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A top British investment firm has been forced to stop taking on wealthy clients based offshore after the City watchdog raised red flags over its due diligence procedures.
Rathbones said it will not take on new high-risk clients for up to a year following a review by the Financial Conduct Authority (FCA) - dealing a potential £900m blow to the business, according to analysts.
The wealth manager, established in 1742, said new high-risk clients ploughed about £370m into accounts over the past year but that none would be taken on while it implemented changes to its procedures and controls.
In addition to this, the London wealth management firm said it would also stop accepting money into general investment accounts from some existing high-risk clients, who had put around £530m into their accounts over the past 12 months.
It said these clients would need to "meet certain requirements" to be able to resume inflows to their accounts, affecting around 4,700 of its 119,000 customers.
High-risk clients can refer to political figures or wealthy individuals based offshore who require enhanced due diligence processes.
The decision comes after a "skilled person review" by the FCA identified "areas for improvement". These included deficiencies in "certain aspects of its compliance, oversight and assurance arrangements".
Shares in the group plunged by as much as 18.6pc on Tuesday as it warned of the estimated £900m hit to inflows from halting dealings with new high-risk clients.
It is the company's steepest one-day drop on record, wiping £330m off its value.
Christiane Holstein, an analyst at Bank of America, said she expected the measures to deliver a blow to pre-tax profits of between 12pc and 15pc this year and next.
She said: "We see pausing of this activity as likely to weaken net flow momentum by up to 12 months. In addition, we expect disruption to business and investment managers will impact sales efforts and abilities to attract net new flows."
Wealth managers have come under increased scrutiny after the FCA set out tougher consumer duty rules.
In a letter to bosses in 2023, the watchdog said the wealth management and stockbroking sector was "inherently high-risk ... for enabling and/or participating in financial crime".
In addition to the curbs on high-risk clients, Rathbones said it would stop charging investment management fees on cash balances in clients' discretionary portfolios from July 1.
This is expected to deliver a £9m blow to its underlying pre-tax profits this year.
