French asset manager H2O AM LLP has agreed a 'fine alternative' deal with the FCA which will mean it paying back €250m (£214.8m) to investors who have been unable to access their funds since 2020.

The payouts will be paid to investors following an investigation by the FCA and are in place of a fine for breaching FCA rules, the FCA said today.

Without the deal the firm would likely have been fined.

The asset manager, which has offices in the City of London, has also agreed to cease regulated business in the UK.

An FCA investigation found that between April 2015 and November 2019, H2O failed to carry out proper due diligence on investments relating to the Tennor Group of companies owned by Lars Windhorst or other companies he introduced.

The investments were high risk and hard to sell. 

The FCA also found that H2O did not have adequate policies or procedures or exercise due skill and care in managing potential conflicts of interest.

The FCA identified over 50 instances where hospitality had been received by H2O employees but was not properly declared, including the use of a super-yacht and private jet.

According to the regulator, H2O also provided false and misleading statements and documentation, such as fabricated records and minutes of meetings.

Steve Smart, joint executive director of enforcement and market oversight at the FCA, said: “H2O’s job was to manage its funds properly and protect investors. It failed to do this and, to make matters worse, it repeatedly provided misleading information to the FCA.  

"Through this settlement the FCA has secured money for affected investors and agreement that H2O will stop operating regulated business in the UK.”

H2O has also agreed to waive its rights to fees and investments totalling €320m (£274.9m), and said it will apply to cancel its UK authorisation by the end of the year.

The French financial services regulator, the Autorité des Marchés Financiers (AMF), is the designated regulator in respect of the collective investments, which H2O managed on a cross-border basis in line with the UCITS Directive, and the FCA is the designated regulator of H2O.  

The AMF has also issued a penalty to H2O which is currently subject to appeal.