A boutique investment firm has gone to the Upper Tribunal to fight a second supervisory notice issued by the Financial Conduct Authority (FCA), Wealth Manager understands.
Stargate Capital Management (SCM) and sister company Stargate Corporate Finance (SCF) were
SCM, headed by Paresh Shah, was set up back in 2001.
The firm managed four Enterprise Investment Schemes (EIS), two funds and a range of model portfolios. It also had eight appointed representatives.
The FCA has issued the second supervisory notice against the firms, which run a myriad of investment strategies through number trading names, as it found they failed to comply with a number of requirements that were in the first notice.
It found that the firms are continuing to fail to satisfy threshold conditions on suitability, effective supervision and appropriate resources.
In the second notice, the FCA said the firms failed to maintain or provide adequate records regarding the extent of their due diligence and oversight of their Appointed Representatives (AR), and in one case the extent of its due diligence was a passport photo of the director, Companies House documentation and a council tax bill.
The regulator said the absence of recordkeeping also hampered it from assessing whether customers were being invested in products which are suitable for them and that information is communicated in a way that is appropriate to its customers.
The firms also failed to satisfy the FCA’s appropriate resources condition because it said they appeared to lack the necessary non-financial resources, specifically as Shah, is the sole active director performing the chief executive, compliance oversight, money laundering reporting and systems and controls roles at the firms.
The FCA said Shah ‘does not demonstrate the skills, experience and competence required to properly manage the firms’ affairs.’
The regulator added that the firms failed to demonstrate a sufficient understanding of their products to ensure their suitability for their customers.
In its written representations following the first notice, the firms stated ‘there is no evidence of consumer detriment or upheld complaints’.
They conceded that ‘evidence of oversight and controls leave much room for improvement’,
But they added they were ‘bemused as to why the FCA has not offered the firms the opportunity to submit proposals to restructure the businesses by either an equity sale to interested parties that would be able to bring the required resources into the business or the sale of the business to a new controller who would bring the required level of resources and qualified personnel to perform the range of control functions consistent with the FCA’s principles of regulation.”
In the same document, the companies stated that they ‘do not accept the FCA’s assertion that the firms have breached the threshold conditions.”
The regulator said the statement ‘demonstrates the firms’ fundamental lack of understanding of its obligations under the threshold conditions regime.’
In a statement yesterday, Shah added: '‘The FCA has speculated that SCM may have aided and abetted an unregulated counterparty and that the counterparty may have breached the general prohibition, but that has no substance. SCM has appealed to the Upper Tribunal where it will challenge the FCA speculation.’