Partially upheld: breach of appropriateness rules (COBS 10A); failure to conduct appropriateness test; irresponsible investment advice/execution complaint against James Brearley & Sons Limited

Decision detail

Summary

Mrs D invested £20,000 in Astute Capital bonds through Reyker Securities in 2018. Following Reyker's insolvency, her ISA transferred to James Brearley in 2021. In August 2021, James Brearley processed a reinvestment of her maturing bonds into longer-dated Astute bonds without conducting a required appropriateness test, despite Mrs D being a retail investor with limited experience and modest income. Astute subsequently failed to pay interest or maturities, restructured the bonds into shares, and went into liquidation. The ombudsman upheld the complaint regarding James Brearley's regulatory breach but awarded no compensation, finding that confidential evidence from Astute's liquidator demonstrated Astute lacked funds to pay the September 2021 redemptions and would have defaulted regardless of whether James Brearley processed the reinvestment, meaning Mrs D would have suffered the same loss through an earlier restructuring or liquidation.

The Ombudsman's reasoning

The ombudsman found that James Brearley breached FCA rules by failing to conduct an appropriateness test before allowing Mrs D to reinvest in the Astute Capital bonds, and should have concluded the investment was inappropriate for her given her limited experience, modest income and savings, and the speculative nature of the bonds. However, the ombudsman concluded that no compensation was warranted because evidence from Astute Capital's liquidator demonstrated that Astute lacked sufficient funds to pay all redemptions due on 30 September 2021 and was conducting a sales campaign to persuade investors to reinvest in order to buy time. The ombudsman found that Astute would likely have defaulted on the September 2021 redemptions regardless of whether James Brearley processed the reinvestment, and that Mrs D would have suffered the same loss through an earlier restructuring or liquidation. The ombudsman rejected the argument that Mrs D would have retained the £20,000 as cash, finding the redemption and reinvestment were inextricably linked and the redemption proceeds were used to settle the reinvestment rather than being available to Mrs D.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website