1

FINAL NOTICE

1.
ACTION

1.1.
For the reasons given in this Final Notice, the Authority hereby:

(1)
imposes on Mr Alec Cuthbert a financial penalty of £91,693 pursuant to

section 66 of the 2000 Act; and

(2)
makes an order, pursuant to section 56 of the 2000 Act, prohibiting Mr

Cuthbert from performing any function in relation to any regulated activity

carried on by an authorised person, exempt person, or exempt professional

firm.

1.2.
Mr Cuthbert agreed to resolve this matter and qualified for a 30% (stage 1)

discount under the Authority’s executive settlement procedures. Were it not for

this discount, the Authority would have imposed a financial penalty of £121,893

on Mr Cuthbert.

Alec Cuthbert has agreed to settle this matter and therefore has
not made a reference to the Upper Tribunal of the Authority’s
decision to take action. This Final Notice has not been the
subject of any judicial finding. It includes criticisms of Frank
Oxberry who has been given a Decision Notice in relation to the
same matter. Mr Oxberry disputes that Decision Notice and has
referred it to the Upper Tribunal for determination. The Tribunal
will determine whether to dismiss the reference or remit the
reference to the Authority with a direction to reconsider and
reach a decision in accordance with the findings of the Tribunal.
The Tribunal’s decision in respect of the reference will be made
public on its website.

2.
SUMMARY OF REASONS

2.1.
Mr Cuthbert was approved by the Authority to perform the CF4 (Partner), CF10

(Compliance Oversight), CF11 (Money Laundering Reporting) and CF30

(Customer) controlled functions at St Martin’s Partners LLP (“SMP” or “the Firm”)

during the Relevant Period (1 October 2015 to 31 July 2016). SMP was a small

financial advice firm based in Essex which was authorised by the Authority during

the Relevant Period with permission to conduct regulated activities, including

advising on Pension Transfers and Pension Opt Outs.

2.2.
During the Relevant Period, SMP partnered with Introducer A, an introducer firm

which was not authorised by the Authority, to design and operate the Pension

Transfer Model. Introducer A had a material financial interest in promoting

investments offered by its parent company, the Overseas Property Developer,

which offered investment opportunities in overseas hotel developments. These

investments were high risk, illiquid and unregulated property investments and

unlikely to be covered by FOS or FSCS protection and therefore unlikely to be

suitable for retail clients. The Authority considers that Introducer A designed the

Pension Transfer Model, in conjunction with SMP, with a view to bringing about

investments of SMP clients’ pension funds into the Overseas Property Developer.

SMP, as a firm authorised by the Authority, had a critical role in that process,

namely to provide advice to those clients and thereby provide the statutory basis

upon which the trustees of the ceding pension schemes were permitted to

authorise the release of members from their schemes.

2.3.
Under the Pension Transfer Model, SMP failed to gather sufficient information

before advising clients on the appropriateness of transferring out of their Defined

Benefit Pension Schemes. SMP did not properly take account of clients’ financial

circumstances and objectives, their attitude to risk and their capacity for loss.

Additionally, SMP did not take into account the nature, risks and fees of the actual

onward investment and instead based its analysis and advice on a generic onward

investment across those clients who were subject to the Pension Transfer Model.

Investment advice was intended to be subsequently provided to the clients by the

Overseas Adviser Firm, a financial advisory group based in Cyprus and not

authorised by the Authority, and which was a business partner of Introducer A

and the Overseas Property Developer.

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2.4.
This meant that SMP was not in a sufficiently informed position to give its clients

appropriate advice on the nature of the risks or benefits associated with

transferring their pensions. Although SMP cautioned its clients that its advice was

subject to limited information and in the majority of cases advised them not to

transfer, the fact that its clients had obtained advice from SMP, a firm authorised

by the Authority, nevertheless provided the statutory basis upon which the

trustees of the ceding pension schemes were permitted to authorise the release

of those members from their schemes. This was not the case for a very small

number of SMP’s clients whose CETV was below the minimum threshold of

£30,000, and for whom the trustees were not under a statutory obligation to

check that they had received appropriate independent advice prior to making a

transfer.

2.5.
In addition to Introducer A, at least 16 other introducers introduced clients who

were advised by SMP during the Relevant Period. SMP advised at least 547 clients

under the Pension Transfer Model during the Relevant Period, of which 440 clients

were introduced to SMP by Introducer A. The total value of the Defined Benefit

Pension Schemes on which SMP advised under the Pension Transfer Model was

just under £60 million, with an average value of approximately £104,000.

2.6.
SMP retained 30% of the fees charged to clients under the Pension Transfer Model,

after paying 70% of the fees to SMP’s Advisers, who provided advice under the

model. In total, Mr Cuthbert received £14,317 in respect of the financial benefit

from the fees generated from the Pension Transfer Model.

2.7.
On 14 June 2019, SMP entered liquidation. The FSCS declared SMP in default on

23 September 2019 and is investigating claims made by SMP’s clients who were

advised under the Pension Transfer Model. As at 26 May 2022, the FSCS had paid

over £9 million in compensation to SMP’s clients as a result of loss they had

suffered following advice they had received from SMP1.

Mr Cuthbert’s misconduct

2.8.
The Authority considers that Mr Cuthbert failed to comply with Statement of

Principle 1 during the Relevant Period in that he failed to act with integrity in

1 As of 10 July 2024, this figure had increased to over £13.4 million.

carrying out his accountable functions as CF4 (Partner) and CF10 (Compliance

Oversight) at SMP. Mr Cuthbert’s actions in relation to SMP’s design and operation

of the Pension Transfer Model were reckless. In particular, Mr Cuthbert:

(a) failed to assess the obvious deficiencies in the Pension Transfer Model before

permitting the expansion of SMP’s business model to include this advice

process, notwithstanding that it constituted a significant departure from SMP’s

usual advice model. The obvious deficiencies included that (i) it failed to take

into account the client’s attitude to risk, meaning SMP was unable to ascertain

whether a Pension Transfer was suitable in accordance with the client’s risk

tolerance, and (ii) confirmation of advice letters would be issued to the

trustees of the ceding schemes at a point where clients had received very

limited advice. In doing so, he unreasonably exposed the Firm’s clients to a

significant risk that they would proceed with a Pension Transfer without

receiving complete advice. This risk would have been obvious to Mr Cuthbert

in light of his experience as a financial adviser and his senior positions as CF4

(Partner) and CF10 (Compliance Oversight) at SMP;

(b) failed to ensure that SMP performed sufficient and adequate due diligence on

its partner introducers and the investments which they promoted to clients.

This was particularly important as SMP was partnering with a large number of

introducers. In doing so, he unreasonably exposed the Firm’s clients to a

significant risk that their pension funds would be transferred into investments

which were unsuitable for them;

(c) failed to ensure that SMP obtained independent, expert opinion from SMP’s

Compliance Consultant to verify the compliance of the Pension Transfer Model,

prior to, during, and after its implementation, notwithstanding the novelty of

the advice model for SMP’s business and the obvious risks of detriment it

posed to SMP’s clients;

(d) failed to ensure that SMP obtained sufficient information from clients in order

to make Personal Recommendations which were suitable for them,

considering clients’ financial situation, their attitude to risk, and their

knowledge and experience of the relevant investment;

(e) failed to ensure that SMP collected sufficient information which was required

to generate an accurate TVAS Report and critical yield analysis, upon which

SMP’s Personal Recommendations were based (notwithstanding the flaws of

advising clients solely based on a TVAS Report);

(f) failed to monitor the advice provided under the Pension Transfer Model by

SMP’s Advisers when advising clients under the Pension Transfer Model,

notwithstanding the reduced effectiveness of SMP’s compliance function in

light of Mr Cuthbert’s reduced office hours in advance of his planned

retirement, and the lack of experience and relevant qualification of SMP’s

Compliance Manager, to whom day-to-day compliance responsibilities had

been delegated; and

(g) failed to respond to a variety of warning signs he received during the operation

of the Pension Transfer Model in respect of the obvious deficiencies of the

advice process and the obvious risks of detriment it posed to SMP’s clients.

2.9.
The Authority considers Mr Cuthbert’s failure to comply with Statement of

Principle 1 to be serious because:

(a) it related to a large number of clients whom he took no steps to protect;

(b) his failure to monitor the work of SMP’s Advisers meant that a large number

of clients were exposed to the risks of transferring out of their Defined

Benefit Pension Schemes into high risk, illiquid and unregulated property

investments offered by the Overseas Property Developer;

(c) in failing to ensure that sufficient and adequate due diligence was performed

on SMP’s partner introducers, Mr Cuthbert’s misconduct unreasonably

exposed the Firm’s clients to a significant risk that their pension funds would

be transferred into investments which were unsuitable for them;

(d) the deficiencies of the Pension Transfer Model would have been obvious to Mr

Cuthbert as an experienced financial adviser and a senior manager at SMP;

and

(e) Mr Cuthbert obtained substantial financial benefits as a result of his failings.

2.10.
The Authority hereby imposes on Mr Cuthbert a financial penalty of £91,693 for

his breach of Statement of Principle 1.

2.11.
As a result of Mr Cuthbert’s failure to have regard to the obvious risks described

in paragraph 2.8 above, of which he must have been aware, and to take

appropriate action in light of them, Mr Cuthbert was reckless and failed to act with

integrity. For this reason, the Authority considers he is not fit and proper to

perform any function in relation to any regulated activity carried on by an

authorised person, exempt person, or exempt professional firm. The Authority

hereby makes an order prohibiting Mr Cuthbert from performing any such

functions at an authorised person, exempt person, or exempt professional firm.

The Authority considers that doing so is necessary in order to secure an

appropriate degree of protection for consumers.

3.
DEFINITIONS

3.1.
The definitions below are used in this Notice:

“the 2000 Act” means the Financial Services and Markets Act 2000;

“the 2001 Order” means the Financial Services and Markets Act 2000 (Regulated

Activities) Order 2001;

“the 2015 Act” means the Pension Schemes Act 2015;

“the 2015 Regulations” means the Pension Schemes Act 2015 (Transitional

Provisions and Appropriate Independent Advice) Regulations 2015;

“the Authority” means the Financial Conduct Authority;

“CETV” means cash equivalent transfer value, which is the cash value of benefits

which have been accrued to, or in respect of, a member of a pension scheme at

a particular date, representing the expected costs of providing the member’s

benefits within the scheme;

“COBS” means the Conduct of Business Sourcebook, part of the Handbook;

“Compliance Consultant” means the independent, third-party compliance

consultancy engaged by SMP during the Relevant Period;

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“Compliance Manager” means SMP’s compliance manager to whom Mr Cuthbert

delegated compliance responsibilities throughout the Relevant Period;

“Defined Benefit Pension Scheme” means an occupational pension scheme as

defined by Article 3(1) of the 2001 Order, namely where the amount paid to the

beneficiary is based on how many years the beneficiary has been employed and

the salary the beneficiary earned during that employment (rather than the value

of their investments);

“DEPP” means the Authority’s Decision Procedure and Penalties Manual, part of

the Handbook;

“EG” means the Authority’s Enforcement Guide set out in the Handbook;

“Firm A” means a firm not authorised by the Authority, one of whose Directors

was Individual A;

“the Firm A Introducers Agreement” means a partially executed agreement dated

23 November 2015 between Firm A and SMP for Firm A to introduce third party

introducers to SMP;

“FOS” means the Financial Ombudsman Service;

“FSCS” means the Financial Services Compensation Scheme;

“Full Advice Model” means a Pension Transfer advice model where a single adviser

gives defined benefit transfer advice and investment advice on the proposed

onward investment, in order for the Pension Transfer to proceed;

“the Handbook” means the Authority’s Handbook of rules and guidance;

“Individual A” means an individual who was a Director of Firm A, who introduced

SMP to third party introducers including Introducer A;

“Introducer A” means an introducer firm not authorised by the Authority whose

parent company from the start of the Relevant Period until mid-2016 was the

Overseas Property Developer;

“Mr Cuthbert” means Alec Cuthbert;

“Mr Oxberry” means Frank Oxberry, who held the CF4 (Partner) and CF30

(Customer) functions at SMP during the Relevant Period;

“the Overseas Adviser Firm” means a financial advisory group based in Cyprus

which was not authorised by the Authority, and which was a business partner of

Introducer A and the Overseas Property Developer;

“the Overseas Property Developer” means a property developer which offered

investment opportunities in overseas hotel developments;

“Pension Opt Out” has the meaning given in the Handbook and includes a

transaction resulting from the decision of a retail client to opt out of an

occupational pension scheme to which his employer contributes and of which he

is a member;

“Pension Transfer” has the meaning given in the Handbook and includes the

transfer of deferred benefits from an occupational pension scheme (with

safeguarded benefits, such as a Defined Benefit Pension Scheme) to a personal

pension scheme;

“Pension Transfer Model” means the Pension Transfer advice model operated by

SMP during the Relevant Period characterised by advice provided solely on the

basis of critical yield values of the ceding scheme against a generic scheme with

no consideration of the client’s final investment;

“Pension Transfer Specialist” has the meaning given in the Handbook and includes

an individual appointed by a firm to check the suitability of, amongst other things,

a Pension Transfer, who has passed the required examinations as specified in the

Training and Competence Sourcebook, part of the Handbook;

“Personal Recommendation” means a recommendation that is advice on transfer

of pension benefits into a personal pension or SIPP, and is presented as suitable

for the client to whom it is made, or is based on a consideration of the client’s

circumstances;

“QROPS” means qualifying recognised overseas pension scheme, which is a

pension scheme established outside the UK which fulfils certain criteria by HM

Revenue & Customs to receive transfers from pension schemes registered in the

UK;

“Relevant Period” means 1 October 2015 to 31 July 2016;

“SMP” or “the Firm” means St Martin’s Partners LLP;

“SMP’s Advisers” means certain qualified Pension Transfer Specialists who held

the CF30 (Customer) function at SMP during the Relevant Period;

“Statements of Principle” mean the Authority’s Statements of Principle and Code

of Practice for Approved Persons;

“Suitability Report” means the report which a firm must provide to its client under

COBS 9.4 which, amongst other things, explains why the firm has concluded that

a recommended transaction is suitable for the client;

“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber);

“TVAS” means ‘transfer value analysis’ and is the comparison that a firm must

carry out in accordance with COBS 19.1.2R when a firm gives advice or a Personal

Recommendation about, amongst other things, a Pension Transfer;

“TVAS Report” means a document that reports to the client in respect of the

comparison firms are required to carry on in accordance with COBS 19.1.2R; and

“Two-Adviser Model” means a Pension Transfer advice model operated by some

firms where one firm gives defined benefit transfer advice and another firm, acting

as an introducer, gives investment advice on the proposed onward investment, in

order for the Pension Transfer to proceed.

4.
FACTS AND MATTERS

Mr Cuthbert and SMP

4.1.
Mr Cuthbert was approved by the Authority to perform the CF4 (Partner) and CF30

(Customer) functions at SMP from July 2011, and the CF10 (Compliance

Oversight) and CF11 (Money Laundering Reporting) functions at SMP from June

2012, and held these functions throughout the Relevant Period. Mr Cuthbert was

also SMP’s designated specialist for Pension Transfer advice during the Relevant

Period. Prior to his approval as CF4 (Partner), CF10 (Compliance Oversight), CF11

(Money Laundering Reporting) and CF30 (Customer) at SMP, Mr Cuthbert was

approved by the Authority as a CF21 (Investment Adviser) and as a CF24 (Pension

Transfer Specialist) at other firms authorised by the Authority.

4.2.
SMP was a small financial advice firm based in Chelmsford, Essex which was

authorised by the Authority during the Relevant Period to, amongst other things,

advise on Pension Transfers and Pension Opt Outs. SMP was formed as a

partnership between Mr Cuthbert and Mr Oxberry. SMP went into liquidation on

14 June 2019.

4.3.
Throughout the Relevant Period, Mr Cuthbert and Mr Oxberry were the only two

CF4 Partners at SMP and were both considered the owners of the Firm.

4.4.
During the Relevant Period, Mr Cuthbert reduced his office hours at SMP in

preparation for his retirement. Mr Cuthbert was also largely absent from SMP’s

offices, sometimes not coming in for weeks. Mr Cuthbert delegated responsibility

for day-to-day compliance oversight to the Compliance Manager. The Compliance

Manager, unlike Mr Cuthbert, was not a qualified Pension Transfer Specialist, nor

did he hold compliance related controlled functions.

4.5.
SMP’s Advisers, who were employees of a company which they owned jointly,

were brought into SMP as consultants prior to the Relevant Period and provided

advice to Pension Transfer clients at SMP. SMP’s Advisers provided advice to SMP’s

clients under the Pension Transfer Model throughout the Relevant Period.

Pension transfers

4.6.
Pensions are a traditional and tax-efficient way of saving money for retirement.

The benefits someone obtains from their pension, particularly under a Defined

Benefit Pension Scheme, can have a significant impact on their quality of life

during retirement and, in some circumstances, can affect when an individual is

able to retire. A Defined Benefit Pension Scheme is particularly valuable because

it offers a secure, guaranteed income for life to members, which typically

increases each year in line with inflation.

4.7.
It is possible to “transfer out” of a Defined Benefit Pension Scheme. This involves

the scheme member giving up the guaranteed benefits associated with

membership in exchange for a CETV, which is typically then invested in a defined

contribution pension. Pursuant to section 48 of the 2015 Act, where the value of

the assets in a Defined Benefit Pension Scheme exceeds £30,000, pension

providers must ensure members take “appropriate independent advice” before

allowing a transfer to proceed. Pension Transfer Specialists are suitably qualified

individuals with permission to advise on such Pension Transfers in accordance with

the Authority’s rules.

4.8.
Unlike a Defined Benefit Pension Scheme, a defined contribution pension does not

provide a guaranteed income for its members but sets the payments that are

required to be paid into the fund to provide a pension benefit, and is itself highly

dependent on the performance of the underlying investment. Pursuant to COBS

19.1.6G, the Authority sets out a general starting assumption for an authorised

firm that transferring out of a Defined Benefit Pension Scheme will not be suitable

for a retail client, unless the firm can clearly demonstrate, on contemporaneous

evidence, that the transfer is in the client’s best interests. This is in light of the

valuable guaranteed benefits offered by Defined Benefit Pension Schemes.

4.9.
Pension Transfer Specialists such as SMP’s Advisers must also be overseen by

senior managers like Mr Cuthbert, who take appropriate practical responsibility

for
their
firms’
arrangements
in
accordance
with
relevant
regulatory

requirements. This ensures robust governance arrangements, well-defined lines

of responsibility, effective internal control mechanisms to monitor and report risks

as well as orderly record-keeping to enable the Authority to monitor the firm’s

compliance with requirements.

4.10.
Authorised firms and Pension Transfer Specialists act as gatekeepers between

clients and the transfer of their pension. Accordingly, clients place significant trust

in them to provide advice on Defined Benefit Pension Scheme transfers. It is the

responsibility of the Pension Transfer Specialist to understand the client’s needs

and account for all the relevant individual circumstances and how these might

affect the advice provided when advising on the suitability of any Pension

Transfer.

Introducer A/the Overseas Property Developer/the Overseas Adviser Firm

4.11.
Introducer A was a UK firm which was not authorised by the Authority. The

Overseas Property Developer was the parent company of Introducer A from the

start of the Relevant Period until mid-2016. Introducer A was dissolved in the

second half of 2017.

4.12.
Towards the end of the Relevant Period, a BBC Panorama programme aired which

focused on Introducer A’s close connections to the Overseas Property Developer,

which offered investments in overseas hotel developments, and how Introducer A

was said to have solicited pension reviews and encouraged pension transfers into

the Overseas Property Developer’s investments.

4.13.
The property investments offered by the Overseas Property Developer were: (1)

illiquid as they could only be sold upon completion and potentially lacked a viable

secondary market; and (2) unlikely to be covered by FOS or FSCS protection.

These investments were high risk and were unlikely to be suitable for retail clients.

Further, a Final Notice published by The Pensions Regulator during the Relevant

Period and publicly available on The Pensions Regulator’s website described the

Overseas Property Developer’s investments as being in a class of investments

which had been highlighted by Action Fraud as “potentially fraudulent”.

4.14.
According to one of SMP’s Advisers, Introducer A was a business partner of the

Overseas Adviser Firm, a financial advisory group based in Cyprus which was not

authorised by the Authority and which did not have the relevant permissions to

advise on Pension Transfers in the UK.

Design of the Pension Transfer Model

4.15.
In October 2015, one of SMP’s Advisers was introduced through another SMP

Adviser to Individual A, a Director of Firm A, a firm not authorised by the Authority.

Individual A introduced introducers to SMP, including Introducer A. Individual A

was seeking a partner for Introducer A, which itself was seeking a firm authorised

by the Authority to assist with providing the transfer advice component of advice

under an advisory model which was similar to a Two-Adviser Model.

4.16.
In October 2015, discussions took place between SMP, Introducer A and Individual

A, following which it was agreed that an advice model, the Pension Transfer Model,

would be established at SMP. Mr Cuthbert led SMP’s Compliance Manager to

consider the proposals together as SMP’s compliance function. Mr Oxberry and Mr

Cuthbert then agreed that SMP would establish an advice process which would

become the Pension Transfer Model.

4.17.
Preliminary discussions within SMP were conducted, on an informal basis, on how

advising the Overseas Adviser Firm’s clients would work in practice. The proposals

were drafted by SMP’s Compliance Manager in conjunction with SMP’s Advisers.

The extent of the Compliance Manager’s contribution was to assist with the drafting

of SMP’s template advice letter to refer to “TVAS-only” advice, which in any case

was further “pared down” by one of SMP’s Advisers once they deemed it

unnecessary to gather full client information when issuing a TVAS Report based

on a critical yield analysis alone.

4.18.
All clients advised using the Pension Transfer Model were brought to SMP via

introducers or financial advisers. Mr Cuthbert was responsible for ensuring that

agreements between introducers and the Firm were documented, which he

delegated to SMP’s Compliance Manager to arrange. SMP received the Firm A

Introducers Agreement which was signed on behalf of Firm A and dated 23

November 2015, to be countersigned by Mr Cuthbert or Mr Oxberry on behalf of

SMP, in which Introducer A and the Overseas Property Developer were referred to

together as “3rd Party Introducer 1: [Introducer A] / [the Overseas Property

Developer]”. This agreement provided that SMP would pay to Firm A £200 or £250

for each client introduced to SMP via these entities. This agreement also provided

that Firm A would introduce other third-party introducers to SMP (having already

introduced Introducer A to SMP in October 2015).

4.19.
During the development of the Pension Transfer Model, SMP had access to an

external compliance consultancy. However, at no time during the establishment of

the Pension Transfer Model was the Compliance Consultant contacted by Mr

Cuthbert or the Compliance Manager to verify or comment on the Firm’s proposals.

Further, Mr Cuthbert had specific opportunities to include clients advised under the

Pension Transfer Model when client files were audited by the Compliance

Consultant in November 2015 and January 2016. However, Mr Cuthbert did not

take the opportunity to verify SMP’s assumptions about the Pension Transfer

Model’s compliance or the adequacy of the client files. The Compliance Consultant

was not made aware of the existence of the Pension Transfer Model during its

visits, and ultimately not until June 2016.

4.20.
Further, no due diligence or prior research was conducted by Mr Cuthbert or SMP’s

Compliance Manager on novel advice models similar to the Pension Transfer Model

before it was implemented by SMP. Mr Cuthbert did not question SMP’s Advisers

on where this advice model originated from. No additional due diligence was

performed on Introducer A, or other introducers involved in the Pension Transfer

Model, to ascertain the details of the proposed onward investments and any

potential conflicts of interest.

4.21.
At least 547 clients were advised by SMP using the Pension Transfer Model during

the Relevant Period, of which 440 were introduced to SMP via Introducer A. The

total value of the Defined Benefit Pension Schemes of these 547 clients was just

under £60 million, with an average value of approximately £104,000. Introducer

A gave its assurances to SMP that it would ensure that all clients would be fully

advised by the Overseas Adviser Firm prior to those clients proceeding with

Pension Transfers. In reality, the confirmation of advice letters provided by SMP,

as an authorised independent adviser, satisfied the requirement under section 48

of the 2015 Act that the trustees of the member’s defined benefit scheme must

check that those members had received “appropriate independent advice” before

proceeding with a Pension Transfer, thereby providing the legal authority to the

trustees of clients’ ceding schemes to release members from their schemes.

Remuneration arrangements and fees received by SMP

4.22.
The arrangement with Introducer A as set out in the relevant introducer

agreement was that SMP would be paid £795 by Introducer A for every client

referral which SMP advised. Other introducers paid similar fees to SMP. There was

an arrangement for 70% of these fees to be paid to SMP’s Advisers into their

jointly owned company, with SMP retaining 30% of the fees, and with a further

percentage pay-away received by the individual who introduced the relevant

introducer to SMP (as negotiated in the introducers agreement).

SMP’s Pension Transfer Model as compared with the Full Advice and Two-

The Full Advice Model

4.23.
During the Relevant Period, SMP’s Advisers provided advice on Defined Benefit

Pension Scheme transfers to clients using the Full Advice Model. The Full Advice

Model differed from SMP’s Pension Transfer Model and operated as follows:

(a)
a range of information would be gathered from the client by an adviser,

including information about the client’s financial goals and circumstances,

their attitude to risk and their capacity for loss;

(b)
a letter and report would be sent to the client and a meeting arranged to

discuss its findings. A TVAS Report would set out, amongst other things,

a comparison relating to specific benefits (for example, death benefits)

and a critical yield calculation. The critical yield offers guidance based on

set assumptions (expressed as a percentage) on the level of return the

client’s proposed onward investment will need to achieve, up to the point

they start drawing from the pension, to match the benefits they would

receive from their Defined Benefit Pension Scheme. The timing from the

initial client contact through to the provision of the TVAS Report would

usually take three to four weeks;

(c)
the adviser would also advise on the onward investment product into

which the client’s Defined Benefit pension funds would be released. To

advise the client, the adviser would compare the client’s ceding scheme

against the proposed onward investment. This would provide the client

with a clear understanding of their existing benefits and their projected

entitlements if they were to transfer their pension. The adviser would

assess the suitability of the proposed transfer in light of the client’s

circumstances, objectives and risk tolerance; and

(d)
if the adviser’s personal recommendation was for a client to proceed with

a Pension Transfer, SMP would provide a confirmation of advice letter to

the trustee of the client’s occupational pension scheme, authorising the

trustee to release the client’s funds from their occupational pension.

4.24.
In summary, the Full Advice Model consisted of one adviser giving two separate

pieces of advice: (1) whether to give up the safeguarded Defined Benefit Pension

Scheme; and (2) how the client’s pension funds should be invested, should the

Pension Transfer proceed. It is critical that the advice covers both parts of the

Pension Transfer, which cannot be advised on in isolation. This is because, in order

to determine the suitability of a Pension Transfer, the adviser must assess the

proposed investment against the projected performance of the ceding scheme and

consider whether that proposed investment is suitable in accordance with the

client’s circumstances and attitude to risk.

4.25.
At SMP, each Full Advice Model case took several months from initial contact to

completion with the transfer of funds. Instead of earning a flat fee (as for advice

under the Pension Transfer Model), SMP would charge the client its normal rates

which would be significantly greater. In some cases, clients who were referred for

advice under the Pension Transfer Model were switched to the Full Advice Model.

No criticism of the Full Advice Model as operated by the Firm is made by the

Authority.

The Two-Adviser Model

4.26.
In contrast, a Two-Adviser Model differs in that one firm provides defined benefit

transfer advice (paragraphs 4.23(a), (b) and (d) above) and another firm provides

investment advice on the proposed onward investment (paragraph 4.23(c) above),

if the Pension Transfer were to proceed.

4.27.
It is common for clients who use a Two-Adviser Model to have the process of their

Pension Transfers managed by introducers who manage the client’s end-to-end

journey on the client’s behalf. Using this model, the introducers can organise two

separate advisers to provide advice on the separate parts of the client’s Pension

Transfer.

4.28.
However, the Two-Adviser Model introduces additional risks over the Full Advice

Model because the Pension Transfer advisers may have limited oversight over how

onward investment advice is provided to the client, meaning clients may not

receive complete advice on all the necessary aspects of the transfer. These risks

need to be appropriately managed by Pension Transfer advisers.

4.29.
SMP’s Pension Transfer Model was more akin to the Two-Adviser Model, in that

SMP only advised on the Pension Transfer out of the ceding scheme and did not

advise on aspects relating to the onward investment of the pension funds.

4.30.
Mr Cuthbert permitted SMP’s Pension Transfer Model to operate during the

Relevant Period notwithstanding its significant and obvious deficiencies, which are

set out at paragraphs 4.31 to 4.62 below.

SMP’s advice constituted a Personal Recommendation

4.31.
Mr Cuthbert stated that he understood the Pension Transfer Model to constitute

the first step in a “triage” process, where clients were directed to receive full

Pension Transfer advice by a separate independent financial adviser later in the

advice process.

4.32.
Until May 2016, SMP’s client advice letters were provided only to SMP’s partner

introducers, who were trusted to send these letters to clients and to arrange for

the client to receive full advice from a third-party independent financial adviser if

they were to proceed with a Pension Transfer. From 13 May 2016, however, SMP’s

internal processes were changed to mandate that clients should receive these

advice letters directly from SMP. Mr Cuthbert stated that he did not believe SMP

was providing Personal Recommendations to clients on the grounds that:

(a) SMP was dealing directly with partner introducers (and not the client) and

received all client information via their partner introducers; and

(b) SMP’s client advice letters contained caveats that its advice was based solely

on a TVAS Report and that clients should first receive full advice and the

necessary Personal Recommendation from a third-party independent financial

adviser before proceeding with a Pension Transfer.

4.33.
Further, SMP was remunerated by its partner introducers per case (rather than

being paid a fee directly from the client being advised).

4.34.
Mr Cuthbert stated that he believed that SMP’s advice, which the Firm directed

towards its partner introducers (and not the client) and which was based solely on

a TVAS Report, did not constitute a Personal Recommendation to clients. Mr

Cuthbert further stated that he believed SMP’s advice did not give rise to various

regulatory requirements, such as the need to fully consider the client’s

circumstances and their suitability for a Pension Transfer.

4.35.
The Authority considers that, notwithstanding the caveats contained within SMP’s

client advice letters, SMP was always, during the Relevant Period, providing

Personal Recommendations to its clients when issuing advice letters to introducers.

The Authority considers that the giving of advice solely based on a TVAS Report

constituted
the
provision
of
Pension
Transfer
advice
and
a
Personal

Recommendation, an arrangement which could not escape from the regulatory

requirements to consider fully the client’s circumstances and suitability for a

Pension Transfer. The Authority considers that this would have been obvious to Mr

Cuthbert during the Relevant Period, in light of his experience as a financial adviser

and his senior positions as both CF10 (Compliance Oversight) and CF4 (Partner)

at SMP, and that he closed his mind to the risks of SMP’s clients receiving very

limited advice in failing to check the regulatory obligations required for the Pension

Transfer Model. It was irrelevant that, prior to May 2016, the client advice letter

was directed to SMP’s partner introducers and not the clients themselves.

Limited information obtained from clients

4.36.
Under SMP’s Pension Transfer Model, SMP’s Advisers sought very limited

information from clients. The extent of the information provided was limited to

contact information and general information on their ceding scheme. This

information was commonly provided by introducers and not directly by the clients

themselves. Further, SMP did not meet any of the clients who used the Pension

Transfer Model and the Firm’s primary point of contact was introducers, rather

than clients themselves.

4.37.
During the early stages of the Relevant Period, SMP removed the requirement to

obtain client fact-finds and risk profile questionnaires under the Pension Transfer

Model. This requirement was removed because this information was deemed

unnecessary when issuing a TVAS Report based solely on a critical yield analysis.

SMP’s Advisers did not gather full information from clients in order to determine

independently the client’s best interests. Instead, they received from introducers

very limited client details, which did not include the client’s full financial or personal

circumstances (such as their possession of life cover and information on their total

assets and liabilities), attitude to transfer or investment risk or capacity for

financial loss. When the client’s details were required as inputs to generate a TVAS

Report to issue a Personal Recommendation, much of the inputted information was

assumed (including the client’s employment status and estimated retirement age).

4.38.
Initial scoping and information gathering discussions between SMP and the client

did not take place, and in most instances, the advisers did not have any contact

from the client directly. SMP’s primary point of contact was the introducers, rather

than clients themselves. On the occasions where SMP conversed with clients

directly, this was on an ad hoc basis to address client queries, and was not to

receive the client’s full financial or personal circumstances with a view to providing

complete transfer advice.

4.39.
Mr Cuthbert failed to implement appropriate systems to ensure the Firm gathered

sufficient client information. Mr Cuthbert stated that he believed SMP’s advice

constituted the first step in a triage process and therefore did not constitute a

Personal Recommendation to clients. Mr Cuthbert accepted that SMP’s advice did

in fact constitute a Personal Recommendation and the advice model’s failure to

gather client information would not therefore have been approved by SMP’s

external Compliance Consultant.

4.40.
SMP’s processes of fully relying on introducers to gather sufficient client

information were inappropriate because SMP’s Advisers were required to gather

client information themselves in the act of advising on, and facilitating, Pension

Transfers when issuing a Personal Recommendation. Mr Cuthbert failed to address

the risk that, notwithstanding the failures of giving advice based solely on a TVAS

Report, that the issuing of advice solely based on a TVAS Report nonetheless

constituted
the
provision
of
Pension
Transfer
advice
and
a
Personal

Recommendation, which did not escape from the regulatory requirement to fully

consider the client’s circumstances and suitability for a Pension Transfer. SMP was

required to give appropriate independent advice by obtaining the necessary

information from clients and it could not delegate its regulatory responsibilities to

third parties.

4.41.
The Authority assessed a sample of 21 advice files of the clients who were advised

by SMP under the Pension Transfer Model during the Relevant Period. The

Authority found that all 21 advice files were non-compliant with relevant regulatory

requirements because of material information gaps in the collection of client

information. Due to these material information gaps, the Authority was unable to

assess the suitability of the transfer advice given by SMP. In particular, SMP’s

Advisers failed to gather:

(a)
information on the client’s knowledge and experience relevant to the specific

investment, as required by COBS 9.2.1R(2)(a) and 9.2.3R;

(b)
information on the client’s financial situation, including information on the

source and extent of their regular income, their assets and regular financial

commitments, as required by COBS 9.2.1R(2)(b) and 9.2.2R(3); and

(c)
information about the client’s investment objectives, including their

preferences regarding risk taking and their risk profile, as required by COBS

Reliance on introducers to perform regulatory obligations with minimal contact

with other financial advisers

4.42.
SMP placed full reliance on introducers, or other financial advisers, to fulfil the

regulatory requirements of obtaining client information before making Personal

Recommendations. However, SMP had little or no direct contact with other advisers

who needed to be part of the advice process (such as financial advisers who

supposedly provided investment advice on the proposed onward investment). The

majority of SMP’s contact was with the introducers, and therefore, nothing was in

place to ensure the client information obtained by introducers was accurate.

4.43.
With regard to SMP’s relationship with the Overseas Adviser Firm, for example,

the financial adviser was fully relied upon to perform the necessary client fact-find

and risk profile. However, SMP’s Advisers did not have contact with the Overseas

Adviser Firm directly, and only corresponded with it via Introducer A. SMP’s

reliance on others to fulfil regulatory requirements and protect the best interests

of clients is reflected in the Firm’s template advice letter, which states:

“Taking the critical yield in isolation, based on the above, we would not

recommend that you transfer your FS pension benefits away from [the

relevant pension plan].

This recommendation does not take into account your personal

circumstances, attitude to risk and objectives. If you have a low attitude to

risk the transfer may not be suitable for you […] If you still intend to proceed

with the transfer it is recommended that you seek full advice that takes into

account the above areas.”

4.44.
Despite SMP’s reliance on introducers and minimal contact with other financial

advisers who supposedly offered full advice later in the transfer process, no

process was in place to monitor client outcomes or verify whether clients had

received full advice at any stage in the process. Further:

(a) no due diligence was conducted to consider properly whether financial

advisers, such as the Overseas Adviser Firm, were suitable to give advice.

Had meaningful due diligence been conducted, SMP would have ascertained

that certain financial advisers and introducers were connected entities with a

shared financial interest in promoting high-risk investments (as was the case

with the Overseas Adviser Firm and Introducer A, which had a shared financial

interest in promoting investments in the Overseas Property Developer); and

(b) Mr Cuthbert stated that he assumed that introducers would refer clients to

fully authorised financial advisers. Mr Cuthbert also stated that he assumed

SMP’s partner introducers had their own regulatory permissions to provide

the TVAS Reports generated by SMP. The Authority does not accept this

explanation, given that Mr Cuthbert took insufficient steps to ascertain the

extent to which introducers or financial advisers were authorised or

supervised to perform an appropriate standard of Pension Transfer advice

which fulfilled information gathering requirements, or to ascertain the extent

to which non-UK introducers were obliged to follow such standards.

Use of a model portfolio within the TVAS Report

4.45.
During the Relevant Period, COBS 19.1.2R(1) required that a firm preparing and

providing a transfer analysis had to compare the benefits likely (on reasonable

assumptions) to be paid under a Defined Benefit Pension Scheme with the benefits

afforded by a personal pension scheme, stakeholder pension scheme or other

pension scheme with flexible benefits, before advising a retail client to transfer out

of a Defined Benefit Pension Scheme. COBS 19.1.3G(1) required that this

comparison should take into account all of the client’s relevant circumstances, and

COBS 19.1.3G(4) required that this comparison should be illustrated on rates of

return which take into account the likely expected returns of the assets in which

the retail client's funds would be invested.

4.46.
However, since SMP did not receive from the introducer for the purposes of the

TVAS any information regarding the onward investment or the likely expected

returns of the assets into which the client’s funds would be invested, each client’s

TVAS Report had to be generated based on limited information.

4.47.
Instead, when client TVAS Reports were produced, the advisers made assumptions

for each client that they would be investing into a generic personal pension

scheme. The TVAS calculation for all clients advised under the Pension Transfer

Model was therefore entirely unreliable, in failing, amongst other things, to account

for the reality of the proposed onward investment.

4.48.
In reality, certain of the onward investments were linked to high-risk, illiquid and

unregulated property investments offered by the Overseas Property Developer,

the details of which SMP’s Advisers did not disclose to clients, and of which Mr

Cuthbert did not take steps to investigate.

Personal Recommendation to transfer based solely on TVAS calculation

4.49.
COBS 9.2.1R required that, when making a Personal Recommendation, an

authorised firm must obtain information regarding the client's knowledge and

experience relevant to the specific type of investment, financial situation and

investment objectives. Instead, SMP, through its advisers, based its advice solely

on a TVAS Report and a critical yield calculation. This placed its clients at risk

because it issued Personal Recommendations and facilitated Pension Transfers

without fully considering the client’s circumstances or suitability.

4.50.
SMP’s template advice letter included a statement that the recommendation

provided within the advice letter considered “the critical yield in isolation” and that

its recommendation “does not take into account… personal circumstances or

attitude to risk and objectives”.

4.51.
Further, if SMP’s TVAS Report generated a critical yield above a certain threshold

(initially 7.5%, and later 6%), SMP would not recommend the client to transfer

out of their current scheme. The critical yield percentage threshold was therefore

not a figure individually applied to each client’s circumstances in accordance with,

for example, their individual attitudes to investment risk. These thresholds were

based on what Mr Cuthbert stated he deemed to be typical investment returns

achievable at that time, but no formal document or procedure recorded the Firm’s

processes of deciding, or amending, the threshold.

4.52.
83 of the (at least) 547 clients advised by SMP under the Pension Transfer Model,

or approximately 15% of clients, were recorded as being advised a Pension

Transfer may be in their interest. 459, or approximately 83% of clients, were

recorded as being advised not to transfer (and the remaining outcomes were

unrecorded).

Confirmation of advice letter issued to the ceding scheme trustee

4.53.
Following the generation of a TVAS Report, SMP’s Advisers issued confirmation of

advice letters which were addressed to the ceding scheme trustee. These letters

were provided to the client’s introducers and would be forwarded to the ceding

scheme trustee as the basis of the authority to transfer the client’s pension funds.

4.54.
The template confirmation of advice letters issued by SMP contained the following

(a) SMP was “authorised and regulated by the Financial Conduct Authority, FCA

No 537804 […] to carry on the regulated activity in 53E [sic] of the Regulated

Activities Order” to advise on Pension Transfers;

(b) confirmation that SMP’s Advisers held “the appropriate permission under Part

4A of the Financial Services and Markets Act 2000 […] to carry on the

regulated activity (advising on conversion or transfer of pension benefits) in

Article 53E of the FCA Regulated Activities Order”;

(c) confirmation that SMP’s Advisers had advised the client, with the following

templated statement: “I, [SMP Adviser’s name] can confirm that I have given

advice solely in relation to a Transfer Valuation Advice Report in respect of

[the client’s] benefits in [the client’s Defined Benefit Pension Scheme]”; and

(d) depending on whether the client’s critical yield lay above or below SMP’s

critical yield threshold (see paragraph 4.51), a recommendation regarding

whether the client should transfer their pension benefits with the statement

of either:

(i)
“Based on the TVAS only we do not recommend that [the client]

transfers their pension benefits away from [the client’s Defined Benefit

Pension Scheme]”; or

(ii)
“Taking the critical yield in isolation […] we would normally recommend

that [the client] considers transferring their pension benefits away from

[the client’s Defined Benefit Pension Scheme].”

4.55.
SMP’s template confirmation of advice letters were also issued with a declaration

that the client was advised solely on the basis of a critical yield analysis and that

the Firm’s advice “does not take into account the client’s personal circumstances,

attitude to risk and objectives”. Further, the letters contained a caveat that the

adviser did not give advice regarding the receiving investment scheme. For the

purposes of the trustees’ legal position for releasing members from their schemes,

it was immaterial as to whether SMP had advised the client whether to transfer

out of their Defined Benefit Pension Scheme or not.

4.56.
Although SMP’s confirmation of advice letters were addressed to the client’s

ceding scheme trustees, they were provided to introducers. It was not necessary

for the purposes of section 48 of the 2015 Act for trustees to have sight of the

underlying advice given by the adviser once written confirmation of advice was

received in the form prescribed by Regulation 7 of the 2015 Regulations,

confirming that advice had been provided by an authorised independent adviser

with permission to advise on Pension Transfers. Trustees were not responsible for

verifying the adequacy of the advice obtained by clients and relied on the

authorised independent adviser to have discharged its regulatory responsibilities

to advise on Pension Transfers appropriately.

4.57.
SMP provided confirmation of advice letters for the vast majority of clients it

advised under the Pension Transfer Model (at least 484 out of 547 clients),

including those clients whom the Firm had advised should not proceed with a

Pension Transfer. This included clients whom the Compliance Manager described

as being in the category of “definitely never transfer”, such as those with critical

yield values of above 15%.

Misleading ‘Reasons to Transfer’ letters directed to clients who wished to proceed

with a Pension Transfer against advice

4.58.
From April 2016, SMP changed its internal processes to require clients who wished

to proceed with a Pension Transfer against SMP’s advice (in cases where the critical

yield was above the 7.5% or 6% threshold and SMP’s advice was not to transfer)

to complete a ‘Reasons to Transfer’ letter confirming that they had not received

full advice but still wished to proceed with a Pension Transfer based on the TVAS

Report and critical yield. This was a template letter containing an empty box, which

the client was expected to complete in their own words and handwriting, giving

the reason for their transfer.

4.59.
An example of SMP’s failure to place such clients in an informed position is the

case of Ms W, whose ’Reasons to Transfer’ letter provided her reasons for deciding

to transfer her fund and included a signed disclaimer stating:

"I can confirm, that although I have not received full advice, as

recommended in your letter, I still wish to go ahead based on the Transfer

Value Analysis Report and the critical yield required of 8.1%.

Please, therefore confirm to the trustees that I have received the required

level of advice in order for the funds to be released.

I understand that I will be losing all guarantees attached to my transferred

plan."

4.60.
Ms W’s file included no evidence that the Firm attempted to explain further the

risks associated with the transfer, such as the loss of all Defined Benefit

guarantees. The reason for transfer was purely based on the critical yield of 8.1%,

which, as set out above, fails to consider the client’s circumstances, financial

objectives or attitudes, and applies an arbitrary critical yield threshold (of 6%),

which ignores the client’s investment risk tolerance.

4.61.
Further, the template letter was also misleading because of the following

statements: ”[…] although I have not received full advice […] I still wish to go

ahead based on the Transfer Value Analysis Report” and “[…] I have received the

required level of advice in order for the funds to be released.” SMP’s Advisers

stated that the “full advice” was not provided by SMP, but the “full” and “required

level of advice” was received from the relevant financial adviser, such as the

Overseas Adviser Firm. However, the Authority considers that this communication

is misleading and failed to treat clients fairly, because it assumed that clients

understood the difference between SMP’s limited advice and the complete advice

they could have received under a Full Advice Model. The statements imply that:

(a) Ms W was placed in an informed position to understand SMP’s incorrect belief

that its critical yield analysis did not constitute full advice, but was

nonetheless sufficient to facilitate a Pension Transfer; and

(b) Ms W appreciated the difference between the limited advice she received from

SMP, and the more extensive advice she could have received under a Full

Advice Model, but nonetheless confirmed that SMP’s TVAS-only advice should

form the basis of her decision.

4.62.
No steps were taken to ensure clients fully understood the implications of the

‘Reasons to Transfer’ letter which, together with the confirmation of advice letter,

facilitated Pension Transfers from Defined Benefit Pension Schemes based on

limited advice. Therefore, SMP wrote to Ms W in an unclear and misleading way.

Such conduct placed clients at risk, because clients were exposed to SMP’s

seriously flawed advice process but were not given sufficient warning their pension

funds would be better safeguarded through receiving full and comprehensive

advice.

Operation of the Pension Transfer Model under Mr Cuthbert

Failure to consider SMP’s regulatory obligations during the creation and operation

of SMP’s advice model

4.63.
Mr Cuthbert’s failure to take reasonable steps to ensure SMP complied with

regulatory requirements stemmed from his failure to consider or check whether

SMP was issuing Personal Recommendations to clients under the Pension Transfer

Model. Mr Cuthbert’s explanation as to why SMP was not issuing Personal

Recommendations to clients was because:

(a)
the issuance of a TVAS Report to clients based solely on an analysis of critical

yield values did not constitute a Personal Recommendation and therefore

did not trigger relevant regulatory obligations (such as to assess fully the

client’s financial and personal circumstances and objectives);

(b)
SMP’s clients and the intended recipient of SMP’s advice letters were SMP’s

partner introducers, and not the client; and

(c)
SMP’s TVAS Reports constituted the first step in a “triage” arrangement,

where SMP were “one link in the chain at the beginning” and with clients

advised to then seek full advice through a separate regulated financial

adviser. In circumstances where clients were advised by SMP not to proceed

with a Pension Transfer (on the basis of a high critical yield), the client’s

advice process journey ended with no Personal Recommendation given.

4.64.
Further, Mr Cuthbert stated that he assumed Pension Transfers would not be

facilitated by SMP’s involvement through its TVAS-only advice model, in that

ceding scheme trustees, upon receiving a confirmation of advice letter which

stated that SMP’s advice was based solely on “the critical yield in isolation”, would

not proceed with the Pension Transfer. The Authority does not accept this

explanation, and considers that it would have been obvious to Mr Cuthbert, in light

of his experience as a financial adviser and his senior positions at SMP as CF4

(Partner) and CF10 (Compliance Oversight), that SMP’s confirmation of advice

letters fulfilled the requirements of section 48 of the 2015 Act and could be relied

on by the trustees of ceding schemes to release members from their schemes,

including clients who were advised by SMP not to transfer. In closing his mind to

the risk that clients would be released from their schemes at the point when those

clients had received very limited advice, Mr Cuthbert unreasonably exposed SMP’s

clients to a significant risk of financial detriment.

Failure to ensure SMP’s Compliance Consultant was consulted

4.65.
At no time during the establishment or operation of the Pension Transfer Model

was SMP’s Compliance Consultant approached by SMP to advise on the compliance

of the Pension Transfer Model. The Compliance Consultant was also not made

aware of the Pension Transfer Model during its regular audits or visits to SMP’s

offices (in November 2015 and January 2016).

4.66.
SMP only consulted the Compliance Consultant in respect of the Pension Transfer

Model after the Relevant Period, in September and October 2016. The Compliance

Consultant then listed to SMP its various concerns and recommendations for

remedial action, including to review SMP’s internal processes to evidence that it

would only continue offering full advice on Defined Benefit Pension Transfers.

Further, the Compliance Consultant, in its audit of SMP case files on 2 February

2017, assessed that none of the fourteen cases or two resubmissions of SMP’s

cases were suitable. The Compliance Consultant stated that had it been consulted

regarding the Pension Transfer Model at the outset, it would not have

recommended the advice model to go ahead. Mr Cuthbert accepted that he should

have verified the Firm’s advice model with the Compliance Consultant, who would

have “pulled the plug on it straight away”.

4.67.
In failing to appropriately obtain an independent expert opinion, Mr Cuthbert

closed his mind to the significant risks of detriment to SMP’s clients inherent in the

Pension Transfer Model. Mr Cuthbert’s failure in this regard was serious because:

(a) Mr Cuthbert knew that SMP would be engaging in a novel and untested advice

process yet did not take steps to verify its advice model;

(b) SMP did not historically have any relationship with third-party introducers and

the introduction of at least 17 new introducers to the Firm represented a

major change in direction for SMP. Introducer A was amongst these

introducers, who initially promoted the Pension Transfer Model with a view to

bringing about transfers into unregulated overseas property investments

offered by the Overseas Property Developer. Despite this major change to

SMP’s relationships, Mr Cuthbert closed his mind to the significant risks to

SMP’s clients that those unknown introducers might bring about investments

of clients’ pension funds into investments which were unsuitable for them;

and

(c) Mr Cuthbert was presented with numerous warning signs regarding the risks

of SMP’s advice process throughout the Relevant Period (see paragraph 4.79),

in addition to the Compliance Manager’s concern that confirmation of advice

letters were being sent to ceding scheme trustees regarding clients who

wished to proceed with a Pension Transfer against SMP’s advice (see

paragraph 4.76). However, Mr Cuthbert failed to take action in response by

consulting the Compliance Consultant during the operation of the Pension

Transfer Model.

Failure to ensure that SMP conducted adequate due diligence on introducers

4.68.
SMP had not used introducers prior to the operation of the Pension Transfer Model.

Upon joining SMP prior to the Relevant Period, SMP’s Advisers introduced

introducers and financial advisers for SMP to partner with under the Pension

Transfer Model. SMP carried out minimal due diligence on those introducers or on

whether those advisers were suitable to provide transfer advice, relying instead

on the pre-existing relationship SMP’s Advisers had with them and what SMP’s

Advisers said about them. Mr Cuthbert could not recall the number of introducers

involved in the Pension Transfer Model, nor could he recall whether certain

introducers were involved in the advice model; further, he had no knowledge of

the details of the existing relationships they had with SMP’s Advisers.

4.69.
SMP’s onboarding of introducers consisted of:

(a) a high-level questionnaire which only requested basic information on the

introducer, namely its name and address in addition to details on the type of

introduction it would be making to SMP, its projected figures for the number

of introductions it would make, and its fees. This questionnaire was not

completed for every introducer, nor was the questionnaire consistently

followed up on and no central record of introducers was kept; and

(b) a generic introducer agreement to be entered into between SMP and the

introducer. However, in certain instances, the introducer agreement was

signed many months after Pension Transfers were finalised.

4.70.
No additional due diligence was undertaken on introducers and no formal process

for carrying out meaningful due diligence was in place. Because the introducers

had an existing relationship with third-party financial advisers, these introducers

were treated by Mr Cuthbert as having been appropriately vetted; Mr Cuthbert

stated that it was then a case of “passporting them over” to SMP’s advice model.

Further investigations did not take place to ascertain whether the existing

relationship between the financial advisers and introducers were because they

were connected entities with a shared interest in promoting high-risk investment

schemes (as was the case with the Overseas Adviser Firm and Introducer A, which

had a shared financial interest in promoting investments in the Overseas Property

Developer).

4.71.
SMP’s Advisers denied knowledge of the close links between the Overseas Adviser

Firm, Introducer A and the Overseas Property Developer. However, the Authority

considers that they received obvious indications that the Overseas Adviser Firm

would advise clients to transfer their pension funds into the Overseas Property

Developer’s high-risk property investments. Although Introducer A introduced the

vast majority of SMP’s clients, Mr Cuthbert did not investigate whether a common

interest existed between the Overseas Adviser Firm, Introducer A and the

Overseas Property Developer to promote high risk investments. Mr Cuthbert also

failed to investigate or carry out adequate due diligence on the other introducers

which SMP’s Advisers brought in to work alongside the Firm or adequately

challenge them on their knowledge of the unregulated investments or the likely

risks. Mr Cuthbert did not meet anyone from the Overseas Adviser Firm or

Introducer A and all contact with them was via SMP’s Advisers. Mr Cuthbert later

admitted he should have been “less trusting”, especially given the obvious

indications SMP’s Advisers received of the high-risk investments promoted by

Introducer A and the Overseas Adviser Firm.

4.72.
SMP’s Compliance Consultant reached the conclusion, in September 2016, that “it

[was] unclear if due diligence has been completed on any of the introducers.” The

Compliance Consultant then recommended that SMP should review the introducers

on file to ascertain the extent they held necessary regulatory permissions and

qualifications.

4.73.
It was suggested by Mr Cuthbert that it was sufficient, from a compliance

perspective, that non-UK adviser and introducer firms were being passported into

the UK by the Authority. Mr Cuthbert thereby closed his mind to the significant

risks that SMP’s clients would be encouraged by unauthorised firms which lacked

the appropriate UK regulatory permissions to advise on Pension Transfers to invest

into high-risk investments which were unsuitable for them, and failed to take steps

to protect them.

Failure to monitor the advice provided by SMP’s Advisers adequately

4.74.
During the Relevant Period, Mr Cuthbert reduced his office hours and was also

largely absent from the workplace, sometimes not coming in for some weeks,

although he was contactable by telephone. Mr Cuthbert’s limited involvement in

SMP’s affairs was a result of his planned retirement through the intended sale of

SMP.

4.75.
Mr
Cuthbert
delegated
his
day-to-day
CF10
(Compliance
Oversight)

responsibilities to SMP’s Compliance Manager, whom Mr Cuthbert did not provide

with adequate support or guidance in light of his level of experience to ensure

compliant advice was given.

4.76.
When SMP’s Compliance Manager realised SMP’s Advisers’ advice might present

risks to clients, the Compliance Manager responded to these issues in an ad hoc

manner. However, he was left unsupported by Mr Cuthbert with the result that his

measures were inadequate. In particular:

(a) on 1 October 2015, the Compliance Manager reminded SMP’s Advisers of their

obligations under relevant regulatory requirements when advising on and

facilitating Pensions Transfers by listing the documents required on file, such

as a client completed fact find and suitability report. The Compliance

Manager’s advice was however ignored, including by Mr Cuthbert, on the

purported basis that SMP was not offering full advice on Pension Transfers

and therefore did not require those documents on file. The Compliance

Manager was unsupported by Mr Cuthbert, who failed to take steps to check

SMP’s regulatory obligations and whether it was necessary for SMP to receive

a full client fact-find and attitude to risk capture if the confirmation of advice

letter stated SMP’s advice was based solely on TVAS Report;

(b) when SMP’s Compliance Manager became concerned that SMP was facilitating

transfers based on limited information, the confirmation of advice letter

(received by ceding scheme trustees) was changed to state that the advice

was based solely on a TVAS Report. This was, however, insufficient to prevent

transfers where clients had been inadequately advised; in only one instance,

Mr Cuthbert received a call from a trustee asking for further clarification as to

the meaning of the TVAS-only advice letter. Instead, it was usual for trustees

to consider that SMP’s confirmation of advice letters fulfilled the requirements

of section 48 of the 2015 Act, which were used to release client funds from

their Defined Benefit Pension Schemes. Mr Cuthbert stated that he assumed,

without further investigation or due diligence, that ceding scheme trustees

would reject SMP’s confirmation of advice letters if they qualified the advice

as being based solely on TVAS Report. Mr Cuthbert therefore failed to

investigate how ceding scheme trustees would respond to SMP’s confirmation

of advice letters, or appropriately warn trustees, which therefore enabled SMP

to facilitate hundreds of Pension Transfers;

(c) in February 2016, when the Compliance Manager first realised that

confirmation of advice letters were being sent to ceding scheme trustees for

clients on almost every occasion, he raised this with Mr Cuthbert. This

included for clients in the category of “definitely never transfer”, such as those

with a critical yield value of above 15%. The Compliance Manager also

recommended to SMP’s Advisers, via a compliance memorandum, that

confirmation of advice letters should not be provided to trustees in relation to

clients when it was not in their best interests to transfer. However, the

Compliance Manager’s suggestions were ignored by SMP’s Advisers because

Mr Cuthbert took no steps to enforce the recommendation or monitor whether

it was being complied with. Mr Cuthbert stated that he assumed SMP’s

Advisers no longer sent confirmation of advice letters to trustees, which was

not the case;

(d) from April 2016, SMP’s Advisers continued to send confirmation of advice

letters to ceding scheme trustees, but instead asked for ‘Reasons to Transfer’

letters in relation to clients who wished to transfer against SMP’s advice. As

set out in paragraphs 4.58 to 4.62, the receipt of client ‘Reasons to Transfer’

letters was insufficient to safeguard the client’s best interests because clients

were not appropriately advised by SMP whether they should or should not

transfer, and were provided with misleading communications regarding the

quality of the advice they received. Mr Cuthbert stated that the intention of

the ‘Reasons to Transfer’ letter was to “make the [client] think more deeply

about their reasons to transfer”. However, no steps were taken by SMP to

appropriately and independently inform clients of their relevant reasons to

transfer, especially considering SMP did not have sight of the client’s full

financial or personal circumstances; and

(e) in May 2016, SMP’s advice process was further amended by SMP’s Compliance

Manager so that SMP would send its TVAS Reports and advice letters to clients

directly, rather than only sending these to SMP’s partner introducers (and

then onto ceding scheme trustees). Mr Cuthbert stated that this measure

would give clients greater awareness of the advice process, including that the

advice they received was based purely on a critical yield value. These

amendments were inadequate because no steps were taken by SMP to

monitor or ensure that clients then proceeded to receive full investment

advice by a regulated adviser before entering into their Pension Transfer.

4.77.
Further, the Compliance Manager was delegated to lead on important compliance

responsibilities when, in light of Mr Cuthbert’s responsibilities as holder of the CF10

(Compliance Oversight) controlled function and the Compliance Manager’s

inexperience, it was inappropriate for Mr Cuthbert to leave the Compliance

Manager unsupervised. For example:

(a) Mr Cuthbert delegated to the Compliance Manager the responsibility of

discussing, in concert with SMP’s Advisers, the proposals to create the Pension

Transfer Model. As set out in paragraphs 4.67(a) and (b), the advice model

was untested and involved SMP developing non-standard business

relationships with unvetted third-party introducers, who were deemed

trustworthy on the basis that they were already known by or introduced via

SMP’s Advisers. Given the major change in direction for SMP, it was clear that

proposals should have been carefully considered by the holder of the CF10

(Compliance Oversight) function. In reality, Mr Cuthbert did not discuss the

advice model before its inception, nor did he read the initial proposals (of

November 2015) as he considered it “common sense”. Instead, the Pension

Transfer Model and its template documentation and reports were left to be

mainly designed by SMP’s Advisers, in conjunction with the Compliance

Manager;

(b) in light of the novelty of the Pension Transfer Model and the various warning

signs, it was also inappropriate for the Compliance Manager to be tasked with

the ongoing monitoring and compliance management of the advice model.

SMP’s Compliance Manager “kept an eye” on the advice model in a very

informal sense and no formal periodic reviews were undertaken on its

operation. Where changes were made to the advice model, such as described

in paragraph 4.76, this was on an ad hoc basis and documentation was not

made recording the Compliance Manager’s rationale for those changes; and

(c) Mr Cuthbert blamed the Compliance Manager for not having sufficient contact

with the Compliance Consultant’s representatives, who Mr Cuthbert stated

was responsible for the ongoing relationship. This further demonstrates that

Mr Cuthbert had insufficient regard to his CF10 (Compliance Oversight)

responsibilities, particularly when it would have been clear that third party

compliance advice should have been sought to verify SMP’s assumptions.

Failure to monitor client outcomes

4.78.
Mr Cuthbert also did not take reasonable steps to monitor client outcomes:

(a) the extent to which the provision of advice under the Pension Transfer Model

was monitored was a basic spreadsheet recorded by the Compliance Manager

and the Compliance Manager was not instructed to conduct formal reviews of

client outcomes. This spreadsheet was held out by Mr Cuthbert as being the

extent of SMP’s supervision, management and monitoring of the Pension

Transfer Model. However, this spreadsheet did not track, for example, client

outcomes, such as which clients who were advised to remain within their

Defined Benefit Pension Scheme and which opted to proceed with a Pension

Transfer against advice. Mr Cuthbert therefore failed to establish adequate

risk management procedures or policies to record the extent SMP’s clients

were losing their guaranteed benefits under their Defined Benefit Pension

Schemes;

(b) at no point did SMP’s Advisers receive any further information regarding the

outcome of client funds, such as whether clients had even proceeded with the

Pension Transfer, or where the funds released from the ceding scheme had

been invested. In one email, it is stated that SMP has “three boxes of

correspondence from insurance companies” regarding clients which had

proceeded with a transfer which were unclaimed, demonstrated the Firm’s

complete lack of process for providing clients with ongoing monitoring or

support;

(c) SMP could not verify records of the client’s final investment (such as if these

investments were unregulated or contained non-mainstream pooled

investments); and

(d) Mr Cuthbert did not instruct SMP’s Compliance Consultant to conduct regular

file checks on clients advised under the Pension Transfer Model on the basis

that these files did not require auditing. Mr Cuthbert therefore did not have

in place adequate risk management systems to require its novel advice model,

or the resulting client files, to be verified by third-party compliance experts.

Warning signs in respect of the obvious deficiencies and risks of the Pension

4.79.
During the operation of the Pension Transfer Model, Mr Cuthbert was presented

with a number of warning signs in respect of the obvious deficiencies of the model

and the risks of detriment it posed to SMP’s clients. In particular:

(a) Mr Cuthbert stated that it was not deemed cost-effective by the Firm’s partner

introducers to engage SMP to provide full advice to clients, which was why

SMP was approached to provide limited advice under the Pension Transfer

Model. Mr Cuthbert closed his mind to the risks of introducers taking these

cost-cutting shortcuts, or investigate the possibility that the introducers

intended to use SMP who would provide a heavily caveated confirmation of

advice letter, with no intention of ensuring clients were subsequently

appropriately advised under the Full Advice Model;

(b) on 1 April 2016, Mr Cuthbert was notified by the Compliance Manager that an

introducer had written directly to a ceding scheme trustee using a Letter of

Authority drafted by the introducer which purported to be SMP’s Letter of

Authority. This constituted a “major concern” and justified the immediate

termination of the relevant introducer agreement. However, this did not lead

Mr Cuthbert to question the suitability of SMP’s partner introducers or their

continuing involvement, nor did it lead to a wider review of SMP’s relationship

with third-party introducers or SMP’s controls;

(c) on 11 April 2016, the Compliance Manager indicated to Mr Cuthbert his

distrust of SMP’s partner introducers, including Introducer A. As a result of

this distrust, the Compliance Manager changed SMP’s processes in May 2016

to ensure clients received a copy of SMP’s advice letter directly from SMP,

rather than via the introducer. Despite knowing that the Firm’s Compliance

Manager did not trust Introducer A, Mr Cuthbert did not introduce further

controls to protect clients and SMP therefore continued to facilitate Pension

Transfers on the basis of its very limited advice; and

(d) on 13 May 2016, SMP’s Compliance Manager warned Mr Cuthbert that

Introducer A, which constituted a “fair proportion” of SMP’s fee income,

appeared to be using an offshore trustee for their clients. The Compliance

Manager had warned that the trustee only ran QROPS from offshore locations,

which suggested that clients were being led by Introducer A to invest into

overseas, unregulated and potentially high-risk investment schemes. In

response to the Compliance Manager’s concerns regarding the destination of

client pension funds, the Compliance Manager took some ad hoc steps to

terminate a small number of client cases which involved Introducer A’s use of

that offshore trustee. However, despite these warnings, Mr Cuthbert failed to

instruct a meaningful response, such as undertaking comprehensive due

diligence on the investments promoted by introducers and an assessment of

whether they were appropriate destinations for clients’ pension funds. This

was despite Mr Cuthbert admitting that he did not hold any awareness of the

offshore trustee, and that he understood that there was always a risk that

client pension funds would end up in unregulated investment schemes.

4.80.
These were clear warning signs that SMP’s clients were being exposed to a

significant risk of detriment arising from the practices of introducers. Despite

these warning signs which Mr Cuthbert received, SMP continued to receive client

introductions from introducers until the end of the Relevant Period.

Significant volume of Pension Transfer advice

4.81.
The limited fact-find and accelerated provision of advice under the Pension

Transfer Model allowed SMP to conduct a significant volume of transfer advice. At

least 547 clients were advised in a 9 month period from November 2015 to July

2016, with at least 139 cases in April 2016, 76 cases in May 2016, and 137 cases

in June 2016. In contrast, each Full Advice Model case took several months to

complete (see paragraph 4.25).

4.82.
The advice model operated on a high-volume basis, using administrative staff to

assist with what one of SMP’s Advisers described as “cut and paste” of highly

templated work. The Authority considers that it would have been obvious to Mr

Cuthbert, in his capacity as CF10 (Compliance Oversight), that the significant

volume of Pension Transfers, which were predicated on inadequate advice,

significantly increased the risks faced by a high number of clients. For example,

approximately 42% of TVAS Reports were provided by SMP’s administrative staff

or paraplanners, and not SMP’s two approved CF30s. These administrative staff

were inadequately supervised by SMP’s Advisers; in repeated instances, a single-

life critical yield value was applied instead of a joint-life critical yield suitable for

clients who were married, resulting in the Firm erroneously advising clients to

proceed with Pension Transfers.

4.83.
These failures occurred in circumstances where SMP, and its advisers, were

financially incentivised to pursue higher client volumes.

5.
FAILINGS

5.1.
The statutory and regulatory provisions relevant to this Notice are referred to in

5.2.
By reason of the facts and matters set out above, Mr Cuthbert failed to comply

with Statement of Principle 1.

5.3.
The Authority considers that Mr Cuthbert failed to comply with Statement of

Principle 1 during the Relevant Period in that he failed to show integrity in carrying

out his accountable functions as CF4 (Partner) and CF10 (Compliance Oversight)

at SMP. Mr Cuthbert must have been aware of the obvious risks arising in relation

to SMP’s design and operation of the Pension Transfer Model but failed to have

regard to those risks and failed to take appropriate action in light of them. In

particular, Mr Cuthbert:

(a) failed to assess the obvious deficiencies in the Pension Transfer Model before

permitting the expansion of SMP’s business model to include this advice

process, notwithstanding that it constituted a significant departure from

SMP’s usual advice model. This unreasonably exposed SMP’s clients to a

significant risk that they would proceed with a Pension Transfer without

receiving complete advice. This risk would have been obvious to Mr Cuthbert

in light of his experience as a financial adviser and his senior positions as CF4

(Partner) and CF10 (Compliance Oversight) at SMP. The obvious deficiencies

in the Pension Transfer Model included that:

(i)
it failed to take into account the client’s attitude to risk, meaning SMP

was unable to ascertain whether a Pension Transfer was suitable in

accordance with the client’s risk tolerance;

(ii)
it failed to gather information on the client’s financial situation and

income needs throughout retirement, meaning SMP was unable to

determine whether a client could bear the risks of losing the guaranteed

income they would otherwise receive during their retirement from their

Defined Benefit Pension Scheme;

(iii)
it failed to gather information on the client’s knowledge and experience

of relevant investments, meaning SMP was unable to assess whether

their clients fully understood the financial implications of their advice;

(iv)
personal recommendations were provided to clients on the basis of very

limited information gathered from the client and solely on the basis of a

TVAS Report;

(v)
the TVAS Report took no account of the onward investment scheme and

instead used a generic personal pension scheme; and

(vi)
confirmation of advice letters were issued to the trustees of the ceding

schemes at a point when SMP’s clients had received this very limited

advice, thereby enabling Pension Transfers.

In failing to assess these obvious deficiencies in the Pension Transfer Model,

Mr Cuthbert closed his mind to the significant risk that SMP’s clients would

proceed with a Pension Transfer without receiving complete advice;

(b) failed to ensure that SMP performed sufficient and adequate due diligence on

its partner introducers and the investments which they promoted to clients.

The Pension Transfer Model entailed a rapid expansion of SMP’s business, with

the Firm partnering with numerous introducers to receive and advise

significantly greater numbers of clients, therefore placing a significant number

of clients at greater risk. SMP did not historically have any relationship with

third-party introducers and the introduction of at least 17 introducers to the

Firm represented a major change in direction regarding the methods in which

clients would be introduced to SMP. Mr Cuthbert closed his mind to the risks

that would arise from rapidly expanding SMP’s business to advise clients

introduced by unknown introducers using the Pension Transfer Model. In

doing so, he unreasonably exposed the Firm’s clients to a significant risk that

their pension funds would be transferred into investments which were

unsuitable for them, including the high-risk, illiquid and unregulated property

investments offered by the Overseas Property Developer;

(c) failed to ensure that SMP obtained independent, expert opinion from SMP’s

Compliance Consultant to verify the compliance of the Pension Transfer

Model, both prior to its implementation and during its operation. This was

despite there being two visits by SMP’s Compliance Consultants to SMP during

the Relevant Period, in November 2015 and January 2016, when Mr Cuthbert

could have checked whether the Pension Transfer Model was compliant with

relevant regulatory requirements. In failing to ensure that SMP obtained

independent, expert opinion from SMP’s Compliance Consultant, Mr Cuthbert

closed his mind to the significant risks associated with the Pension Transfer

Model;

(d) failed to ensure that SMP obtained sufficient information from clients in order

to make Personal Recommendations which were suitable for them, including

the client’s attitude to risk, financial situation, and knowledge and experience

of the relevant investment. SMP’s failures were systemic: the Firm failed to

gather material information in 100% of advice files reviewed by the Authority,

including on the client’s risk profile and their retirement expenditure and

financial circumstances. Therefore, SMP was unable to properly assess the

client’s income needs in retirement including their attitude to risk, the extent

to which they relied on guaranteed retirement income provided by their

respective Defined Benefit Pension Schemes, and their capacity for loss. The

missing information went to the heart of whether a Pension Transfer was

suitable for a client, but Mr Cuthbert failed to take steps to check whether the

issuance of advice based upon a TVAS Report did indeed constitute a Personal

Recommendation which triggered COBS obligations, which would have been

obvious to him in light of his experience as a financial adviser and his senior

roles as CF10 (Compliance Oversight) and CF4 (Partner). In doing so, Mr

Cuthbert unreasonably exposed SMP’s clients to the risk that they would

transfer out of their Defined Benefit Pension Schemes and lose their

guaranteed benefits having received very limited advice;

(e) failed to ensure that SMP obtained sufficient information which was required

to generate an accurate TVAS Report and critical yield analysis, upon which

SMP’s Personal Recommendations were based (notwithstanding the flaws of

advising clients solely based on a TVAS Report). SMP did not take into account

the proposed investment, meaning that an accurate TVAS calculation, which

accounted for the reality of the proposed investment and ongoing fees, could

not be generated. Further, material information on the client, such as their

employment status and intended retirement age, was missing from the data

capture, meaning that the information was only assumed when generating a

TVAS Report;

(f) failed to monitor the advice provided under the Pension Transfer Model by

SMP’s Advisers when advising clients under the Pension Transfer Model. This

was notwithstanding the reduced effectiveness of SMP’s compliance function

in light of Mr Cuthbert’s reduced office hours in advance of his planned

retirement, and the lack of experience and relevant qualification of SMP’s

Compliance Manager, to whom day-to-day compliance responsibilities had

been delegated; and

(g) failed to respond to warning signs he received during the operation of the

Pension Transfer Model in respect of the obvious deficiencies of the advice

process and the risks of detriment it posed to SMP’s clients. Mr Cuthbert took

no reasonable steps to rectify potential issues; instead, he permitted the

model to keep operating until the end of the Relevant Period, during which

time the numbers of clients advised under the model substantially increased.

6.
SANCTION

6.1.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of

DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority

applies a five-step framework to determine the appropriate level of financial

penalty. DEPP 6.5B sets out the details of the five-step framework that applies in

respect of financial penalties imposed on individuals in non-market abuse cases.

Step 1: disgorgement

6.2.
Pursuant to DEPP 6.5B.1G, at Step 1 the Authority seeks to deprive an individual

of the financial benefit derived directly from the breach where it is practicable to

quantify this.

6.3.
Mr Cuthbert derived direct financial benefit from the fees generated by the Pension

Transfer Model. SMP received £463,766 from its partner introducers during the

Relevant Period in connection with the Pension Transfer Model, of which it retained

30% (£139,129.80) following a 70% pay-away to a company jointly owned by

SMP’s Advisers. Of this sum of £139,129.80, the Authority considers that Mr

Cuthbert received the benefit of £14,317 as one of the two partners at SMP, and

that this stemmed directly from his breach.

6.4.
The Authority has charged interest on Mr Cuthbert’s benefits at 8% per year from

the end of the Relevant Period to 30 June 2022, amounting to £6,776.

6.5.
Step 1 is therefore £21,093.

Step 2: the seriousness of the breach

6.6.
Pursuant to DEPP 6.5B.2G, at Step 2 the Authority determines a figure that

reflects the seriousness of the breach. That figure is based on a percentage of the

individual’s relevant income. The individual’s relevant income is the gross amount

of all benefits received by the individual from the employment in connection with

which the breach occurred, and for the period of the breach.

6.7.
The period of Mr Cuthbert’s breach of Statement of Principle 1 was from 1 October

2015 to 31 July 2016. Pursuant to DEPP 6.5B.2G(2), in cases where the breach

lasted less than 12 months, the relevant income will be that earned by the

individual in the 12 months preceding the end of the breach. The Authority

considers Mr Cuthbert’s relevant income for the 12 month period preceding 31

July 2016 to be £84,060.

6.8.
In deciding on the percentage of the relevant income that forms the basis of the

Step 2 figure, the Authority considers the seriousness of the breach and chooses

a percentage between 0% and 40%. This range is divided into five fixed levels

which represent, on a sliding scale, the seriousness of the breach; the more

serious the breach, the higher the level. For penalties imposed on individuals in

non-market abuse cases there are the following five levels:

Level 1 – 0%

Level 2 – 10%

Level 3 – 20%

Level 4 – 30%

Level 5 – 40%

6.9.
In assessing the seriousness level, the Authority takes into account various factors

which reflect the impact and nature of the breach, and whether it was committed

deliberately or recklessly. DEPP 6.5B.2G(12) lists factors likely to be considered

‘level 4 or 5 factors’. Of these, the Authority considers the following factors to be

relevant.

Impact of the breach

6.10.
DEPP 6.5B.2.2G(8) lists factors relating to the impact of a breach committed by

an individual.

6.11.
Mr Cuthbert substantially benefitted from the breach (DEPP 6.5B.2G(8)(a)).

6.12.
Mr Cuthbert’s breach also caused a significant risk of loss to a very large number

of consumers who transferred out of their Defined Benefit Pension Schemes (DEPP

6.5B.2G(8)(c)).

6.13.
Mr Cuthbert’s breach caused inconvenience and potential distress to pension

holders who transferred out of their Defined Benefit Pension Schemes (DEPP

Nature of the breach

6.14.
DEPP 6.5B.2.2G(9) lists factors relating to the nature of a breach committed by

an individual.

6.15.
Mr Cuthbert’s failings occurred over a sustained period (ten months) (DEPP

6.5B.2G(9)(b)).

6.16.
Mr Cuthbert failed to act with integrity because he acted recklessly throughout

the Relevant Period (6.5B.2G(9)(e)).

6.17.
Mr Cuthbert, as the individual approved to perform the CF4 (Partner) and CF10

(Compliance Oversight) controlled functions, held senior positions in the Firm

(DEPP 6.5B.2G(9)(k)) and was an experienced industry professional.

Whether the breach was deliberate and/or reckless

6.18.
DEPP 6.5B.2G(10) and (11) list factors tending to show whether the breach was

deliberate or reckless. The Authority considers that the factors tending to show

the breach was reckless are present in this case (DEPP 6.5B.2G(11)).

Level of seriousness

6.19.
DEPP 6.5B.2G(12) lists factors likely to be considered ‘level 4 or 5 factors’. Of

these, the Authority considers the following factors to be relevant:

(1) Mr Cuthbert’s breach caused a significant loss or risk of loss to individual

consumers, investors or other market users (DEPP 6.5B.2G(12)(a));

(2) Mr Cuthbert failed to act with integrity (DEPP 6.5B.2G(12)(d)); and

(3) Mr Cuthbert committed the breach recklessly (DEPP 6.5B.2G(12)(g).

6.20.
DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 or 3 factors’. The

Authority considers that none of these apply.

6.21.
Taking all of these factors into account, the Authority considers the seriousness

of the breach to be level 4 and so the Step 2 figure is 30% of £84,060.

6.22.
Step 2 is therefore £25,218.

Step 3: mitigating and aggravating factors

6.23.
Pursuant to DEPP 6.5B.3G, at Step 3 the Authority may increase or decrease the

amount of the financial penalty arrived at after Step 2, but not including any

amount to be disgorged as set out in Step 1, to take into account factors which

aggravate or mitigate the breach.

6.24.
The Authority has considered whether any of the mitigating or aggravating factors

listed in DEPP 6.5B.3G, or any other such factors, apply in this case and has

concluded that none of these apply to a material extent, such that the penalty

ought to be increased or decreased.

6.25.
Step 3 is therefore £25,218.

Step 4: adjustment for deterrence

6.26.
Pursuant to DEPP 6.5B.4G, if the Authority considers the figure arrived at after

Step 3 is insufficient to deter the individual who committed the breach, or others,

from committing further or similar breaches, then the Authority may increase the

penalty.

6.27.
The Authority considers that the Step 3 figure of £25,218 does not represent a

sufficient deterrent to Mr Cuthbert and others, and so has increased the penalty

at Step 4. The Authority therefore has increased the Step 3 figure by a multiple

6.28.
Step 4 is therefore £100,872.

Step 5: settlement discount

6.29.
Pursuant to DEPP 6.5B.5G, if the Authority and the individual on whom a penalty

is to be imposed agree the amount of the financial penalty and other terms, DEPP

6.7 provides that the amount of the financial penalty which might otherwise have

been payable will be reduced to reflect the stage at which the Authority and the

individual reached agreement. The settlement discount does not apply to the

disgorgement of any benefit calculated at Step 1.

6.30.
The Authority and Mr Cuthbert reached agreement at Stage 1 and so a 30%

discount applies to the Step 4 figure.

6.31.
Step 5 is therefore £70,610. This is to be rounded down to £70,600.

6.32.
The Authority hereby imposes a total financial penalty of £91,693 (the Step 1 and

Step 5 figures added together) on Mr Cuthbert for breaching Statement of

Principle 1.

6.33.
The Authority has the power to prohibit individuals under section 56 of the 2000

Act. The Authority has had regard to the guidance in Chapter 9 of EG and FIT 2

of the Handbook, including the criteria at EG 9.3.2 and FIT 2.1.3, in considering

whether to impose a prohibition order on Mr Cuthbert.

6.34.
In considering whether to impose a prohibition order, the Authority has had regard

to all relevant circumstances of the case. In particular, in relation to EG 9.3.2 and

FIT 2.1.3, the Authority has considered Mr Cuthbert’s fitness and propriety, his

reckless and knowing misconduct displaying a lack of integrity and disregard for

customers’ interests and the regulatory system, and the severity of the risk which

Mr Cuthbert poses to consumers and to confidence in the financial system.

6.35.
The Authority hereby makes an order prohibiting Mr Cuthbert from performing

any function in relation to any regulated activity carried on by an authorised

person, exempt person or exempt professional firm, on the grounds that his

conduct during the Relevant Period demonstrates a reckless lack of integrity.

7.
PROCEDURAL MATTERS

7.1.
This Notice is given to Mr Cuthbert under and in accordance with section 390 of

the 2000 Act.

7.2.
The following statutory rights are important.

Decision maker

7.3.
The decision which gave rise to the obligation to give this Notice was made by the

Settlement Decision Makers.

Manner and time for payment

7.4.
The financial penalty must be paid in full by Mr Cuthbert to the Authority no later

than 13 September 2024.

If the financial penalty is not paid

7.5.
If all or any of the financial penalty is outstanding after 13 September 2024, the

Authority may recover the outstanding amount as a debt owed by Mr Cuthbert

and due to the Authority.

7.6.
Sections 391(4), 391(6) and 391(7) of the 2000 Act apply to the publication of

information about the matter to which this Notice relates. Under those provisions,

the Authority must publish such information about the matter to which this Notice

relates as the Authority considers appropriate. The information may be published

in such manner as the Authority considers appropriate. However, the Authority

may not publish information if such publication would, in the opinion of the

Authority, be unfair to Mr Cuthbert or prejudicial to the interests of consumers or

detrimental to the stability of the UK financial system.

7.7.
The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

Authority contacts

7.8.
For more information concerning this matter generally, contact William Byrne

(direct line: 020 7066 9821/email: william.byrne@fca.org.uk) at the Authority.

Financial Conduct Authority, Enforcement and Market Oversight Division

ANNEX A

RELEVANT STATUTORY AND REGULATORY PROVISIONS

1.
RELEVANT STATUTORY PROVISIONS

The 2000 Act

1.1.
The Authority’s operational objectives, set out in section 1B(3) of the 2000 Act,

include the consumer protection objective of securing an appropriate degree of

protection for consumers (section 1C) and the integrity objective of protecting and

enhancing the integrity of the UK financial system (section 1D).

1.2.
Section 56 of the 2000 Act provides that the Authority may make an order

prohibiting an individual from performing a specified function, any function falling

within a specified description or any function, if it appears to the Authority that that

individual is not a fit and proper person to perform functions in relation to a

regulated activity carried on by an authorised person, exempt person or a person

to whom, as a result of Part 20, the general prohibition does not apply in relation

to that activity. Such an order may relate to a specified regulated activity, any

regulated activity falling within a specified description, or all regulated activities.

1.3.
Section 66 of the 2000 Act2 provides that the Authority may take action against a

person if it appears to the Authority that he is guilty of misconduct and the Authority

is satisfied that it is appropriate in all the circumstances to take action against him.

1.4.
During the Relevant Period, under section 66(2) of the 2000 Act (in force until 6

March 2016) misconduct included failure, while an approved person, to comply with

a Statement of Principle issued under section 64 of the 2000 Act or to have been

knowingly concerned in a contravention by the relevant authorised person of a

requirement imposed on that approved person by or under the 2000 Act.

1.5.
During the Relevant Period, under section 66A of the 2000 Act (in force from 7

March 2016) a person was guilty of misconduct if, inter alia, he at any time failed

to comply with rules made by the Authority under section 64A of the 2000 Act and

at that time was an approved person, or had been knowingly concerned in a

2 Section 66 was amended and section 66A added during the Relevant Period, but those changes are not

material to the manner in which the Authority has exercised its powers as set out in this Notice.

contravention of relevant requirement by an authorised person and at that time

the person was an approved person in relation to the authorised person.

The 2015 Act and the 2015 Regulations

1.6.
Section 48(1) of the 2015 Act provides that trustees or managers of a defined

benefit pension scheme are, and were during the Relevant Period, required to check

that a member of the scheme had received appropriate independent advice before,

amongst other things, making a transfer payment in respect of any of the benefit

with a view to acquiring a right or entitlement to flexible benefits for the member

under another pension scheme.

1.7.
Section 48(8) of the 2015 Act provides that “appropriate independent advice”

means advice that is given by an authorised independent adviser and meets any

other requirement specified in regulations made by the Secretary of State.

Regulation 3 of the 2015 Regulations provides that the advice must be specific to

the type of relevant transaction proposed by the member.

1.8.
Section 48(8) of the 2015 Act provides that “authorised independent adviser”

means a person who has permission under Part 4A of the 2000 Act, or resulting

from any other provision of the 2000 Act, to carry on a regulated activity specified

in regulations made by the Secretary of State and meets such other requirements

as may be specified in regulations made by the Secretary of State for the purpose

of ensuring that the person is independent. Regulation 4 of the 2015 Regulations

provides that the specified regulated activity is the activity described in article 53E

of the 2001 Order, which is the activity of advising on the conversion or transfer of

pension benefits.

1.9.
Section 48(3) of the 2015 Act provides that the Secretary of State may by

regulations create an exception to section 48(1) in the case of a member or survivor

whose subsisting rights in respect of safeguarded benefits under the scheme, or

safeguarded benefits under the scheme and any other schemes, are worth less

than a specified amount. Regulation 5 of the 2015 Regulations provides that the

trustee or members are not required to carry out the check required under section

48(1) of the 2015 Act if the total value of the member or survivor’s benefits under

a defined benefit pension scheme is £30,000 or less on the valuation date.

1.10. Regulation 7 of the 2015 Regulations provides that confirmation from the member

that appropriate independent advice has been received must be in the form of a

statement in writing from the authorised independent adviser providing the advice

confirming:

(a) that advice has been provided which is specific to the type of transaction

proposed by the member;

(b) that the adviser has permission under Part 4A of the 2000 Act to carry on the

regulated activity in article 53E of the 2001 Order;

(c) the firm reference number of the company or business in which the adviser

works for the purposes of authorisation from the Authority to carry on the

regulated activity in article 53E of the 2001 Order; and

(d) the member’s name, and the name of the scheme in which the member has

subsisting rights in respect of safeguarded benefits to which the advice given

applies.

2.
RELEVANT REGULATORY PROVISIONS

Statements of Principle and Code of Practice for Approval Persons

2.1.
The Authority’s Statements of Principle and Code of Practice for Approved Persons

have been issued under section 64 of the 2000 Act.3 The Code of Practice for

Approved Persons sets out descriptions of conduct which, in the opinion of the

Authority, do not comply with a Statement of Principle. It also sets out factors

which, in the Authority’s opinion, are to be taken into account in determining

whether an approved person’s conduct complies with a Statement of Principle.

2.2.
During the Relevant Period, Statement of Principle 1 stated:

“An approved person must act with integrity in carrying out his accountable

functions.”

2.3.
During the Relevant Period, accountable functions are in summary: the Authority’s

controlled functions; the Prudential Regulatory Authority’s controlled functions; and

3 Section 64A of the 2000 Act from 7 March 2016.

any other functions in relation to the carrying on a regulated activity; in relation to

the authorised persons in relation to which that person is an approved person.

Conduct of Business Sourcebook

2.4.
The following rules and guidance in COBS (as were in place during the Relevant

Period) are relevant to assessing suitability of Pension Transfer advice given to

clients:

2.5.
COBS 2.1.1R stated that a firm must act honestly, fairly and professionally in

accordance with the best interests of its client.

2.6.
COBS 4.2.1R(1) stated that a firm must ensure that a communication or a financial

promotion is fair, clear and not misleading.

2.7.
COBS 9.2.1R stated that:

(1) A firm must take reasonable steps to ensure that a personal recommendation,

or a decision to trade, is suitable for its client.

(2) When making the personal recommendation or managing his investments, the

firm must obtain the necessary information regarding the client’s:

(a) knowledge and experience in the investment field relevant to the specific

type of designated investment or service;

(b) financial situation; and

(c) investment objectives;

so as to enable the firm to make the recommendation, or take the decision,

which is suitable for him.

2.8.
COBS 9.2.2R(1) stated that a firm must obtain from the client such information as

is necessary for the firm to understand the essential facts about him and have a

reasonable basis for believing, giving due consideration to the nature and extent of

the service provided, that the specific transaction to be recommended, or entered

into in the course of managing:

(a) meets his investment objectives;

(b) is such that he is able financially to bear any related investment risks consistent

with his investment objectives; and

(c) is such that he has the necessary experience and knowledge in order to

understand the risks involved in the transaction or in the management of his

portfolio.

2.9.
COBS 9.2.2R(2) stated that the information regarding the investment objectives of

a client must include, where relevant, information on the length of time for which

he wishes to hold the investment, his preferences regarding risk taking, his risk

profile, and the purposes of the investment.

2.10. COBS 9.2.2R(3) stated that the information regarding the financial situation of a

client must include, where relevant, information on the source and extent of his

regular income, his assets, including liquid assets, investments and real property,

and his regular financial commitments.

2.11. COBS 9.2.3R stated that the information regarding a client’s knowledge and

experience in the investment field includes, to the extent appropriate to the nature

of the client, the nature and extent of the service to be provided and the type of

product or transaction envisaged, including their complexity and the risks involved,

information on:

(1) the types of service, transaction and designated investment with which the

client is familiar;

(2) the nature, volume, frequency of the client’s transactions in designated

investments and the period over which they have been carried out;

(3) the level of education, profession or relevant former profession of the client.

2.12. COBS 9.2.6R stated that if a firm does not obtain the necessary information to

assess suitability, it must not make a personal recommendation to the client or

take a decision to trade for him.

2.13. COBS 9.4.1R(4) stated that a firm must provide a suitability report to a retail client

if the firm makes a personal recommendation to the client and the client enters

into a pension transfer, pension conversion or pension opt-out.

2.14. COBS 9.4.7R stated that the suitability report must, at least:

(1) specify the client's demands and needs;

(2) explain why the firm has concluded that the recommended transaction is

suitable for the client having regard to the information provided by the client;

and

(3) explain any possible disadvantages of the transaction for the client.

2.15. COBS 19.1.1R stated that if an individual who is not a Pension Transfer Specialist

gives advice or a personal recommendation about a pension transfer, a pension

conversion or pension opt-out on a firm's behalf, the firm must ensure that the

recommendation or advice is checked by a Pension Transfer Specialist.

2.16. COBS 19.1.2R stated that a firm must:

(1) compare the benefits likely (on reasonable assumptions) to be paid under a

defined benefits pension scheme or other pension scheme with safeguarded

benefits with the benefits afforded by a personal pension scheme, stakeholder

pension scheme or other pension scheme with flexible benefits, before it advises

a retail client to transfer out of a defined benefits pension scheme or other

pension scheme with safeguarded benefits;

(2) ensure that that comparison includes enough information for the client to be

able to make an informed decision;

(3) give the client a copy of the comparison, drawing the client's attention to the

factors that do and do not support the firm's advice, in good time, and in any

case no later than when the key features document is provided; and

(4) take reasonable steps to ensure that the client understands the firm's

comparison and its advice.

2.17. COBS 19.1.3G explained the information that should be contained within a

comparison. In particular, the comparison should:

(1) take into account all of the retail client's relevant circumstances;

(2) have regard to the benefits and options available under the ceding scheme and

the effect of replacing them with the benefits and options under the proposed

scheme;

(3) explain the assumptions on which it is based and the rates of return that would

have to be achieved to replicate the benefits being given up;

(4) be illustrated on rates of return which take into account the likely expected

returns of the assets in which the retail client's funds will be invested; and

(5) where an immediate crystallisation of benefits is sought by the retail client prior

to the ceding scheme’s normal retirement age, compare the benefits available

from crystallisation at normal retirement age under that scheme.

2.18. COBS 19.1.6G stated that when advising a client who is, or is eligible to be, a

member of a defined benefit pension scheme (as defined in the Handbook) or other

scheme with safeguarded benefits whether to transfer, convert or opt-out, a firm

should start by assuming that a transfer, conversion or opt-out will not be suitable.

A firm should only consider a transfer, conversion or opt out to be suitable if it can

clearly demonstrate, on contemporary evidence, that the transfer, conversion or

opt-out is in the client’s best interests.

2.19. COBS 19.1.7G stated that when a firm advises a retail client on a pension transfer,

pension conversion or pension opt-out, it should consider the client’s attitude to

risk including, where relevant, in relation to the rate of investment growth that

would have to be achieved to replicate the benefits being given up.

The Fit and Proper Test for Approved Persons

2.20. The part of the Authority’s Handbook entitled “The Fit and Proper Test for Approved

Persons” (“FIT”) sets out the criteria that the Authority will consider when assessing

the fitness and propriety of a candidate for a controlled function. FIT is also relevant

in assessing the continuing fitness and propriety of an approved person.

2.21. FIT 1.3.1G states that the Authority will have regard to a number of factors when

assessing the fitness and propriety of a person. The most important considerations

will be the person’s honesty, integrity and reputation, competence and capability,

and financial soundness.

2.22. The Authority’s policy in relation to prohibition orders is set out in Chapter 9 of the

Enforcement Guide (“EG”).

2.23. EG 9.1 states that the Authority may exercise this power where it considers that,

to achieve any of its regulatory objectives, it is appropriate either to prevent an

individual from performing any functions in relation to regulated activities or to

restrict the functions which he may perform.

2.24. EG 9.3.1 provides that when the FCA has concerns about the fitness and propriety

of an approved person, it may consider whether it should prohibit that person from

performing functions in relation to regulated activities, withdraw its approval, or

both.

2.25. EG 9.3.2 provides that when the Authority decides whether to make a prohibition

order against an approved person and/or withdraw their approval the Authority will

consider all the relevant circumstances of the case. These may include, but are not

limited to:

(2) whether the individual is fit and proper to perform functions in relation to

regulated activities;

(5) the relevance and materiality of any matters indicating unfitness;

(8) the severity of the risk which the individual poses to consumers and to

confidence in the financial system.

2.26. EG 7 sets out the Authority’s approach to exercising its power to impose a financial

a penalty.

Decision Procedure and Penalties Manual

2.27. Chapter 6 of the Decision Procedures and Penalties Manual (“DEPP”) which forms

part of the Authority’s Handbook, sets out the Authority’s policy for imposing a

financial penalty. The Authority applies a five-step framework to determine the

appropriate level of financial penalty. DEPP 6.5B sets out the details of the five-

step framework that applies to financial penalties imposed on individuals in non-

market abuse cases, which can be accessed here:

2.28. The Authority’s approach to financial penalties is set out in Chapter 7 of EG, which

can be accessed here: