Public statement concerning the imposition of a discretionary civil penalty under Section 16 of the Financial Services Act 2008
Apex Fund Services (IOM) Limited (“Apex IOM”)
1. Action
1.1 The Financial Services Authority (“the Authority”) makes this public statement in accordance with powers conferred upon it under section 13 of the Financial Services Act 2008 (“the Act”).
1.2 This action supports the Authority’s statutory objectives of reducing financial crime and maintaining confidence in the Island’s financial services industry.
1.3 An investigation into Apex IOM by the Authority identified serious regulatory failings, the Authority has deemed it necessary, and proportionate in all the circumstances, that Apex IOM be issued with a discretionary civil penalty under section 16 of the Act in the sum of £130,974.
2. Background
2.1 Apex IOM is licensed by the Authority in accordance with section 7 of the Act. Apex IOM is licensed to provide services to collective investment schemes, and subsidiaries and associated entities of collective investment schemes. Apex IOM is a fund manager/administrator.
2.2 In 2015 Apex IOM was subject to a routine supervisory inspection by the Authority in accordance with its lawful powers under Schedule 2 of the Act. This inspection identified several material failings and Apex IOM was required to undertake a range of remedial actions.
2.3 A further inspection of Apex IOM was conducted in July 2016. This identified –
2.3.1 that the remedial actions undertaken by Apex IOM following the 2015 visit were unsatisfactory;
2.3.2 a further significant number of material regulatory breaches; and
2.3.3 a range of prima facie contraventions of the Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 (“the Code”).
2.4 Upon identification of the issues in July 2016 the Authority identified a need to formally investigate whether Apex IOM continued to satisfy the Authority that it is ‘fit and proper’ to hold a licence under section 7 of the Act. To hold a licence, a licenceholder is required to satisfy the Authority that both it, and its key staff, are fit and proper. This ‘test’ is an initial test at licensing and an ongoing one.
Investigation: stage one
2.5 Contraventions of the Code are criminal offences.
2.6 Paragraph 2(1)(ba) of Schedule 1 of the Act sets out that it is a function of the Authority to conduct investigations into any potential liability arising from breach of AML/CFT legislation by persons undertaking regulated activities.
2.7 On 28 March 2017 the Authority published the following information on its website –
Following an investigation by the Authority, it passed a file to the Attorney General’s Chambers regarding prima facie contraventions of the Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 (“the Code”) by a licenceholder. On 28th March 2017 that licenceholder was convicted of several counts involving contraventions of the Code. The licenceholder was fined as a result of the conviction. The Authority continues to review aspects of that licenceholder’s business and the licenceholder continues to co-operate with the Authority in that regard.
Compliance with the Code is a key element in preventing the abuse of the Isle of Man and its financial services industry being utilised by those who would wish to launder the proceeds of crime or finance terrorism.
Given the Authority’s ongoing review, no further comment will be made at this time.
2.8 The licenceholder referred to in this publication was Apex IOM.
2.9 Apex IOM pleaded guilty to the contraventions of the Code and also confirmed that, despite contravening the Code, no actual money laundering had occurred as a result of the contraventions.
Investigation: stage two
2.10 Having sought consent from a Justice of the Peace to utilise its compulsion powers under paragraph 3 of Schedule 2 of the Act, the Authority undertook a range of interviews with Apex IOM personnel.
2.11 This investigation identified a range of issues that, prima facie, brought into question Apex IOM’s fitness and propriety. Amongst those matters of concern identified and/or confirmed were -
2.11.1 that Apex IOM were not acting upon issues identified by Apex IOM’s compliance officer;
2.11.2 that Apex IOM’s focus was on financial performance and where certain commercial decisions were impacting Apex IOM’s regulatory compliance;
2.11.3that there was a presence of certain practices which resulted in non-adherence to Apex IOM’s own document procedures and controls and measures;
2.11.4 despite non-compliance with documented procedures and controls being stated to be a disciplinary matter, non-compliance never resulted in any form of disciplinary action;
2.11.5 key staff were not undertaking the required CPD (continuing professional development);
2.11.6 there was ‘open discord’ amongst the senior operational team with regard to ‘risk management’ and new business where such discord contributed an environment of non-compliance;
2.11.7 that Apex IOM were only acting on ‘issues’ when those matters were identified by the Authority, typically through its program of inspections.
2.12 The matters referred to above were in addition to –
2.12.1 other material breaches identified in the 2015 inspection;
2.12.2 other material breaches identified in the 2016 inspection;
2.12.3 the conviction of Apex IOM for contraventions of the Code.
Measures taken by Apex IOM
2.13 Since the July 2016 visit the Authority were made aware by Apex IOM of a range of measures they were taking to address the matters identified by the Authority. These measures, undertaken in conjunction with the wider Apex group of companies, are wide-ranging and integral to the future operation of Apex IOM.
2.14 Apex IOM as well as the Apex Group has assured the Authority that the measures undertaken since July 2016 has prevented any re-occurrence of the issues identified.
2.15 Apex Group state, “The Apex group is wholly committed to delivering robust Corporate Governance and Risk Management functions across its network of offices globally. The business has taken every possible measure to cooperate with the Regulator on this matter, including taking significant steps to ensure a strong corporate governance methodology and risk management framework is followed within Apex IOM… A new internal management structure has been put in place, including a new Managing Director, in conjunction with the new management team there will be the appointment of two new non-executive directors (“NEDs”) to increase oversight. One of the NED’s (relevant paperwork has been submitted to the Authority) is resident in the Isle of Man and has significant experience over 3 decades in Financial Services and specifically within the Fund Services industry”.
3. Statement
3.1 Despite the serious regulatory issues identified by the Authority, Apex IOM, as a result of the extensive remedial work undertaken since the July 2016 inspection has satisfied the Authority that its licence should not be revoked.
3.2 In light of its extensive remedial work and its cooperation with the Authority’s investigation, Apex IOM qualifies for a reduction of 30% of the penalty imposed in accordance with the Financial Services (Civil Penalties) Regulations 2015. The net penalty payable by Apex IOM being £91,682.
3.3 Conducting business in the regulated sector imposes an obligation to adhere to prevailing regulations. A business that expects to comply requires a culture of compliance to be embedded in that organisation from the top down.
David Griffin
Head of Enforcement Division