FINAL NOTICE

Of:


1 Fox Hollies

FSA reference number:
ASB01129

TAKE NOTICE: The Financial Services Authority of 25 The North Colonnade, Canary
Wharf, London E14 5HS (“the FSA”) gives Alexander Simon Brincat final notice of the
following actions

1.
ACTION

1.1
The FSA gave Alexander Simon Brincat (“Mr Brincat”) a Decision Notice on 14 June
2011 which notified him that the FSA had decided to take the following action against
him:

(1)
to publish a statement of his misconduct pursuant to section 66(3)(b) of the
Financial Services and Markets Act 2000 (“the Act”), for failing to comply
with Statements of Principle 4 and 6 of the FSA’s Statements of Principle and
Code of Practice for Approved Persons (“the Statements of Principle”);

(2)
to withdraw the individual approval pursuant to section 63(1) of the Act,
granted to Mr Brincat to perform controlled functions, in relation to Wise Owl
Services Limited (“Wise Owl”); and

(3)
to make an order pursuant to section 56 of the Act, prohibiting Mr Brincat
from performing any functions in relation to any regulated activity carried on
by any authorised or exempt person or exempt professional firm (“the
Prohibition Order”).

1.2
The FSA considers that his misconduct warrants a financial penalty of £22,500.
However, Mr Brincat has provided verifiable evidence that imposing any financial
penalty would cause him serious financial hardship. Under these exceptional
circumstances, the FSA has decided to censure Mr Brincat publicly instead.

1.3
Mr Brincat agreed that he would not be referring the matter to the Upper Tribunal
(Tax and Chancery Chamber).

1.4
Accordingly, for the reasons set out below, the FSA takes the actions set out above.

2.
REASONS FOR THE ACTION

2.1
On the basis of the facts and matters described below, the FSA withdraws Mr
Brincat’s individual approval and makes the Prohibition Order against him for failing
to demonstrate adequate competence and capability when carrying out controlled
functions in connection with Wise Owl’s insurance business in the period from 22
September 2009 to 3 August 2010 (“the relevant period”). Mr Brincat has also failed
to comply with Statements of Principle 4 and 6 while acting in his capacity as director
and sole approved person at Wise Owl.

2.2
In summary, Mr Brincat failed to:

(1)
deal with the FSA in an open and cooperative way, and disclose information of
which the FSA reasonably expected notice, in breach of Statement of Principle
4, by not appropriately communicating to the FSA that he had left the country
and had delegated the responsibility for compliance at Wise Owl to
unapproved individuals; and

(2)
exercise due skill, care and diligence in managing the business of the firm for
which he is responsible, in breach of Statement of Principle 6, by:

a) failing to monitor adequately the high cancellation rate of life insurance
policies sold by Wise Owl, and failing to disclose to Wise Owl’s insurance
providers its sales strategy of offering free life cover to customers;

b) leaving the country for prolonged periods without putting in place

3

adequate compliance arrangements at Wise Owl;

c) failing to take reasonable steps to ensure that Wise Owl had sufficient
resources to pay premiums due to customers who had agreed to the free
life cover offered by Wise Owl, and repay the commission clawback to
insurance providers when such cover was cancelled; and

d) failing to monitor Wise Owl’s financial position, including the extent of
Wise Owl’s liabilities to insurance providers.

2.3
The FSA has concluded that Mr Brincat is not fit and proper to carry out any function
in relation to any regulated activity carried on by any authorised or exempt person or
exempt professional firm and that Mr Brincat should be prohibited from doing so.
The FSA considers that it is proportionate to prohibit Mr Brincat because of the nature
and range of his failings and the impact on Wise Owl’s insurance providers.

2.4
The FSA regards these failings as particularly serious due to the significant losses
incurred as a result by Wise Owl’s insurance providers, and his abandonment of the
authorised business. The FSA finds his conduct to have been seriously lacking in
competence, but not deliberately fraudulent or dishonest.

2.5
The relevant statutory provisions and regulatory requirements are attached at Annex
A.

Facts and matters relied on

2.6
Mr Brincat was approved by the FSA on 24 November 2008 to perform the controlled
functions of CF1 (Director) and CF8 (Apportionment and Oversight) at Wise Owl,
and Mr Brincat is also responsible for insurance mediation (although Mr Brincat
ceased to hold the controlled function of CF8 on 31 March 2009.) Mr Brincat is the
only approved person at Wise Owl and was the sole person responsible for the
management of the business during the relevant period.

2.7
Wise Owl is a small mortgage and insurance mediation firm, whose main business
was building and life insurance. With effect from 24 November 2008, Wise Owl
became authorised and regulated by the FSA to carry on the following regulated
activities (those marked with an asterisk were limited to non-investment insurance
contracts):

(1)
advising on investments (except on pension transfers and pension opt outs);

(2)
advising on regulated mortgage contracts;

(3)
agreeing to carry on a regulated activity;

(4)
arranging (bringing about) deals in investments;

(5)
arranging (bringing about) regulated mortgage contracts;

(6)
making arrangements with a view to regulated mortgage contracts; and

(7)
making arrangements with a view to transactions in investments.

2.8
However, with effect from 3 August 2010, Wise Owl voluntarily varied its permission
such that it was no longer permitted to conduct any regulated activity, as a result of
the FSA having identified in or around July 2010 that Wise Owl had ceased to trade.
One of Wise Owl’s insurance company providers petitioned for Wise Owl to be
wound up on 3 December 2010. This petition was granted on 3 March 2011 and Wise
Owl is now in liquidation.

Failing to notify the FSA of matters of which the FSA reasonably expected notice

2.9
Mr Brincat is the sole approved person and was responsible for Wise Owl’s day-to-
day management and compliance with relevant regulatory requirements during the
relevant period. However, the FSA has found that Mr Brincat failed to notify it of
important regulatory matters.

2.10
On or around 17 March 2010, Mr Brincat left the United Kingdom for an indefinite
period. However, Mr Brincat failed to notify the FSA that he would be absent from
the business, and failed to provide the FSA with any information as to management
arrangements put in place for the duration of his absence.

2.11
In or around June 2010, Wise Owl ceased to conduct regulated activities and its place
of business as last notified to the FSA was abandoned. Mr Brincat failed to notify the
FSA that Wise Owl had ceased to trade, and, as the sole approved person, Mr Brincat
failed to provide the FSA with any alternative means of contacting him.

Failing to exercise due skill, care and diligence in managing the business of the
firm

2.12
Mr Brincat is the sole director and approved person and was solely responsible for the
management of Wise Owl during the relevant period. The FSA considers that, during
the relevant period, Mr Brincat failed to exercise due skill, care and diligence in the
exercise of his significant influence function of CF1 (Director).

2.13
In the final quarter of 2009, Wise Owl adopted a business strategy of providing free
life insurance cover to customers together with the building insurance it sold, as a loss
leader to help it build up a large book of repeat building insurance business. Wise Owl
subsequently set up a call centre to effect this sales strategy. It promised customers
that it would pay all premiums for at least the first 12 months of the life cover sold.
Wise Owl made a high number of life cover sales (at least 746) within a period of
approximately four months. Mr Brincat failed to disclose to Wise Owl’s insurance
providers that you would effectively be providing the life cover to customers free of
charge for the first 12 months.

2.14
The rate at which these life insurance policies were cancelled within the first three
months of cover was high (approximately 80% of all policies sold), with the
consequence that Wise Owl quickly accrued in excess of £170,000 in commission
clawback payable to life insurance providers. This resulted in Wise Owl not being
able to pay the life insurance premiums to customers as promised and customers

cancelling the policies as a result. As the sole director and approved person at Wise
Owl during this period, Mr Brincat implemented this sales strategy without having
adequately considered its effect on Wise Owl’s financial resources, which were
depleted to the extent that the strategy became unsustainable, and Wise Owl ceased to
trade in or around June 2010.

2.15
Having left the business of Wise Owl on or around 17 March 2010 for an indefinite
period, Mr Brincat failed to take adequate steps to keep himself informed of the
affairs of the business for which he was responsible. In failing to adequately monitor
Wise Owl’s activity in his absence, Mr Brincat was unaware of the considerable
liabilities incurred by Wise Owl during that period, and of its inability to meet those
liabilities.

2.16
Further, during the period in which Mr Brincat was absent from the business, Mr
Brincat received payments from Wise Owl’s business account to his personal bank
account, without ensuring that Wise Owl had sufficient financial resources with which
to meet its liabilities to insurance providers and others.

2.17
Mr Brincat failed to make adequate management and compliance arrangements at
Wise Owl during his absence, having assigned the day-to-day conduct of Wise Owl’s
business to junior members of Wise Owl’s staff and to third parties who were neither
employees nor familiar with the business of Wise Owl. Mr Brincat allowed junior
staff and third parties, none of whom were FSA approved persons, to oversee specific
regulatory responsibilities, including the submission of important regulatory
information to the FSA, without those individuals having the necessary knowledge to
undertake these duties.

3.
ANALYSIS OF THE BREACHES

Statement of Principle 4


3.1
As a result of the facts and matters set out at paragraphs 2.9 to 2.11 above, the FSA
considers that Mr Brincat failed to keep it informed of basic and important regulatory
matters, such that the FSA’s ability to contact and thereby properly regulate Wise Owl
was frustrated. In having failed to notify the FSA that Mr Brincat would be absent
from the business for an indefinite period, and in having failed to provide the FSA
with alternative contact details, the FSA was unable to establish whether appropriate
management and compliance arrangements had been made for Wise Owl’s regulated
activities, and even that Wise Owl had eventually ceased to conduct regulated
activities at all. In this regard, the FSA considers that Mr Brincat is in breach of
Statement of Principle 4.

3.2
On the basis of the facts and matters set out at paragraphs 2.12 to 2.17, the FSA
considers that Mr Brincat failed to perform adequately the significant influence
functions for which Mr Brincat was approved by the FSA in relation to Wise Owl,
during the relevant period. Having allowed Wise Owl to incur significant liabilities to
its insurance providers by failing to monitor the high cancellation rate of policies sold
as part of a strategy of selling free life cover to Wise Owl’s customers, Mr Brincat

then abandoned the business without having made adequate, or any, management and
compliance arrangements. In this regard, the FSA considers that Mr Brincat is in
breach of Statement of Principle 6.

4.
ANALYSIS OF THE SANCTION

4.1
The FSA’s policy on issuing a public censure or imposing a financial penalty is set
out in Chapter 6 of the Decision Procedures and Penalties Manual (“DEPP”), which is
part of the FSA Handbook. In addition, the FSA has had regard to Chapter 7 of the
Enforcement Guide (“EG”).

4.2
The principal purpose of issuing a public censure or imposing a financial penalty is to
promote high standards of conduct by deterring persons who have committed
regulatory breaches from committing further breaches, helping to deter others from
committing similar breaches and demonstrating generally the benefits of compliant
behaviour.

4.3
DEPP 6.4.2G sets out a list of factors that may be of relevance in determining whether
it is appropriate to issue a public censure rather than impose a financial penalty. The
factors are not exhaustive and the FSA will consider all the relevant circumstances of
the case. The FSA considers that the following factors are particularly relevant in this
case.

Financial penalty

4.4
In determining whether a financial penalty or public censure is appropriate, the FSA is
required to consider all the relevant circumstances of the case. Applying the criteria
set out in DEPP 6.2.1 and 6.4.2, the FSA considers that a financial penalty would be
an appropriate sanction in this case, given the serious nature of the breaches, and the
need to send out a strong message of deterrence to others.

4.5
In this case the misconduct in question straddles both the old and new FSA penalty
regimes. The new penalty regime took effect on 6 March 2010 and, as the substance
of the misconduct took place after then, the FSA has applied that penalty to all the
misconduct in this case. The new penalty regime requires the FSA to apply a five-step
framework to determine the appropriate level of the 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. Chapter 6.5B is annexed to this
Final Notice.

4.6
Pursuant to DEPP6.5B.1G, at Step 1 the FSA seeks to deprive an individual of the
financial benefit derived directly from the breach where it is practicable to quantify
this. In this case it is not practicable to quantify any financial benefit that Mr Brincat
derived directly from the breach and so the Step 1 figure is zero.

Step 2: The seriousness of the breach

7

Relevant income

4.7
Pursuant to DEPP6.5B.2G, at Step 2 the
will determine a figure reflecting the
seriousness of the breach which is based on a percentage of the individual's income
(“relevant income”) from the employment in connection with which the

occurred (the “relevant employment”) and for the period of the
. 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 relevant income is
therefore the amount Mr Brincat earned between 4 August 2009 and 3 August 2010.
His total income from Wise Owl for this period was £50,000, which the FSA
considers is his relevant income in this case.

breach

breach

The percentage to be applied

4.8
The percentage of Mr Brincat’s income which will form the basis of the Step 2 figure
depends on the level of seriousness of the breach. There are five seriousness levels,
ranging from level 1 (0%) to level 5 (40%); the more serious the breach, the higher
the level. In assessing the seriousness level, the FSA takes into account various
factors which reflect the impact and nature of the breach, and whether it was
committed deliberately or recklessly. A non-exhaustive list of factors which are likely
to be considered level 4 or level 5 factors are set out at DEPP 6.5B.2G(12). In this
particular case, there is one level 4 or level 5 factor:

(1)
Impact of the Breach: The breach by Mr Brincat and the failure of the firm
caused Wise Owl’s insurance providers to lose in excess of £170,000 in
commission clawback, which cannot be repaid. This represents a loss to other
market users (DEPP 6.5B.2G(12)(a)).

4.9
A non-exhaustive list of factors which are likely to be considered levels 1 to 3 factors
are set out at DEPP 6.5B.2G(13). There is one level 1 to 3 factor:

(1)
Whether the breach was committed negligently: Mr Brincat showed a serious
lack of competence in managing the significant debts owed by Wise Owl to
insurers, which could not be repaid. However, the FSA did not conclude that
Mr Brincat had knowingly incurred large amounts of debt to insurance
providers without intending to repay these debts, and it appears instead that
this is a case of a failed business strategy. When Mr Brincat left the UK, he
was incompetent in understanding the effect on the business, its customers and
insurers of him leaving the firm under the control of non FSA-approved and
unsupervised persons. Mr Brincat should have been aware that there was a risk
that his actions or inactions could result in a breach and he failed to adequately
mitigate that risk.

4.10
Pursuant to DEPP 6.5B.2G(7) to (11) there are additional factors to consider.
Specifically, the FSA considers the nature of the breach, in this case, increases the
seriousness of the breach: Mr Brincat was the only approved person at Wise Owl and
solely responsible for the firm’s compliance with relevant regulatory requirements.
His actions caused Wise Owl to fail to satisfy Threshold Condition 4 (Adequate
resources). Specifically, Wise Owl has failed to meet its liabilities as they fell due,
and failed to have competent and prudent management. On the basis of failure to
meet Threshold Condition 4, the FSA has sought to cancel Wise Owl’s Part IV

permission.

4.11
Taking all of these factors into account, the
has determined that this case falls
into level 4 (30%) in relation to the seriousness of the breaches. As the relevant
income has been assessed as £50,000 this means that the Step 2 penalty figure is
£15,000.

Step 3: Mitigating and aggravating factors

4.12
Pursuant to DEPP 6.5B.3G, at Step 3 the
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, by taking into account factors which aggravate or
mitigate the
es. Any such adjustments will be made by way of a percentage
adjustment to the figure determined at Step 2.

breach

4.13
In deciding on the mitigating and aggravating factors in this case, the
has
particularly taken into account the following aggravating factors:

(1) Mr Brincat did not bring the firm’s ongoing failure to meet Threshold Condition
4 (Adequate Resources) quickly, effectively and completely to the FSA’s
attention (DEPP 6.5B.3G(2)(a));

(2) Mr Brincat showed a lack of cooperation in his communications with the FSA
once the breaches had been identified. Specifically, he declined to communicate
with the FSA by any means other than email which hampered the FSA’s attempts
to obtain information (DEPP 6.5B.3G(2)(b);

(3) Mr Brincat failed to take steps to stop the breach in circumstances where Mr
Brincat knew that Wise Owl was running up significant debts to insurers (DEPP
6.5B.3G(2)(c); and

(4) as the sole approved person Mr Brincat took inadequate remedial steps to mitigate
the effect of the firm’s failings once Mr Brincat’s breaches had been identified,
specifically, his absence from the country and the offices of the firm meant that
the FSA was forced to issue a consumer alert to ensure customers of the firm
were on notice that it had ceased to trade (DEPP 6.5B.3G(2)(d)).

4.14
The FSA considers that because of these aggravating factors, the Step 2 penalty figure
should be increased by 50% which, would mean the Step 3 penalty figure is £22,500.

Step 4: Adjustment for deterrence

4.15
Pursuant to DEPP6.5B.4G, at Step 4 the
may
FSA
increase the figure arrived at after
Step 3 if it considers it is insufficient to deter the individual who committed the
, or others, from committing further or similar
. The FSA considers
that on balance a Step 4 uplift is not necessary in this case.
breach
breaches

Serious financial hardship (DEPP6.5D)


4.16
DEPP 6.5D.1G states that the FSA's approach to determining penalties described in
DEPP 6.5 to DEPP 6.5C is intended
to ensure that financial penalties are

proportionate to the breach. The FSA recognises that penalties may affect persons
differently, and that the FSA should consider whether a reduction in the proposed
penalty is appropriate if the penalty would cause the subject of enforcement action
serious financial hardship. The FSA has reviewed the Statement of Means signed by
Mr Brincat on 6 January 2011, and the documentary evidence that Mr Brincat has
provided, and considers that there is verifiable evidence that Mr Brincat would suffer
serious financial hardship if he was required to pay any financial penalty. Having
regard to all the circumstances, the FSA considers the appropriate level of financial
penalty would be £22,500, but for the evidence that the imposition of any financial
penalty would create serious financial difficulties for Mr Brincat. Accordingly, in
light of this evidence, the FSA considers that the financial penalty it would otherwise
have sought to impose should be reduced to nil.

Step 5: settlement discount scheme

4.17
Mr Brincat has agreed to settle this case at stage 1 and so would be entitled to a 30%
discount. However, as the FSA has reduced the Step 4 figure to zero on account of Mr
Brincat’s financial position, the settlement discount scheme does not apply.

Public censure (DEPP 6.4)


4.18
Because of the above factors that were considered in order to determine the
appropriate level of financial penalty and specifically because of the serious financial
hardship which Mr Brincat would suffer were a financial penalty to be imposed, the
FSA has concluded that the financial penalty should be reduced to nil, and that a
public censure in respect of his misconduct is an appropriate sanction. This is in
accordance with guidance set out in DEPP6.4.2G(8)(a).

Withdrawal of approval and prohibition

4.19
The FSA has considered his behaviour and is of the view that Mr Brincat poses a
serious risk to consumers and to confidence in the financial system if Mr Brincat acts
as an adviser or is involved in the running of, or holds a senior management role with,
another authorised firm in the future.

4.20
The FSA therefore considers that it is necessary and proportionate to withdraw his
individual approval and to prohibit Mr Brincat from performing any function in
relation to any regulated activity carried on by any authorised or exempt person or
exempt professional firm.

4.21
The facts and matters described above lead the FSA to the conclusion that his conduct
fell short of the minimum regulatory standards required of approved persons
performing controlled functions. As such, Mr Brincat is not fit and proper in terms of
his competence and capability to perform any function in relation to any regulated
activity.

4.22
In particular, his conduct constituted breaches of the following Statements of
Principle:

(1)
Statement of Principle 4, because Mr Brincat failed in his role as director of
and sole approved person at Wise Owl to deal with the FSA in an open and
cooperative way, and disclose appropriately information of which the FSA
reasonably expected notice. Specifically, Mr Brincat failed to notify the FSA
that:

(i)
he had left the United Kingdom for an indefinite period and had
delegated regulatory responsibilities to unapproved individuals in his
absence; and

(iii) Wise Owl had ceased to trade.

(2)
Statement of Principle 6, because Mr Brincat failed in his role as manager of
Wise Owl to exercise due skill, care and diligence in managing the business of
the firm, for which Mr Brincat was responsible in his controlled functions.
Specifically, Mr Brincat:

(i)
failed to monitor adequately the high cancellation rate of life insurance
policies sold by Wise Owl, and failed to disclose to Wise Owl’s
insurance providers the sales strategy of offering free life cover;

(ii)
failed to take adequate steps to keep himself informed of the affairs of
the business for which Mr Brincat was responsible;

(iii) delegated regulatory responsibilities to junior members of staff and third
parties, without having notified the FSA, and where none of those
individuals was an FSA approved person; and

(iv) failed to monitor Wise Owl’s financial position, including the extent of
Wise Owl’s liabilities to insurance providers.

4.23
The FSA, having regard to all the circumstances, therefore considers that it is
appropriate to issue a public censure of his misconduct, withdraw his approval and
make the Prohibition Order in relation to Mr Brincat.

5.
DECISION MAKERS

5.1
The decision which gave rise to the obligation to give this Notice was made on behalf
of the FSA by the Settlement Decision Makers.

6.
IMPORTANT

6.1
This Final Notice is given to Mr Brincat in accordance with section 390 of the Act.

Publicity

6.2
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of information
about the matter to which this notice relates. Under those provisions, the FSA must
publish such information about the matter to which this notice relates as the FSA
considers appropriate. The information may be published in such manner as the FSA
considers appropriate. However, the FSA may not publish information if such

publication would, in the opinion of the FSA, be unfair to you or prejudicial to the
interests of consumers.

6.3
For more information concerning this matter generally, you should contact Rachel
West in the Enforcement and Financial Crime Division of the FSA (direct line: 0207
066 0142).

Tom Spender
Head of Department
FSA Enforcement and Financial Crime Division

ANNEX A

RELEVANT STATUTORY PROVISIONS, REGULATORY REQUIREMENTS
AND GUIDANCE

1.
Statutory provisions

1.1
The FSA’s statutory objectives as set out in section 2(2) of the Act include market
confidence, public awareness, the protection of consumers and the reduction of
financial crime.

2.
Other relevant regulatory provisions

2.1
In exercising its power to withdraw approval and make a prohibition order, the FSA
must have regard to guidance published in the FSA Handbook. The guidance that the
FSA considers relevant to this case is set out below.

Enforcement Guide (“EG”)

2.2
The FSA’s policy on exercising its powers to withdraw approval and make
prohibition orders is set out in Chapter 9 of EG.

2.3
EG 9.1 states that the FSA’s power under section 56 of the Act to prohibit individuals
who are not fit and proper from carrying out controlled functions in relation to
regulated activities helps the FSA to work towards achieving its regulatory objectives.
The FSA may exercise this power to make a prohibition order where it considers that,
to achieve any of those 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.

2.4
EG 9.2 states that the FSA’s effective use of the power under section 63 of the Act to
withdraw approval from an approved person will also help to ensure high standards of
regulatory conduct by preventing an approved person from continuing to perform the
controlled function to which the approval relates if he is not a fit and proper person to
perform that function. Where it considers that this is appropriate, the FSA may
prohibit an approved person, in addition to withdrawing their approval.

2.5
EG 9.3 states that, in deciding whether to make a prohibition order and/or, in the case
of an approved person, to withdraw its approval, the FSA will consider all the relevant
circumstances.

2.6
EG 9.4 sets out the general scope of the FSA’s power in this respect. The FSA has
the power to make a range of prohibition orders depending on the circumstances of
each case and the range of regulated activities to which the individual’s lack of fitness
and propriety is relevant.

2.7
EG 9.5 provides that the scope of a prohibition order will depend on the range of
functions which the individual concerned performs in relation to regulated activities,

the reasons why he is not fit and proper and the severity of risk which he poses to
consumers or the market generally.

2.8
EG 9.9 provides that when deciding whether to make a prohibition order against an
approved person and/or to withdraw that person’s approval, the FSA will consider all
the relevant circumstances of the case. This may include, but are not limited to, the
following:

(1)
whether the individual is fit and proper to perform functions in relation to
regulated activities. The criteria for assessing fitness and propriety of approved
persons are set out in FIT 2.1 (honesty, integrity and reputation), FIT 2.2
(competence and capability) and FIT 2.3 (Financial Soundness);

(2)
whether, and to what extent, the approved person has:

(i)
failed to comply with the Statements of Principle issued by the FSA
with respect to the conduct of approved persons; or

(ii)
been knowingly concerned in a contravention by the relevant firm of a
requirement imposed on the firm by or under the Act (including the
Principles and other rules);

(3)
the relevance and materiality of any matters indicating unfitness;

(4)
the length of time since the occurrence of any matters indicating unfitness;

(5)
the particular controlled function the approved person is (or was) performing,
the nature and activities of the firm concerned and the markets in which he
operates; and

(6)
the severity of the risk which the individual poses to consumers and to
confidence in the financial system.

2.9
E.G 9.12 provides a number of examples of types of behaviour which have previously
resulted in the FSA deciding to issue a prohibition order or withdraw the approval of
an approved person. The examples include:

(1)
serious lack of competence; and

(2)
serious breaches of the Statements of Principle for approved persons.

Statements of Principle and the Code of Practice for Approved Persons (“APER”)

2.13
APER, in the High Level Standards block of the FSA Handbook, sets outs the
Statements of Principle as they relate to approved persons and descriptions of conduct
which, in the opinion of the FSA, does not comply with a Statement of Principle.
APER and further describes factors which, in the opinion of the FSA, are to be taken
into account in determining whether or not an approved person’s conduct complies
with a Statement of Principle.

2.14
The Statements of Principle relevant to this matter are:

(1)
Statement of Principle 4 which provides that an approved person must deal
with the FSA in an open and cooperative way and must disclose appropriately
any information of which the FSA would reasonably expect notice; and

(2)
Statement of Principle 6 which provides that an approved person performing a
significant influence function must exercise due skill, care and diligence in
managing the business of the firm for which he is responsible in his controlled
function.

2.15
APER 3.1.3G states that when establishing compliance with or a breach of a
Statement of Principle, account will be taken of the context in which a course of
conduct was undertaken, the circumstances of the individual case, the characteristics
of the particular controlled function and the behaviour expected in that function.

2.16
APER 3.1.4G provides that an approved person will only be in breach of a Statement
of Principle if he is personally culpable, that is in a situation where his conduct was
deliberate or where his standard of conduct was below that which would be
reasonable in all the circumstances.

2.17
APER 4.4 lists types of conduct which do not comply with Statement of Principle 4.

2.18
APER 4.4.7E states that failing promptly to inform the FSA of information of which
he is aware and which it would be reasonable to assume would be of material
significant to the FSA, whether in response to questions or otherwise, is conduct that
breaches Statement of Principle 4.

2.19
APER 4.4.9E states that failing without good reason to inform the regulator of
information of which the approved person was aware in response to questions from
that regulator, or failing to answer questions put by a regulatory, despite a request or
demand having made, is conduct that breaches Statement of Principle 4.

2.20
APER 4.6 lists types of conduct which do not comply with Statement of Principle 6.

2.21
APER 4.6.3E states that failing to take reasonable steps to adequately inform oneself
as an approved person about the affairs of the business for which he is responsible in
his controlled functions is conduct that breaches Statement of Principle 6.

2.22
APER 4.6.8E states than failing to supervise and monitor adequately the individual or
individuals to whom responsibility for dealing with an issue or authority for dealing
with a part of the business has been delegated by an approved person is conduct that
breaches Statement of Principle 6.

Decision Procedures and Penalties Manual

2.23
DEPP 6.5B sets out the steps to be taken by the FSA when calculating the penalty to
be imposed on individuals in non-market abuse cases.


Step 1 - disgorgement

DEPP 6.5B.1G


2.24
The FSA will seek to deprive an individual of the financial benefit derived directly
from the breach (which may include the profit made or loss avoided) where it is
practicable to quantify this. The FSA will ordinarily also charge interest on the
benefit. Where the success of a firm's entire business model is dependent on
breaching FSA rules or other requirements of the regulatory system and the
individual's breach is at the core of the firm's regulated activities, the FSA will seek to
deprive the individual of all the financial benefit he has derived from such activities.

Step 2 - the seriousness of the breach

DEPP 6.5B.2G


2.25
(1) The FSA will determine a figure which will be based on a percentage of an
individual's “relevant income”. “Relevant income” will be the gross amount of all
benefits received by the individual from the employment in connection with which the
breach occurred (the “relevant employment”), and for the period of the breach. In
determining an individual's relevant income, “benefits” includes, but is not limited to,
salary, bonus, pension contributions, share options and share schemes; and
“employment” includes, but is not limited to, employment as an adviser, director,
partner or contractor.

2.26
(2) Where the breach lasted less than 12 months, or was a one-off event, the relevant
income will be that earned by the individual in the 12 months preceding the end of the
breach. Where the individual was in the relevant employment for less than 12 months,
his relevant income will be calculated on a pro rata basis to the equivalent of 12
months' relevant income.

2.27
(3) This approach reflects the FSA's view that an individual receives remuneration
commensurate with his responsibilities, and so it is reasonable to base the amount of
penalty for failure to discharge his duties properly on his remuneration. The FSA also
believes that the extent of the financial benefit earned by an individual is relevant in
terms of the size of the financial penalty necessary to act as a credible deterrent. The
FSA recognises that in some cases an individual may be approved for only a small
part of the work he carries out on a day-to-day basis. However, in these circumstances
the FSA still considers it appropriate to base the relevant income figure on all of the
benefit that an individual gains from the relevant employment, even if his
employment is not totally related to a controlled function.

2.28
(4) Having determined the relevant income the FSA will then decide on the
percentage of that income which will form the basis of the penalty. In making this
determination the FSA will consider the seriousness of the breach and choose a
percentage between 0% and 40%.

2.29
(5) This range is divided into five fixed levels which reflect, on a sliding scale, the
seriousness of the breach. The more serious the breach, the higher the level. For
penalties imposed on individuals there are the following five levels:

(a)
level 1 - 0%;

(b)
level 2 - 10%;

(c)
level 3 - 20%;

(d)
level 4 - 30%; and

(e)
level 5 - 40%.

2.30
(6) The FSA will assess the seriousness of a breach to determine which level is most
appropriate to the case.

2.31
(7) In deciding which level is most appropriate to a case against an individual, the
FSA will take into account various factors which will usually fall into the following
four categories:

(a)
factors relating to the impact of the breach;

(b)
factors relating to the nature of the breach;

(c)
factors tending to show whether the breach was deliberate; and

(d)
factors tending to show whether the breach was reckless.

2.32
(8) Factors relating to the impact of a breach committed by an individual include:

(a)
the level of benefit gained or loss avoided, or intended to be gained
or avoided, by the individual from the breach, either directly or
indirectly;

(b)
the loss or risk of loss, as a whole, caused to consumers, investors or
other market users in general;

(c)
the loss or risk of loss caused to individual consumers, investors or
other market users;

(d)
whether the breach had an effect on particularly vulnerable people,
whether intentionally or otherwise;

(e)
the inconvenience or distress caused to consumers; and

(f)
whether the breach had an adverse effect on markets and, if so, how
serious that effect was. This may include having regard to whether
the orderliness of, or confidence in, the markets in question has been
damaged or put at risk.

2.33
(9) Factors relating to the nature of a breach by an individual include:

(a)
the nature of the rules, requirements or provisions breached;

(b)
the frequency of the breach;

(c)
the nature and extent of any financial crime facilitated, occasioned

or otherwise attributable to the breach;

(d)
the scope for any potential financial crime to be facilitated,
occasioned or otherwise occur as a result of the breach;

(e)
whether the individual failed to act with integrity;

(f)
whether the individual abused a position of trust;

(g)
whether the individual committed a breach of any professional code
of conduct;

(h)
whether the individual caused or encouraged other individuals to
commit breaches;

(i)
whether the individual held a prominent position within the industry;

(j)
whether the individual is an experienced industry professional;

(k)
whether the individual held a senior position with the firm;

(l)
the extent of the responsibility of the individual for the product or
business areas affected by the breach, and for the particular matter
that was the subject of the breach;

(m)
whether the individual acted under duress;

(n)
whether the individual took any steps to comply with FSA rules, and
the adequacy of those steps;

(o)
in the context of contraventions of Part VI of the Act, the extent to
which the behaviour which constitutes the contravention departs
from current market practice ;

(p)
in relation to a contravention of section 63A of the Act, whether the
individual's only misconduct was to perform a controlled function
without approval;

(q)
in relation to a contravention of section 63A of the Act, whether the
individual performed controlled functions without approval and,
while doing so, committed misconduct in respect of which, if the
individual had been an approved person, the FSA would have been
empowered to take action pursuant to section 66 of the Act; and

(r)
in relation to a contravention of section 63A of the Act, the extent to
which the individual could reasonably be expected to have known
that he was performing a controlled function without approval. The
circumstances in which the FSA would expect to be satisfied that a
person could reasonably be expected to have known that he was
performing a controlled function without approval include:

(i)
the person had previously performed a similar role at the
same or another firm for which he had been approved;

(ii)
the
person's firm or another firm had previously

applied for approval for the person to perform the same or a
similar controlled function;

(iii) the person's seniority or experience was such that he could

reasonably be expected to have known that he was
performing a controlled function without approval; and

(iv)
the person's firm had clearly apportioned responsibilities so
the person's role, and the responsibilities associated with it,
were clear.

2.34
(10) Factors tending to show the breach was deliberate include:

(a)
the breach was intentional, in that the individual intended or foresaw
that the likely or actual consequences of his actions or inaction
would result in a breach;

(b)
the individual intended to benefit financially from the breach, either
directly or indirectly;

(c)
the individual knew that his actions were not in accordance with his
firm's internal procedures;

(d)
the individual sought to conceal his misconduct;

(e)
the individual committed the breach in such a way as to avoid or
reduce the risk that the breach would be discovered;

(f)
the individual was influenced to commit the breach by the belief that
it would be difficult to detect;

(g)
the individual knowingly took decisions relating to the breach
beyond his field of competence; and

(h)
the individual's actions were repeated.

2.35
(11) Factors tending to show the breach was reckless include:

(a)
the individual appreciated there was a risk that his actions or
inaction could result in a breach and failed adequately to mitigate
that risk; and

(b)
the individual was aware there was a risk that his actions or inaction
could result in a breach but failed to check if he was acting in
accordance with internal procedures.

(12) In following this approach factors which are likely to be considered 'level 4
factors' or 'level 5 factors' include:

(a)
the breach caused a significant loss or risk of loss to individual
consumers, investors or other market users;

(b)
financial crime was facilitated, occasioned or otherwise attributable
to the breach;

(c)
the breach created a significant risk that financial crime would be
facilitated, occasioned or otherwise occur;

(d)
the individual failed to act with integrity;

(e)
the individual abused a position of trust;

(f)
the individual held a prominent position within the industry; and

(g)
the breach was committed deliberately or recklessly.

2.36
(13) Factors which are likely to be considered 'level 1 factors', 'level 2 factors' or
'level 3 factors' include:

(a)
little, or no, profits were made or losses avoided as a result of the
breach, either directly or indirectly;

(b)
there was no or little loss or risk of loss to consumers, investors or
other market users individually and in general;

(c)
there was no, or limited, actual or potential effect on the orderliness
of, or confidence in, markets as a result of the breach;

(d)
the breach was committed negligently or inadvertently; and

(e)
in relation to a contravention of section 63A of the Act, the
individual's only misconduct was to perform a controlled function
without approval.

Step 3 - mitigating and aggravating factors

DEPP 6.5B.3G

2.37
(1) The FSA 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. Any such adjustments
will be made by way of a percentage adjustment to the figure determined at Step 2.

2.38
(2) The following list of factors may have the effect of aggravating or mitigating the
breach:

(a)
the conduct of the individual in bringing (or failing to bring)
quickly, effectively and completely the breach to the FSA's attention
(or the attention of other regulatory authorities, where relevant);

(b)
the degree of cooperation the individual showed during the
investigation of the breach by the FSA, or any other regulatory
authority allowed to share information with the FSA;

(c)
whether the individual took any steps to stop the breach, and when
these steps were taken;

(d)
any remedial steps taken since the breach was identified, including
whether these were taken on the individual's own initiative or that of
the FSA or another regulatory authority;

(e)
whether the individual has arranged his resources in such a way as to
allow or avoid disgorgement and/or payment of a financial penalty;

(f)
whether the individual had previously been told about the FSA's
concerns in relation to the issue, either by means of a private
warning or in supervisory correspondence;

(g)
whether the individual had previously undertaken not to perform a
particular act or engage in particular behaviour;

(h)
whether the individual has complied with any requirements or
rulings of another regulatory authority relating to the breach;

(i)
the previous disciplinary record and general compliance history of
the individual;

(j)
action taken against the individual by other domestic or international
regulatory authorities that is relevant to the breach in question;

(k)
whether FSA guidance or other published materials had already
raised relevant concerns, and the nature and accessibility of such
materials;

(l)
whether the FSA publicly called for an improvement in standards in
relation to the behaviour constituting the breach or similar behaviour
before or during the occurrence of the breach;

(m)
whether the individual agreed to undertake training subsequent to
the breach ; and

(n)
in relation to a contravention of section 63A of the Act, whether the
person's firm or another firm has previously withdrawn an
application for the person to perform the same or a similar controlled
function or has had such an application rejected by the FSA.

Step 4 - adjustment for deterrence

DEPP 6.5B.4G


2.39
(1) If the FSA 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 FSA may increase the penalty. Circumstances where the FSA may
do this include:

(a)
where the FSA considers the absolute value of the penalty too small
in relation to the breach to meet its objective of credible deterrence;

(b)
where previous FSA action in respect of similar breaches has failed
to improve industry standards. This may include similar breaches
relating to different products (for example, action for mis-selling or
claims handling failures in respect of 'x' product may be relevant to a
case for mis-selling or claims handling failures in respect of 'y'
product);

(c)
where
the
FSA considers it is likely that similar breaches

will be committed by the individual or by other individuals in the
future;

(d)
where the FSA considers that the likelihood of the detection of such

a breach is low; and

(e)
where a penalty based on an individual's income may not act as a
deterrent, for example, if an individual has a small or zero income
but owns assets of high value.

Step 5 - settlement discount

DEPP 6.5B.5G


2.40
The FSA and the individual on whom a penalty is to be imposed may seek to agree
the amount of any financial penalty and other terms. In recognition of the benefits of
such agreements, 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
FSA and the individual concerned reached an agreement. The settlement discount
does not apply to the disgorgement of any benefit calculated at Step 1.