FCA crackdown on unauthorised mortgage brokers
The Financial Conduct Authority (“FCA”) continues to vigorously pursue unauthorised financial services’ businesses, as shown by the High Court’s recent judgement in The Financial Conduct Authority v London Property Investments (UK) Limited.
Background
Section 19 of the Financial Services & Markets Act 2000 (“FSMA”) prohibits any person from carrying out a regulated activity in the UK unless they are either authorised by the FCA or an exempt person. This is known as the “general prohibition“ and a breach is punishable by a fine or imprisonment and any related financial arrangements entered into can be unenforceable.
The FCA can also bring civil proceedings against offenders and enforcing the general prohibition - policing the regulatory perimeter so as to protect customers - is a top priority for the FCA.
It comes as no surprise therefore that the FCA has secured an order for payment of £4 million in a civil claim against an unauthorised mortgage broker and its associates who had exploited vulnerable customers.
The Case
The High Court ordered mortgage arranger, London Property Investments (U.K) Limited (LPI) and buy-to-let sale and rent back scheme operator, NPI Holdings Limited (NPI) to pay £4 million in damages for exploiting vulnerable borrowers who were at risk of having their houses repossessed. Both Daniel Stevens, the director of LPI and NPI, and his father, Tony Stevens, were also found liable.
The Defendants misled two legitimate lenders, Together and Lendinvest, into believing they were lending on buy-to-let properties. Under the name “LPI Emergency Property Finance”, a trading name of LPI, distressed borrowers were offered quick refinancing in order to try and remain resident in and owners of their homes.
These borrowers had no idea what they were signing up to, the fees they were paying, or that the Defendants would be registering restrictions on the property title to which the lending related. Borrowers were encouraged to sign fake tenancy agreements, to provide another address as their residence, and to tell property valuers visiting their homes that they did not live there.
Judgment
In his judgment, Mr Justice Fancourt described the breaches by LPI and NPI as ‘serious contraventions [of the general prohibition], conducted over an extended period, involving high levels of culpability including deception of consumers and lenders which took advantage of the consumers’ vulnerability’.
The Court also decided that the Defendants had breached section 21 of FSMA (issuing unauthorised financial promotions), and that Daniel Stevens and Tony Stevens were knowingly concerned in the regulatory contraventions.
The four Defendants have been ordered to pay for losses caused to numerous affected individuals identified by the FCA and around £4 million to the FCA which it will use as a compensation fund.
LPI has also been ordered to remove restrictions registered against the titles of four properties. These restrictions were used as leverage to ensure borrowers paid over extortionate fees to LPI, and in cases where these fees were not paid, borrowers were unable to sell or re-mortgage their property, leaving some increasing their debt significantly as a result of having to rely on high-cost bridging loans.
Steve Smart, Executive Director of Enforcement and Market Oversight at the FCA, commented: ‘These sham brokers preyed on vulnerable people who were struggling financially and trapped them with exorbitant fees. The defendants used a smokescreen of deception which cost consumers and lenders dearly ....“it is only right that we can now pursue LPI, NPI, Daniel and Tony Stevens to compensate for the losses they caused the victims.”
Comment
Garon Anthony, Financial Services Partner, comments:
“This of course is a particularly egregious case of a company and individuals carrying out unauthorised financial services business so as to exploit vulnerable customers. But it is also a stark reminder that the regulator will not hesitate to deploy all the weapons in its regulatory armoury to purse offenders, to punish them and to obtain compensation for consumers.
“And given the FCA’s resolve to protect consumers from the unauthorised operators we can only expect more cases to follow.
“By way of example, the day after announcing the Court’s judgement in the LPI case, the FCA said that a Peterson Okoh had just appeared in Westminster Magistrates' Court for allegedly advising on and arranging mortgages between 2018 and 2023 without being authorised.
“The FCA also alleges a significant number of mortgage applications advised on and arranged by Mr Okoh contained false information and/or were supported by forged documents. He has been charged by the FCA with 3 counts of fraud by false representation and 1 count of carrying on regulated activities without authorisation.”
If you have any queries in relation to financial services regulatory matters, please do not hesitate to contact Garon Anthony or Jeremy Ladyman.
