Rathbones has suspended new investments from thousands of higher-risk clients and launched a £60 million remediation programme after a regulatory review identified compliance shortcomings, a move disclosed on Tuesday that could put almost £900 million of annual client inflows at risk.

The FTSE 250 wealth manager said it would stop accepting new clients requiring enhanced due diligence for up to a year and pause contributions into general investment accounts for around 4,700 existing clients following a skilled person review conducted after engagement with the Financial Conduct Authority (FCA).

According to Rathbones, clients requiring enhanced due diligence generated roughly £370 million of gross inflows over the past year, while the affected existing accounts accounted for a further £530 million. The group said it would work with affected customers to enable inflows to resume once required conditions had been met.

The company expects the remediation programme to cost approximately £60 million over the next two years. Rathbones will also stop charging investment management fees on cash balances held in discretionary portfolios from 1 July, a decision expected to reduce pre-tax profit by around £9 million this year.

Jonathan Sorrell, chief executive, said: “We are committed to operating to the highest standards on behalf of our clients.”

He added: “I am grateful for the constructive engagement with the FCA, and the continued trust of our clients as we implement these improvements.”

Investors reacted sharply to the announcement. The Financial Times reported that Rathbones shares fell more than 18 per cent in early trading, reducing the group's market capitalisation to around £1.5 billion, while City AM reported the stock was down 16.1 per cent at one stage.

The Financial Times reported that the review was prompted by regulatory scrutiny and identified areas for improvement in governance and due diligence processes. A person close to the situation told the newspaper that the issues related to client onboarding and evidencing sufficient due diligence, while another source said affected clients included those with complex ownership structures or links to higher-risk jurisdictions.

The disclosure comes as the FCA increases its focus on conduct and compliance standards across financial services. FStech reported on Tuesday that the regulator plans to strengthen its penalties regime for market abuse cases, including raising the minimum initial fine for serious offences from £100,000 to £150,000.

Rae Maile, analyst at Peel Hunt, said: “It is our belief that these are not issues that have arisen recently, but which predate the appointment of the new CEO and his new team.”

Rathbones manages £114 billion of client assets and has been pursuing a growth strategy under Sorrell following the integration of Investec Wealth & Investment and efforts to reverse net outflows recorded last year.

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