Blog

We are publishing a series of five short case studies based on the final notice published on 23 February 2021 by the FCA in relation to Premier FX’s misconduct, false advertising, and unethical business practices between the years 2006 – 2018. The final notice details the actions taken by Premier FX which ultimately led to the firm entering liquidation.

Case Study Part 1: Governance and Responsibility – It’s a business-wide concern

A broad range of issues, from safeguarding to not treating customers fairly, can be identified as catalysts leading to the business’s insolvency and resulting in the loss of millions of pounds worth of customer funds. Here we highlight the importance of internal governance and how implementing a culture of whistleblowing could have prevented such calamitous customer harm from taking place.

Why is governance important?

Throughout the final notice issued by the FCA, it is apparent that Premier FX lacked a clear understanding of an appropriate governance structure as is required for all regulated payment service firms. Some firms’ senior management teams may perceive governance controls to be time-consuming and feel that they do not add value to the business. However, good governance is key in demonstrating strong controls and a proper understanding of the range of risks the business faces.

The 2009 PSRs and the 2017 PSRs both require firms to demonstrate:

• • A clear organisational structure,
  • Consistent and transparent lines of responsibility,
  • Robust governance arrangements for payment service activities,
  • Effective procedures for identifying, managing, and reporting risks, and

Adequate internal control mechanisms.

In each of these areas, a firm must be able to prove how it is meeting its regulatory obligations.

Embedding governance controls

To demonstrate regulatory compliance, firms must make it clear what responsibilities individual employees have, how decisions are made in the business, how often board/committee meetings take place, and how business risks are managed and mitigated

The FCA notice highlighted how some types of firm are particularly at risk of having poor governance arrangements in place. These include:

• Firms with a sole shareholder,
• Firms with a sole director, or
• Firms where a single director holds most of the senior management roles e.g. CEO, MLRO, COO, CFO etc.

It remains vital for these types of firms to document their decision-making processes – even if a single individual comes up with ideas, signs them off and executes them. Documenting the entire process demonstrates an audit trail, which is vital evidence the FCA will request when investigating firms.

In Premier FX’s case, Peter Rexstrew was the sole director and shareholder. He controlled all aspects of the firm’s operations and was also the catalyst for the firm’s dishonest actions. Because Premier FX lacked a clear organisational structure, transparent lines of responsibility and appropriate governance arrangements for its payment service activity, Rexstrew was able to control the narrative and avoid being challenged by staff members.

The moral imperative of whistleblowing

It is vital that any firm’s staff receive training that will help them recognise bad practice. Rexstrew monopolised access to many of Premier FX’s payment accounts and kept his clients isolated from the firm’s central CRM system. Had employees been adequately trained in bribery, corruption, and fraud, as required by the FCA, and aware of their options to whistleblow, they could have identified the behaviour as suspicious and sent a whistleblower’s report externally.

Every employee has a moral and regulatory obligation to report any knowledge or suspicion of unethical practices. Clearly, this is not a course of action to be undertaken lightly but someone speaking up sooner at Premier FX could have saved millions of pounds of customers’ funds being lost.

Conclusion

It is every firm’s responsibility to understand the regulatory landscape and implement the appropriate compliance controls. Decision-making at board and committee level must be documented and actions planned for and there must be clear reporting lines in place (even for the smallest firms), and employees must be aware of their duties and rights.

Look out for part 2 of our blog series focusing on the regulatory shortcomings experienced at Premier FX and what you should do to remain compliant.

How can we help you?

If you’d like to know more about how we can help you with your internal governance arrangements, or with any other aspect of payment services compliance, our expert team is here to help. Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.