation Scheme for details of how and when to make a claim for compensation.
