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Investment Scams Are Being Hidden In DFMS

January 2017

Investment Scams Are Being Hidden In DFMS

The Financial Conduct Authority (FCA) has warned Sipp providers about the possibility of pension scams using a discretionary fund manager (DFM) structure to hide underlying investments.

New Model Adviser® previously reported on concerns that DFMs wre being used to pick investment portfolios with high-risk or esoteric investments last November.

The story followed New Model Adviser® breaking news that DFM Greyfriars Asset Management was asked by the FCA to stop taking new investment money including in its Portfolio Six which comprised mainly of mini-bonds through a Sipp or platform.

In an update published on its website today, the regulator said pension scams have ‘evolved’ in recent years in a bid to obscure where the money is ending up.

The update said that initially scams used unregulated physical assets, such as commercial property.

Then ‘second generation’ scams hide the unregulated assets by ‘creating a special purpose vehicle (SPV) to acquire them using funding raised by the issue of corporate bonds’.

Then the third generation scams now involve discretionary fund managers (DFMs).

‘Third-generation scams now use the services of a discretionary fund manager to create an investment portfolio that does not require the direct input of the investor; this portfolio then invests in SPV bonds,’ the FCA said.

‘The reason for this evolutionary process appears to be to obscure the nature of the ultimate underlying investment,’ the FCA said.

The FCA also posted a reminder of what is classed as a non-standard asset, and said this is an asset which ‘must be capable of being accurately and fairly valued on an ongoing basis and readily realised within 30 days, whenever required.’

The FCA added that firms have become more sophisticated at trying to defeat the due diligence of some firms.

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