The UK’s Asset Manager Agreed to Pay €250M to Investors and Exit Local Market

H2O Asset
Management has agreed to pay €250 million to investors and exit the UK market
following a damning investigation by the UK’s Financial Conduct Authority
(FCA). The regulator uncovered significant failures in the firm’s investment
practices, governance, and communications with authorities between April 2015
and November 2019.

H2O’s €250 Million
Settlement Caps Years-Long Regulatory Saga

The FCA’s
investigation revealed that H2O failed to conduct proper due diligence on
high-risk, illiquid investments related to Lars Windhorst’s Tennor Group of
companies and other entities he introduced. These investments, totaling
approximately €1.643 billion by August 2020, proved difficult to sell, leading
to the freezing of investor funds in 2020.

“H2O’s
job was to manage its funds properly and protect investors,” Steve Smart, joint
Executive Director of Enforcement and Market Oversight at the FCA, stated. “It
failed to do this and, to make matters worse, it repeatedly provided misleading
information to the FCA.”

The
regulator found that H2O breached multiple rules of the FCA’s Principles for
Businesses, including failing to conduct business with due skill, care, and
diligence, inadequate organization and control of its affairs, and failing to
be open and cooperative with the regulator.

In a
particularly serious breach, H2O provided false and misleading statements and
documentation to the regulator, including fabricated records and meeting
minutes. The FCA discovered that H2O had created multiple records of governance
and oversight committee meetings that had never taken place, and provided
numerous misleading due diligence reports that were prepared retrospectively
rather than at the time of investment decisions.

The Fine Could Be Higher

While the
FCA would typically impose a substantial fine for such serious breaches, it has
instead agreed to H2O’s €250 million payment to affected investors. A
significant portion of this sum comes from a voluntary contribution by the H2O
Group. Additionally, H2O has waived its rights to fees and investments totaling
€320 million.

“Through
this settlement the FCA has secured money for affected investors and agreement
that H2O will stop operating regulated business in the UK,” Smart added.

BREAKING🚨:FCA said that French asset manager H2O will pay $273 Million to investors unable to access their funds since 2020. pic.twitter.com/rSGnRohdgQ

— Money Guys (@MoneyyGuys) August 7, 2024

As part of
the settlement, H2O will apply to cancel its UK authorization by December 31,
2024, effectively ceasing its regulated business operations in the country. The
firm has also agreed to implement significant enhancements to its governance,
systems, and controls to prevent similar misconduct in the future.

The French
financial services regulator, Autorité des marchés financiers (AMF), which
oversees the collective investments managed by H2O on a cross-border basis
under the UCITS Directive, had previously issued a penalty to H2O, which is
currently under appeal.

Investors
in H2O’s funds, particularly those with assets in the side-pocketed funds
created in 2020 to hold the illiquid investments, will be watching closely to
see how quickly they can recover their trapped funds. The €250 million payment,
along with any future recoveries, offers some hope of recompense for affected
investors.

This article was written by Damian Chmiel at www.financemagnates.com.



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