The Financial Conduct Authority (FCA) has decided to ban and fine three individuals involved in running SVS Securities Plc (SVS), a discretionary fund manager. The decision comes in response to severe misconduct that jeopardised the financial well-being of nearly 900 customers.
SVS Securities Plc managed investments on behalf of its customers, adhering to FCA rules that require firms to act in the best interests of their clients. However, the FCA’s investigation uncovered that SVS deviated from these principles, driven by conflicts of interest and reckless management practices.
The former CEO and majority shareholder of SVS, Mr. Virk, orchestrated a complex business model aimed at funnelling customer funds into high-risk illiquid bonds. These bonds were managed by SVS directors and Mr. Virk’s close business associate. The model included undisclosed commissions of up to 12% and inducements to SVS and unauthorised introducers, prioritising income for SVS over customer interests. The consequences were dire: 879 customers collectively invested £69.1 million in bonds that have since defaulted, leaving them with minimal chances of recovering their investments.
As the Head of Compliance, Mr. Stephen failed to ensure SVS adhered to regulatory requirements. The FCA found that he did not fulfil his duties to manage conflicts of interest or ensure proper due diligence was conducted.
Former finance director and later CEO of SVS, Mr. Hadjigeorgiou also neglected his responsibilities. He failed to oversee conflicts of interest and to carry out the necessary due diligence, contributing to the reckless management of customer funds.
The FCA concluded that the three individuals acted recklessly, particularly in their decision to mark down customer valuations when they disinvested from fixed-income assets, allowing SVS to retain 10% of the funds. This resulted in SVS generating £359,800 in income at the expense of its customers.
As a consequence, the FCA has imposed the following penalties:
- Kulvir Virk: A fine of £215,500 and a ban from working in financial services.
- Demetrios Hadjigeorgiou: A fine of £84,600 and a ban from holding senior management roles.
- David Stephen: A fine of £52,100 and a ban from holding senior management roles.
Mr. Hadjigeorgiou and Mr. Stephen have referred their Decision Notices to the Upper Tribunal, where they will present their cases. This means the findings and descriptions in their Decision Notices are provisional until the Tribunal’s determination. In contrast, Mr. Virk has not referred his Final Notice to the Tribunal, meaning the criticisms and penalties against him are confirmed.
The FCA noted that “these three individuals and SVS were a central part of a tangled web which concealed the fact that customers’ pension money was being invested into high-risk bonds. Customers were entitled to trust that SVS would act in their best interests, but it repeatedly prioritised income for itself and its associates.”
This case serves as a stark reminder of the critical need for transparency, diligence, and ethical conduct in financial management. As the legal proceedings continue, the FCA remains vigilant in its mission to ensure that those who breach trust and regulations are held accountable.