British regulator fines retail firm under new client asset penalties

British financial regulators brought their first case using a new penalty regime that sanctions firms a percentage of client balances based on the severity of their violations of the rules governing the safety of client assets.

The Financial Conduct Authority (FCA) announced Tues that it has fined retail investment firm, Xcap Securities plc, £120,900 ($191,600) for failing to adequately protect client money and assets.

This is the first case the FCA has brought under a new penalty regime, which introduces penalty levels in these sorts of cases based on the seriousness of the breaches (including the duration of the violations, among other factors).

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, it says. The firm also received a 20% discount on its fine for agreeing to settle the case.

The FCA says that the firm’s breaches included failing to properly segregate client money, 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, it says.

“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,” said Tracey McDermott, director of enforcement and financial crime at the FCA.