ITI Capital Limited · DRN-6252767

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, Mr D opened a brokerage account with ITI, and shortly afterwards it executed a deal for him to invest £42,000 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 January 2024, a representative raised a complaint on his behalf with ITI. As no reply was received, Mr D contacted this 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 here 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 a HNW investor. The application also had a section above this HNW declaration that is titled ‘Investors Form of Suitability / Appropriateness Declaration’. There is 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

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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 say Mr D confirmed that he had completed an appropriateness test before certifying himself as an HNW, but I haven’t seen any evidence of this test. 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 there was an underlying security which would provide a safety net for any potential capital loss. He understood it was an investment in an old commodities/metal mine and with gold nearing an all-time high he is amazed at the losses he stands to make. He also understood this bond was more stable as it was a listed bond. He says it is now obvious that the introducer did not explain the complexities of this investment and instead reassured him it was a capital protected listed bond. There is some the 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 he invested and had held a number of senior positions. Based on the information he has provided, it does appear he met the criteria for the HNW declaration he ticked. Mr D says he relied on the introducer to explain various investment opportunities. He says he invested in another two investments during 2019. As well as the bond subject to this complaint, he invested £35,000 in a loan note paying 12% and £30,000 in another loan note. All three investments were introduced to him by the same third party, and he suffered losses on two out of three – including the Audley Funding bond. Mr D doesn’t appear to have had specific knowledge or experience about investments from his employment history, and he said he had always sought financial advice and now uses a regulated adviser for his investments. 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. Mr D says the introducer led him to understand this was 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. 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

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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. He was introduced to the investment by a third party who he appears to have trusted and been 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. As already mentioned, 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 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 still believes ITI is responsible for the losses he has suffered. In summary he said: • He invested in the bond as he was told it had senior security which meant his capital was safe and secure and would not have invested if this had not been the case. The structure of the investment was a listed bond which he had no previous experience with. He was not aware this investment was illiquid, could not be sold or transferred. On the contrary, due to it being a listed bond he was given the impression that the bond could be traded as it was listed on a recognised exchange. This investment was a complex instrument with multifaceted risks and was not a mainstream product, but this was not his understanding at the time. He was led and reassured by the introducer • No appropriateness test was carried out, despite it being confirmed that ITI should have done an appropriateness test due to COBS 10a. Whilst some points may be subjective, ITI had regulatory responsibilities with regards to the appropriateness test. A regulated entity failed to conduct a process it was required to complete. ITI has breached the rules of COBS10a and facilitated a transaction that has resulted in a loss. Had ITI properly fulfilled its duty to highlight that he lacked the specific experience to understand this complex, non-mainstream product he would have reconsidered the security assurances given by the introducer. • The assumptions made as to the action he would have taken are purely speculative as to whether he would have heeded such advice. It stated that it is a finely balanced

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decision, so he questions why the finding is in favour of a regulated company who flagrantly disregarded the processes in place to provide guardrails for investors rather than an inexperienced investor. • He understands the reason why the investment failed was because it appears that the company owning the mine was put into administration. The company that issued the bond has now tried to liquidate itself, there appears to be a group seeking legal representation for a conspiracy to defraud case and the trustees have now exited. ITI didn’t provide anything further for me to consider. 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. I’ve considered the further submission Mr D 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. Firstly, I acknowledge the points made about Mr D’s understanding of the bond at the time he invested – including that he understood his capital was secure and that he was not aware it was illiquid and difficult to trade. He says he didn’t know it was a complex instrument and not a mainstream product. I haven’t seen that ITI was responsible for any misunderstanding Mr D had in relation to the specifics of the bond, or that it was responsible for ensuring the suitability of the bond for him when carrying out this execution only type arrangement. It does seem Mr D gained an understanding of the bond from information given to him by the introducer - but I don’t think ITI would have had awareness of this. The application it received was from Mr D. I’ve also not seen that it had any interactions with the introducer, or it had any awareness of the extent of the role the introducer was playing in the transaction. But in any case, I have gone on to consider the possibility ITI didn’t meet its obligations to Mr D when completing the transaction he requested. Mr D has raised points about ITI failing in its regulatory obligations – specifically in relation to COBS 10A – appropriateness. 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. But this doesn’t mean it must be responsible for compensating Mr D. In this situation a warning should have been given. So 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. I’ve considered the points made about the impact a warning would have had on Mr D. He says if it was highlighted that he lacked the specific experience to understand this complex, non-mainstream product he would have reconsidered the assurances given by the introducer. He also thinks the assumptions made as to the action he would have taken are speculative. And he questions why the finding is in favour of a regulated company who disregarded the processes in place to protect him. I acknowledge, 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

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and a consideration of the wider circumstances. While Mr D feels a speculative assertion has been made, my view is taken from my interpretation of the evidence available. I find it plausible he 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 and the circumstances that led to this. 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. As explained above, a failing in the appropriateness assessment, isn’t sufficient reason alone, to uphold the complaint. 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 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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