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.
"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% discount on its fine for agreeing to settle at Stage 2 of the FCA’s executive settlement procedure; otherwise Xcap would have been fined £151,136.
Notes for editors
- The final notice for Xcap Securities PLC[1].
- The FCA’s current penalty regime applies to breaches committed from 6 March 2010 and can be found in the FCA’s Decisions, Policies and Procedures manual at DEPP6.5. This is the first case involving CASS breaches which has applied that regime and used a percentage of average client money and client safe custody asset balances as part of its five step framework.
- The final notice sets out the percentages which will generally be used going forward for breaches of the CASS rules and it is expected that this will increase the level of financial penalty compared to those for similar breaches calculated under the previous penalty regime. The percentage levels of average client money and client safe custody asset balances that the FCA intends to apply to CASS cases are as follows.
-
Level of Seriousness
Percentage – Client Money
Percentage – Safe custody assets
Level 1
0
0
Level 2
1
0.2
Level 3
2
0.4
Level 4
3
0.6
Level 5
4
0.8
- Xcap is a retail investment and capital markets business that provides services including stock broking and asset management. The firm was authorised by the FCA (formerly the FSA) on 17 May 2010 and began trading on 29 June 2010. Xcap receives money and acts as custodian for assets on behalf of clients, which are subject to the FCA’s client asset requirements. Between June 2010 and August 2011, Xcap held average balances of £3.45m of client money and £34.19m of client assets.
- On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- Find out more information about the FCA, as well as how it is different to the PRA.