ITI Capital Limited · DRN-6252771

The complaint Mr D complains ITI Capital Limited is responsible for arranging an inappropriate investment into a bond. He says there was a failure in duty of care when completing the transaction for him and has resulted in a significant loss of capital. What happened In July 2019, following the completion of a subscription agreement, Mr D opened a brokerage account with ITI, and shortly afterwards it executed a deal for him to invest £50,000 in an Audley Funding Bond. The bond was due to provide a return of 12% per year, with capital due to be repaid in 2022. Initially Mr D received his interest payments but subsequently he had problems receiving the expected returns. It later became apparent the bond issuers company had run into financial difficulties and entered administration. In November 2023, a representative raised a complaint on his behalf with ITI. As no reply was received, Mr D contacted this service in March 2024, to refer his complaint for an independent review. I issued a provisional decision in March 2026. This is what I said: “The complaint Mr D initially made claimed that ITI was acting as a Discretionary Fund Manager (DFM) and arranged an unsuitable investment for him. But I haven’t seen evidence to support ITI was providing a DFM service in 2019, or provided Mr D with regulated investment advice, so this was not a normal advised investment and the normal rules about the suitability of advice in COBS 9 do not apply. The evidence I’ve seen indicates Mr D completed an application for the bond and as part of that he instructed for an ITI brokerage account to be opened. I understand ITI’s position is that it arranged an investment in the bond on an execution only basis. The bond Mr D invested in isn’t a mainstream product, but rather a complex instrument and the structure of the investment meant the risks were multifaceted. So, in arranging for Mr D to invest in the bond after it received his application, ITI did have regulatory obligations to follow due to the nature of the investment and the service it was providing - the most relevant being the appropriateness rules in COBS10a. A first point to make is that appropriateness is not the same as suitability – it is not an assessment of whether the proposed investment is suitable for the investor’s objectives, attitude to risk etc. An appropriateness assessment is a determination of whether the client has the necessary experience and knowledge in order to understand the risks involved in relation to the product or service offered or demanded. There is limited evidence of ITI carrying out an appropriateness assessment as per the requirements. I note at the time of the sale in 2019, Mr D ticked a declaration to indicate he met the criteria of an HNW investor. The application also had a section above this HNW declaration that is titled ‘Investors Form of Suitability / Appropriateness Declaration’. There is

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a statement in this section that gave some warnings that perspective investors should be capable of evaluating the risks with the investment and sufficient resources to bear any losses. It made comment on the lack of liquidity and that capital is at risk. There is also some further information about the requirements to confirm yourself as a person who meets the criteria to invest. But, in my view this isn’t sufficient to meet the requirements of the rules. While there is a list of statements, they were limited and there is no specific information gathered about Mr D to support he had existing experience, no detail of the sorts of transactions he’d been involved with, and how often he’d traded those products. ITI hasn’t provided any other evidence to show Mr D completed an appropriateness test before certifying himself as an HNW. I note an appropriateness assessment does not necessarily mean that only investments of a type an investor has made before are appropriate, and the crux of the issue is about understanding the risks involved in the investment. But I do have some concerns about how ITI met its obligations. Mr D says his understanding of the investment opportunity came from the introducer he dealt with prior to completing his application. He says the introducer told him it was a listed bond with underlying security and the asset invested in was an old gold mine and tailings plant. He saw this as an attractive investment paying a set coupon for a set time an understood it to be capital protected. The introducer suggested this was appropriate as he was seen as an experienced investor due to his financial situation. There is some evidence in the application to suggest Mr D would have understood there were additional risks involved in investing in the bond – including the fact the bond could not be easily sold or transferred and there was a risk to his capital. The application form indicates Mr D held a director position at the time he invested. He has confirmed he was working abroad at the time. Mr D has questioned whether the investment portfolio he held for his retirement should have been included in the calculation of his wealth. But based on the information he has provided, it does appear he met the criteria for the HNW declaration he ticked. Mr D has explained that he has relied on the same third-party introducer to make other investments. He said he invested £60,000 in a loan note instrument at the same time as he invested in the Audley Funding bond, and he invested a further £25,000 in another loan note investment a few months later. He says all of these investments were made via the same introducer and he was told all of them had underlying securities and would provide a pre agreed coupon and would pay all capital upon maturity. He says his first investment did pay the coupons and capital back on maturity, but he did not reinvest as the other two were already in trouble. Mr D doesn’t appear to have had specific knowledge or experience about investments from his employment history. He says prior to engaging with the introducer he had only dealt with regulated advisers whilst consolidating his pension schemes into an arrangement which invested in unit trusts, ETFs and structured notes. But, considering what I know of his circumstances, I think it is reasonable to conclude he would have been aware of the importance of providing accurate information when making declarations in the application process. It is my view, Mr D would have been aware that the investment he was making was not a mainstream product. The application process indicated that there were restrictions to who could take out the investment. While Mr D has referred to the introducer reassuring him about it being a secure investment, I haven’t seen anything to suggest ITI had any connection with the introducer or would have been aware of anything Mr D was told by it.

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Indeed, ITI has been clear it did not have an introducer agreement with the third-party Mr D dealt with and there was no relationship with it. Taking all of the above into account, if ITI had carried out a more detailed and structured assessment it is reasonable to conclude Mr D was in a position to understand the risks. But that said, I haven’t seen that he did have significant investment experience in this type of instrument prior to his investment in the Audley Funding bond. So, I find this is a finely balanced consideration. I accept that it is possible that a more thorough appropriateness assessment in accordance with the rules might have concluded that the investment was not appropriate for Mr D. But even if an assessment led to such a conclusion, a firm is not obliged to prevent the client from investing. The rules permit a firm to warn a client that an investment is not appropriate for them. The client may then make a decision about whether or not to continue. And if the client decides to go ahead the firm then has to decide how to proceed. I have considered Mr D’s actions in this matter. As previously mentioned, he was introduced to the investment by a third-party introducer who he appears to have trusted and reassured by. And it appears there was an ongoing relationship as he was seeking other investment opportunities of a similar nature around the same time. And he knew this was not a routine investment and he was contributing a fairly large amount of money, although I appreciate this is relevant to his HNW investor status. In my view, the evidence here shows that Mr D was motivated to make the investment. In all the circumstances, I’m not persuaded it is more likely than not that Mr D would have decided not to invest in the Audley Funding bond if ITI had warned him that the investment might not be appropriate for him. And as I’ve already indicated that I think there is some evidence to support the bond was appropriate for him anyway, I don’t consider in this finely balanced situation, it would be reasonable for ITI to be obliged to decide not to allow Mr D’s investment to proceed if he chose not to heed a warning that the investment was not appropriate. I haven’t seen full detail of the factors that led to the failure of the investment, but equally I haven’t seen anything to indicate that the investment must have been so fundamentally flawed in some way that it should never have been arranged. I note the bond was listed on a recognised exchange and the financial promotion it was based on had the required regulatory approval. Mr D hasn’t provided any detail of specific fundamental issues that should have been discovered with reasonable due diligence.” Mr D responded to say he didn’t accept the decision and provided an appeal on the basis of an incorrect classification of his status as a HNW investor and ITI’s failure to conduct a robust appropriateness assessment as required by COBS 10A. In summary he said: • He strongly contests the classification as a HNW investor. The bulk of his wealth was held within a pension, and under regulatory standards, primary residence and pension assets are typically excluded from the net asset calculations used to determine HNW status. The source of the funds used to invest in the Audley Funding Bond came from a property sale and was intended for his retirement pot. Labelling him as a HNW individual based on this misrepresents his actual financial resilience and sophisticated investor profile. ITI relied on a "ticked declaration" without gathering specific information to support his existing experience or the frequency of his trading. • It is acknowledged the Audley Funding Bond was a "complex instrument" with "multifaceted" risks. ITI had a strict regulatory obligation to ensure he understood these risks. The process carried out was insufficient, as noted in the findings. Before

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this transaction, his investment history was limited to unit trusts, ETFs, and structured notes through regulated advisers, none of which are comparable to the structure of the Audley Funding Bond. • The provisional decision admits it is "possible that a more thorough appropriateness assessment... might have concluded that the investment was not appropriate." If the assessment was flawed and the conclusion was "finely balanced", the benefit of the doubt should remain with the consumer, as the firm failed in its primary regulatory duty to test knowledge and experience effectively. • It is speculative to assume if he had been warned the investment was inappropriate, he would have proceeded regardless. Had ITI properly fulfilled its duty to highlight that he lacked the specific experience to understand a complex, non-mainstream, and illiquid bond, he would have reconsidered the "capital protected" assurances given by the unregulated introducer. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Firstly, I acknowledge Mr D’s strength of feeling about this complaint. I’ve considered the further submission he has made in response to my provisional decision alongside all of the other evidence submitted. Having done so, I haven’t found reason to change the outcome. I’ll explain why. I acknowledge the points Mr D has made about his classification as a HNW investor. He disputes whether he did indeed meet the requirements as the bulk of his wealth was held in a pension arrangement, which would be excluded from the calculation of his assets. Mr D has provided details of his investment experience. I’ve seen evidence of investments he made around the same time into other bonds / loan notes, his QROPS portfolio and he has previously mentioned holding property. He thinks labelling him as a HNW individual based on this misrepresents his actual financial resilience and sophisticated investor profile. I accept there isn’t a record of his income or assets in the sales documents for this bond. The application does indicate he agreed he was a HNW investor. The HNW declaration he signed to confirm as accurate set out the criteria both in terms of income requirements and assets held including what assets are excluded. While I understand he now contends this status, I find it reasonable to say Mr D would have understood the importance of providing an accurate declaration in the application. Also, the bond Mr D took out was listed on a recognised exchange. This meant there wasn’t a specific requirement (as there are for specific other complex investments) for a customer client classification, although ITI did choose to include this in the process. But what is apparent from the available evidence is that during 2019, Mr D invested on three occasions amounts totalling £135,000 in non- mainstream type investments – which doesn’t suggest he was completely unsophisticated and/or lacked financial resilience. Mr D explains his experience prior to this transaction was limited to unit trusts, ETFs, and structured notes through regulated advisers, none of which are comparable to the structure of the Audley Funding Bond. Aside from the loan note investment he made earlier in 2019, I haven’t seen evidence of experience of Mr D investing in complex instruments prior to purchasing this bond. So, this point is acknowledged. In my provisional findings, I accepted the possibility that had an appropriateness assessment been carried out in line with the rules, it is possible ITI might have concluded that the investment was not appropriate for Mr D. In this situation a warning should have been given. Mr D has suggested the benefit of the doubt should remain with the consumer, as the firm

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failed in its primary regulatory duty to test knowledge and experience effectively. Even where the appropriateness assessment is deficient – this doesn’t mean ITI will always be found responsible for the losses suffered. In considering what is fair and reasonable in all the circumstances, I need to think about what would have happened if ITI had complied with the obligations on it. So, I need to consider the consequences of any such finding. This is why I went on to consider the client warning part of the rules. Mr D says it is speculative to assume if he had been warned the investment was inappropriate, he would have proceeded regardless. And says had ITI properly fulfilled its duties, he would have reconsidered his position. This is a difficult decision as it’s not completely clear what course of action Mr D would’ve taken. Therefore, I must make a decision based on the balance of probabilities i.e. what I think is more likely than not to have happened in light of the available evidence and a consideration of the wider circumstances. My view is formed from my interpretation of the evidence available. I find it plausible Mr D would have continued with this investment even if a warning was provided. I need to take a view without the benefit of hindsight, and knowing the investment has failed. Mr D’s testimony suggests he did have some understanding of what he would be investing towards by purchasing the bond, and his expectations for the investment were positive. While finely balanced, I find it most likely Mr D would have proceeded even if a warning was given, for these reasons and those set out previously in my provisional findings. In all the circumstances I do not consider that it is fair and reasonable to require ITI to compensate Mr D for the losses he has suffered as a result of his investment in the Audley Funding bond. My final decision For the reasons set out above I do not uphold this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr D to accept or reject my decision before 24 April 2026. Daniel Little Ombudsman

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