Alternate Insurance Services Limited, full public statement (2010-01-04)

Summary

This is a public statement issued by the Jersey Financial Services Commission (JFSC) in January 2010 detailing serious regulatory action taken against Alternate Insurance Services Limited (in liquidation) and two of its former advisers, Robert Le Fustec and Douglas Clark, for reckless and misleading investment advice relating to Traded Endowment Policies (TEPs) and Traded Endowment Investment Portfolio Plans (TIPPs). It is a historical enforcement notice rather than a document creating new ongoing rules, but it sets out lessons and expectations for the industry.

• Background: Alternate's registration was revoked after the Royal Court of Jersey found in favour of the Commission in 27 of 28 cases, awarding investors nearly £1.6 million, which Alternate could not pay, leading to liquidation.
• Misconduct identified: Advisers failed to properly assess client risk tolerance and financial circumstances, misrepresented the risks of highly geared TIPP investments, and provided misleading suitability letters to clients.
• Undertakings given: Le Fustec and Clark undertook not to act as principal persons in Jersey financial service business or in any capacity involving investment advice.
• Regulatory response: The Commission introduced amended Codes of Practice, additional guidance on suitability, expanded supervisory staff, and covert 'mystery shopping' sampling of investment advisers.
• General lessons for industry: Independent financial advisers must act in clients' interests, fully explain product risk, and notify insurers promptly of potential claims; lenders should independently assess borrowers' repayment ability and ensure risks are explained; investors should seek second opinions and scrutinise geared investment proposals.

The statement does not impose new binding requirements but restates existing standards of conduct expected of investment businesses, financial advisers and lenders, and signals continued vigorous supervision, including covert sampling, by the Commission.

Key obligations

• Independent financial advisers must act in the interests of clients and ensure investment risks are thoroughly and clearly explained
• Independent financial advisers must notify insurers promptly of potential claims to avoid voiding insurance cover
• Lenders should thoroughly assess a borrower's ability to repay before entering loan agreements for geared investment products
• Lenders should independently confirm that investment risks have been adequately explained to investors rather than relying solely on the financial adviser
• Robert Le Fustec and Douglas Clark must not act as a principal person in Jersey financial service business or in any capacity involving giving investment advice

Applies to

investment businesses, independent financial advisors, lenders, regulated persons providing investment advice