The Financial Conduct Authority (FCA) has fined Xcap Securities (Xcap), a retail investment and capital markets business, GBP120,900 for not adequately protecting client money and client assets.
This is the first client asset case the FCA has brought under the new penalty regime, which applies to breaches committed from 6 March 2010, and introduces new penalty levels in such cases.
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In this case, the fine represents 2% of Xcap’s average client money balance plus 0.2% of its average client asset balance over the period of the breaches. The new percentage levels were applied based on the seriousness of the breaches, including consideration of the duration of the breaches and other relevant factors. Under this new approach, it is expected that cases involving breaches of the client asset rules will result in increased penalties compared to similar cases dealt with under the previous penalty regime.
Between the date Xcap began trading on 29 June 2010 and 31 August 2011, Xcap breached FCA Principle 3 on management and control of its business and Principle 10 on arranging adequate protection for clients’ assets, which includes both money and assets held on behalf of clients.
Xcap’s breaches included failing to properly segregate client money from its own, failing to maintain accurate records and accounts of client money and client assets, and not carrying out accurate client money reconciliations. This resulted in the risk that, had Xcap become insolvent, its clients could have faced difficulties and delay in recovering their money and assets.
Tracey McDermott, director of enforcement and financial crime at the FCA, said: "This is the first case that the FCA has brought for breaches of the Client Assets rules using our new penalty regime. The new levels of penalty are expected to result in larger fines, demonstrating the seriousness with which we view these failures and serving as a stronger deterrent to firms.
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By GlobalData"We have been very clear about our expectations of firms that have responsibility for investors’ money and safe custody assets. Xcap failed to meet the required standards from the very outset of its business and continued to have widespread failures for a number of months."
The firm received a 20% concession on its fine for agreeing to settle at Stage 2 of the FCA’s executive settlement procedure, otherwise Xcap would have been fined GBP151,136.
