The Upper Tribunal upheld the Financial Conduct Authority’s (FCA) decision to impose a £650,000 penalty on Arch chief executive, Robin Farrell, and a £200,000 fine on compliance officer, Robert Addison.
Both Farrell and Addison have also been prohibited from performing any role in regulated financial services.
Judge Timothy Herrington said the pair had been “reckless”, “lacked integrity” and had failed to ensure appropriate steps were taken to mitigate the conflicts of interest in its business.
He also agreed it would have fined the firm £9m, had it not been for the investment manager’s lack of financial resources.
“Fundamental flaws”
In the judgement statement Farrell’s misconduct was said to be “serious, repeated and prolonged".
"In those circumstances there can be no question that a substantial financial penalty is justified," it added.
The statement also said that there had been “fundamental flaws” in the firm’s business model.
Breaches related to the mis-selling of Arch Cru funds occurred between July 2006 and March 2009.
These funds invested in Guernsey-domiciled funds listed on the Channel Islands Stock Exchange (CISX).
In October last year, the CISX was fined £190,000 after admitting it had been “seriously at fault” over irregular trading and market manipulation of the Arch Cru funds.
The case against Arch Financial Products was referred to the Upper Tribunal by the financial watchdog in September 2012.
Georgina Philippou, acting director of enforcement and market oversight at the FCA, said: "We are pleased that the Tribunal agrees that Farrell, Addison and Arch fell short of the standards that we expect.
“They failed to ensure that they put investors' interests ahead of their own and could not demonstrate how conflicts of interest were effectively managed.
"The judgment is a further reminder to those who work in financial services that they have to act with integrity, and, that when they don’t, we will take action to remove them from the industry."
Farrell and Addison have three years to pay the fines.
