H2O Asset Management to pay €250 Million to investors following FCA investigation
A recent settlement agreement entered into by the Financial Conduct Authority (FCA) has led to H2O Asset Management (H2O) agreeing to pay €250 million to investors who have been unable to access their funds since 2020. This settlement follows an extensive investigation by the FCA into the H2O’s practices.
Background
H2O, once a prominent asset manager, faced regulatory scrutiny starting in 2019 after the Financial Times reported on concerns relating to illiquid bonds issued by companies associated with German entrepreneur Lars Windhorst. As a result of inadequate due diligence on these investments which were linked to the Tennor Group, they were high-risk and difficult to sell, resulting in significant liquidity issues for H2O.
By 2020, H2O had to freeze €1.6 billion of investor funds, causing widespread concern among its clients who were unable to access their funds and investments.
FCA Findings
The FCA’s investigation uncovered several significant violations by H2O during the period from April 2015 to November 2019. H2O neglected to perform adequate due diligence on investments linked to the Tennor Group and other companies which Lars Windhorst was associated with and failed to implement sufficient policies to manage conflicts of interest.
Additionally, H2O staff accepted over 50 instances of hospitality which were not properly disclosed.
Furthermore, Steve Smart (Joint Executive Director of Enforcement and Oversight at the FCA) said reported that H2O repeatedly misled the FCA by providing false information, including fabricated records and meeting minutes (an issue that the FCA regards with the utmost seriousness and a clear breach of the FCA’s Principles for Businesses).
The FCA said that these actions not only breached regulatory standards but also eroded investor trust.
Settlement and Future Actions
To avoid a substantial regulatory fine, H2O has agreed to make €250 million available to compensate affected investors. This sum includes a voluntary contribution from the H2O Group. As a result, the FCA decided not to levy a fine against H2O, also taking into account a €75 million fine imposed by France’s market regulator, Autorité des Marchés Financiers. Additionally, H2O will waive its rights to fees and investments totalling €320 million and will apply to cancel its FCA authorisation by the end of the year.
Expert Opinion
Garon Anthony, Financial Services Partner commented:
"The FCA have been transparent in their quest to ensure that investors are treated fairly and with respect to enable confidence regarding where their funds are placed.
“The large settlement sums which H2O have agreed to pay, together with their withdrawal from the UK market are a clear recognition of H2O’s significant failures to act in accordance with regulatory requirements and a warning sent out to others in the regulated community.
“This settlement marks a crucial step in addressing the grievances of investors and restoring confidence in regulatory oversight within the financial sector.
If you have any queries concerning the issues covered in this article, please do contact Garon Anthony.
