The FCA has provisionally decided to ban and fine three individuals who were involved in running SVS Securities Plc, a discretionary fund manager which went into administration five years ago.

The three are Kulvir Virk, the former chief executive and majority shareholder of SVS, David Stephen, head of compliance, and Demetrios Hadjigeorgiou, SVS’s former finance director then CEO.

The latter two have challenged the FCA’s decision and referred their Decision Notices to the Upper Tribunal for review, where they will present their cases.

The FCA said it considered that the three individuals acted without integrity and/or without due skill, care and diligence.

SVS managed investments held on behalf of its customers and slumped into administration in 2019.

Under FCA rules, the firm was required to act in the best interests of its customers and not let conflicts of interests interfere with its obligations to them.

The FCA said Kulvir Virk recklessly caused SVS to use a complex business model intended to maximise the flow of customer funds into high-risk illiquid bonds.

The bonds were operated by directors of SVS and a close business associate of Mr Virk. The model involved inducements to SVS and unauthorised introducers with undisclosed commissions of up to 12% of the customers’ investments. The model created systematic conflicts of interests and inappropriately prioritised income to SVS over the best interests of customers, the FCA said.

Some 879 customers paid in a total of £69.1m, the FCA said. Bonds into which they were invested by SVS have since defaulted, with customers unlikely to receive more than a fraction of their investment back.

In the FCA’s view, David Stephen failed to fulfil his responsibilities to ensure SVS was following the rules. The FCA said Demetrios Hadjigeorgiou also failed to fulfil his responsibilities to manage conflicts of interest and ensure proper due diligence was carried out.

The FCA found that the three individuals acted recklessly in deciding to mark-down customers’ valuations when they disinvested from fixed income assets, with the result that SVS kept 10% of customer funds. This allowed them to generate £359,800 in income for SVS at the expense of its customers.

The FCA has decided to fine Mr Virk £215,500; Mr Hadjigeorgiou £84,600; and Mr Stephen £52,100. The FCA has banned Mr Virk from working in financial services, and decided to ban Mr Hadjigeorgiou and Mr Stephen from holding senior management roles.

Therese Chambers, joint executive director of enforcement and market oversight, said: "These three individuals and SVS were a central part of a tangled web which concealed the fact that customers’ pension money was being invested into high-risk bonds. Customers were entitled to trust that SVS would act in their best interests, but it repeatedly prioritised income for itself and its associates.

"The actions of those in charge threatened the ability of their customers to enjoy a secure and comfortable retirement. This kind of behaviour has life-changing consequences for consumers."

Demetrios Hadjigeorgiou and David Stephen have referred their Decision Notices to the Upper Tribunal by way of appeal. Findings in the individuals’ Decision Notices and the descriptions of the findings are therefore provisional and reflect the FCA’s belief as to what occurred and how it considers their behaviour is to be characterised.

Kulvir Virk has not referred the FCA’s decision to the Upper Tribunal and his Final Notice has not been the subject of any judicial finding. Demetrios Hadjigeorgiou and David Stephen have disputed many of the facts and any characterisation of their actions in Kulvir Virk’s Final Notice and have referred their Decision Notices to the Upper Tribunal for determination. The Tribunal's decision in respect of the individuals' references will be made public on its website.

On 2 August 2019, the FCA took action to require SVS to cease all regulated activities, safeguard assets and notify affected third parties. SVS entered into special administration on 5 August 2019. 

SVS customers can find more information about making a claim to the Financial Services Compensation Scheme on its website.