PURSUANT TO THE DECISION OF THE UPPER TRIBUNAL ON 6 AUGUST 2015, SEE
THE FINAL NOTICE ISSUED ON 22 OCTOBER 2015

DECISION NOTICE

1.
ACTION

1.1.
For the reasons given in this Notice, the Authority has decided to:

(1)
make an order, pursuant to section 56 of the Financial Services and

Markets Act 2000, prohibiting Mr Wilkins from performing any significant

influence function in relation to any regulated activities carried on by an

authorised or exempt person or exempt professional firm; and

(2)
impose on Mr Wilkins a financial penalty of £100,000 pursuant to section

66 of the Act for breaches of Statement of Principle 6 (due skill, care and

diligence).

2.
SUMMARY OF REASONS

2.1.
Mr Wilkins was a director (CF1) of Catalyst Investment Group Limited (“Catalyst”)

between 18 October 2007 and 23 March 2010, having been appointed to the

board on 1 August 2007. He was also an approved adviser (CF23/CF30) at

Catalyst between 11 June 2007 and 16 April 2010.

2.2.
Catalyst was the primary distributor of ARM bonds in the UK. ARM bonds are

structured products issued by a Luxembourg entity, ARM, the underlying assets of

which are senior life settlements purchased in the United States. ARM bonds

were issued to the public in quarterly tranches from about October 2007 to

October 2009. Catalyst promoted and distributed ARM bonds to investment

intermediaries and independent financial advisers in the UK, who in turn

promoted and sold them to retail investors.

2.3.
By 28 November 2007, Mr Wilkins became aware that ARM considered that, under

Luxembourg law, it needed a licence from the Luxembourg financial regulator, the

CSSF, to continue to issue the ARM bonds, as inter alia it fell within the CSSF’s

interpretation of issuing on a “continuous basis”. ARM applied to the CSSF for a

licence in July 2009.

2.4.
From July 2009 until after the end of the relevant period, the CSSF made a series

of requests to ARM for further information relating to its application for a licence.

On 20 November 2009, the CSSF requested that ARM cease issuing bonds

pending a decision on the licence application. On 29 August 2011 (after the

relevant period), the CSSF, having indicated to ARM previously that it was minded

to reject ARM’s application, formally did so. One consequence of the refusal of a

licence under Luxembourg law is that the issuer of the bonds must be liquidated.

2.5.
Mr Wilkins breached Statement of Principle 6 by failing to exercise due skill, care

and diligence in managing Catalyst’s business, in the following respects:

(1)
Mr Wilkins permitted Catalyst to continue to promote bonds purportedly to

be issued by ARM, and arrange for the acceptance of funds from investors,

after he had become aware on about 20 November 2009 that the CSSF had

requested that ARM not issue any further bonds, pending a decision on its

application for a licence.

(2)
Mr Wilkins approved the December 2009 letter sent to IFAs which

presented an unfair and misleading picture of ARM’s regulatory position.

The letter suggested that ARM’s application for a licence was voluntary,

and omitted to disclose the risk of liquidation of ARM if the licence was not

obtained. The December 2009 letter was sent after Mr Wilkins became

aware that ARM would not be issuing bonds unless and until its licence

application was approved and that there was a risk that ARM would be

liquidated if no licence was obtained.

(3)
Mr Wilkins failed to take reasonable steps during the relevant period (until

24 December 2009) to inform Catalyst’s compliance officer that ARM

considered it was required to have a licence.

2.6.
As a result of Mr Wilkins’ breaches outlined above, investors in ARM bonds were

exposed to risks that they were not made aware of, and may have suffered loss.

2.7.
UK retail investors have invested £17.1 million in tranches 9 to 11 of the intended

ARM bonds to be distributed by Catalyst. As no further bonds were issued by

ARM after October 2009, and the legal ownership of the funds held by third party

receiving agents is unclear, these investors are at risk of losing a significant part

of their investment. The extent of any loss is currently unknown.

Additional fitness and propriety issues

2.8.
In addition to the matters set out above, Mr Wilkins’ conduct as one of the

directors responsible for approving Catalyst’s financial promotions is relevant to

his fitness and propriety. During the relevant period he did not amend Catalyst’s

financial promotions to give a clear, fair and not misleading picture of ARM’s

regulatory position and of the regulatory risk associated with ARM and the ARM

bonds. In particular, he failed to take reasonable steps to ensure the financial

promotions disclosed appropriately:

(a) (from 28 November 2007) Catalyst’s view that ARM required a licence

from the CSSF to issue bonds;

(b) (from 20 November 2009) that ARM would not issue bonds pending

authorisation; and

(c) (from 24 December 2009) that one potential consequence for ARM of

failing to obtain a licence was liquidation.

These were significant issues, giving rise to risks about which investors should

have been warned to put them in a position to make an informed decision about

whether or not to invest in the ARM bonds.

2.9.
Mr Wilkins’ conduct as set out in paragraphs 2.5 to 2.8 above demonstrates that

he is not fit and proper in terms of his competence and capability to perform a

significant influence function.

2.10. The Authority considers that the nature and seriousness of Mr Wilkins’ misconduct

warrant the action set out at section 1 above.

3.
DEFINITIONS

3.1.
The definitions below are used in this Decision Notice:

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

“ARM” means ARM Asset Backed Securities SA;

“ARM bonds” mean the ARM Capital Growth Bond and the ARM Assured Income

Plan;

“ARM plc” means Assured Risk Mitigation plc;

The “Authority” means the body corporate formerly known as the Financial

Services Authority and renamed on 1 April 2013 as the Financial Conduct

“Catalyst” means Catalyst Investment Group Limited, company number

04031316;

“CSSF” means the Commission de Surveillance du Secteur Financier, the

Luxembourg financial regulator;

the “December 2009 letter” means the letter from Catalyst to IFAs of around 30

December 2009;

“DEPP” means the Authority’s Decision Procedures and Penalties manual;

“EG” means the Authority’s Enforcement Guide;

“Handbook” means the Authority’s Handbook of Rules and Guidance;

“IFA” means independent financial adviser;

“relevant period” means the period from 28 November 2007 to 23 March 2010;

“Statement of Principle” means one of the Statements of Principle issued by the

Authority under section 64(1) of the Act (Conduct: Statements and codes) with

respect to the conduct of approved persons and set out in the part of the

Handbook in High Level Standards which has the title Statements of Principle and

Code of Practice for Approved Persons;

“TLPI” means traded life policy investments; and

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

4.
FACTS AND MATTERS

Background to Catalyst

4.1.
Catalyst was incorporated in England and Wales on 11 July 2000. It has been

authorised by the Authority since 1 December 2001 to undertake regulated

activities.

4.2.
Over the relevant period, Catalyst engaged in a wide range of investment

business activities, including distributing the ARM bonds into the UK market. The

ARM bonds are bonds backed by TLPI; the underlying investment is in US life

insurance policies.

4.3.
ARM is a Luxembourg incorporated securitisation vehicle which at all material

times has not been authorised or regulated by the Authority or any other national

regulator. The ARM bonds were listed on the Irish Stock Exchange.

4.4.
Catalyst was the primary distributor of ARM bonds in the UK, marketing them to

retail investors via investment intermediaries and IFAs, who might give advice

and/or facilitate sales to retail clients. Catalyst did not give advice or sell the ARM

bonds directly to retail customers and was not authorised to do so.

4.5.
Catalyst designed, approved and distributed to IFAs marketing materials and

information about the ARM bonds, in the form of financial promotions. Many of

these financial promotions were designed to be passed to prospective retail

investors and used to inform the IFAs in order to provide advice to their

customers.

4.6.
Mr Wilkins was a director of Catalyst from 18 October 2007 to 23 March 2010.

Traded life policy investments and the ARM bonds

4.7.
TLPI are products whose underlying investment is in life insurance policies, of

which the insureds are typically US citizens. The investor purchases a life

insurance policy from the insured person for a lump sum. The investor pays the

premiums on the policy for the remainder of the insured’s lifetime, and benefits

from the insurance payout on the death of the insured.

4.8.
TLPI are complex and often high risk investments that the Authority considers to

be unsuitable for the mass retail market. Certain of the risks were noted in the

materials produced by Catalyst. For example, the ARM brochures stated

“Participation in the [ARM bond] may involve substantial risks and is suitable only

for investors who have the knowledge and experience in financial and business

matters necessary to enable them to evaluate the risks, tax implications and

merits of such an investment”. The brochures listed, among the potential risks of

the product: the limited resources of the issuer; limited liquidity and an illiquid

market for life insurance policies; the fact that ARM was not regulated; the fact

that there had been no independent investigation into the assets backing the ARM

bonds; and foreign exchange risk.

4.9.
Between 2007 and 2010, ARM offered two types of TLPI bonds, the ARM Capital

Growth Bond and the ARM Assured Income Plan, the latter paying regular interest

to investors. Funds raised by the bonds were used to purchase TLPI policies. ARM

transferred funds raised by the bond issue to a US trust based in Delaware to

purchase life insurance policies of insured persons over 65 years old with a life

expectancy of between three and 15 years. The policies are held and owned by

the US trust.

4.10. The policy issuers (insurers) were required by contract to pay all maturity or sales

proceeds of the policies held by the US trust to a “cash entitlement account”

controlled by ARM on behalf of the bondholders.

4.11. ARM issued the bonds in tranches. A tranche would open for investment three

months before bonds were issued. The tranche would close at the end of the

three month period, and the bonds for that tranche would be issued to all those

who had invested. The next tranche would then open for investment.

4.12. ARM bonds were issued to the public in quarterly tranches (tranches 1 to 8) from

about October 2007 to October 2009.

7


4.13. Catalyst promoted tranches 9 to 11 to IFAs. It also arranged for or effected the

transfer of funds to the receiving agents pending the issue of tranches 9 to 11

from 1 October 2009 onwards, but the bonds for those tranches were never

issued by ARM for the reasons set out below.

4.14. A total of £17.1 million was invested by UK retail consumers, and a further £1.2

million, US$1.3 million and €1.9 million was invested outside the UK, in tranches

9 to 11, even though no ARM bonds were issued for these tranches. The majority

of these funds is still held in the accounts of the receiving agents, though some of

the tranche 9 funds were sent to ARM and subsequently dispersed (including by

making interest payments to investors in tranches 9 to 11 of £2 million).

Interaction with the Luxembourg financial regulator

4.15. Luxembourg law provides that securitisation undertakings which issue securities

to the public on a continuous basis must be licensed by the Luxembourg financial

regulator, the CSSF. One consequence of the CSSF refusing a securitisation

undertaking’s application for a licence is the liquidation of that firm.

4.16. Mr Wilkins became aware by 28 November 2007 that ARM considered that it

needed a licence from the CSSF to continue to issue bonds as it fell within the

CSSF’s interpretation of the definition of a securitisation undertaking, inter alia

because it issued bonds more than three times per year.

4.17. At around this time, ARM engaged lawyers to apply to the CSSF for a licence, but

no progress appears to have been made. On 9 July 2009, the CSSF wrote to ARM

requesting it to provide information to enable the CSSF to assess whether ARM’s

activities required a licence. ARM responded on 16 July 2009 that it believed its

activities did need a licence from the CSSF, as it issued bonds to the public on a

continuous basis. On 23 July 2009, ARM belatedly submitted an application for a

licence to the CSSF.

4.18. From this date, the CSSF made several requests for information to ARM about its

business model and particularly the risks to investors posed by the bonds and the

asset class.

4.19. On 1 October 2009 ARM issued the bonds which underlay tranche 8. It then

opened tranche 9 for investment. On 20 November 2009, ARM was requested by

the CSSF not to issue any more bonds, pending a decision from the CSSF on

ARM’s application for a licence.

4.20. Between 1 October 2009 (the date of issue of the last tranche of ARM bonds) and

26 May 2010 (when the Authority issued a First Supervisory Notice requiring

Catalyst to cease promoting and arranging investments into ARM bonds), Catalyst

arranged or effected the remittance of £17.1 million of UK investors’ funds to

receiving agents. These funds were intended for tranches 9 to 11 of the ARM

bonds.

4.21. On 24 December 2009, Mr Wilkins became aware that one potential consequence

of ARM failing to obtain a licence was ARM’s liquidation. Also on that date

Catalyst’s compliance officer became aware of the view that ARM required a

licence.

4.22. On 9 June 2010, Catalyst notified the Authority that ARM had learned that the

CSSF was minded to refuse its application for a licence but to allow ARM to

transfer its operations to another jurisdiction, rather than issue a formal refusal.

Potential transfer of ARM’s operations to Ireland

4.23. In early 2010, ARM decided to explore transferring its operations to Ireland, in

parallel with continuing to seek a licence in Luxembourg. In January 2010,

lawyers were instructed in Ireland to set up a “section 110 company” (that is, a

company falling within the definition of section 110 of the Irish Taxes and

Consolidation Act 1997) for this purpose. A section 110 company would normally

be exempt from any requirement to be authorised by the Irish financial regulator

in order to issue bonds. However, the section 110 company would still require

approval from the Irish financial regulator for its prospectus and other aspects of

its operation.

4.24. ARM plc was incorporated in Ireland and was intended to take over ARM’s

contracts with its various counterparties. The plan was for ARM’s existing

bondholders to exchange their ARM bonds for identical bonds to be issued by ARM

plc.

4.25. By the end of the relevant period, ARM’s operations had not been transferred to

Ireland and this has not since been achieved. Trading in ARM securities was

suspended and on 29 August 2011, the CSSF issued its decision refusing ARM a

licence. ARM has appealed that decision.

4.26. The position of investors is unclear: the pending investors in tranches 9 to 11 risk

losing some or all of their investment, pending a decision on legal ownership of

the funds. The position of the investors in tranches 1 to 8 is also unclear. They

may lose some or all of their investment. None of the investors is currently

receiving interest.

Financial promotions

4.27. At all material times since November 2007, the marketing brochures for ARM

bonds issued by ARM and approved by Catalyst included the following statement:

“ARM is not regulated by the Financial Services Authority or any other

regulator. This means that compensation will not be available from the

Financial Services Compensation Scheme (“FSCS”) if ARM is unable to

meet its liabilities on the [bond] and you will not be able to refer a

complaint against ARM to the Financial Ombudsman Service.”

4.28. This statement was correct but it was incomplete. At all times the brochures

omitted to mention the full regulatory position: that ARM did not have a licence

from the CSSF, but considered that it required one. The financial promotions

issued after 20 November 2009 also did not state that ARM would not issue

further bonds until its licence application had been successfully determined.

Further, the financial promotions issued after 24 December 2009 did not disclose

that one potential consequence for ARM (and investors) of ARM failing to obtain a

licence was that ARM would be liquidated. In the circumstances the financial

promotions were not clear, fair and not misleading, and gave an inaccurate

picture of ARM’s regulatory position.

Letter from Catalyst to IFAs

4.29. On or about 30 December 2009, Catalyst wrote a letter to all IFAs who had sold

the ARM bonds to customers. The December 2009 letter stated that:

“We are pleased to advise you that in order to offer investors further

reassurance in this current climate, ARM… has made the decision to apply

for authorisation from the…CSSF... Luxembourg’s equivalent to the FSA in

the UK …

This process is in its final stages…The next issue date will be sometime

before the 31st March 2010 although it is expected to be 1st February

2010.”

4.30. The December 2009 letter did not state Catalyst’s view that ARM considered it

was required to have a licence from the CSSF, nor the potential consequences

should it fail to obtain one, which included the liquidation of ARM. It gave a latest

date for the next issue of ARM bonds even though ARM and Catalyst could not be

certain whether or when further bonds could be issued.

Mr Wilkins’ role

4.31. Mr Wilkins held Controlled Function 1 (director) at Catalyst from 18 October 2007

to 23 March 2010. He helped to develop the ARM bond. He became aware by 28

November 2007 that ARM considered that it was required to be licensed by the

CSSF. Mr Wilkins had significant involvement in ensuring that ARM obtained a

licence and dealt with ARM’s lawyers to obtain information and documentation

necessary to support the licence application during 2008 and 2009.

4.32. Mr Wilkins believed that ARM would definitely obtain a licence. In the

circumstances, this was not a reasonable belief and Mr Wilkins fell below the

required regulatory standards by acting on the basis of it. There were many

indications known to him that the CSSF had concerns about ARM such that it was

not certain that the licence would be achieved. In particular he was involved in

preparing ARM’s responses to lengthy and detailed requests for information from

the CSSF about ARM’s business model and the risks to consumers of investing in

ARM bonds and knew that Catalyst’s CEO, who was also a director of ARM, had

expressed doubts that a licence would be granted. Even if Mr Wilkins continued to

believe throughout the relevant period that a licence would be granted, he

became increasingly aware over time that there was a risk that a licence might

not be granted. Investors were not told that a licence from the CSSF was

considered to be required to issue bonds in Luxembourg and that ARM did not

have one, and were therefore not fully informed about the risks associated with

investing in ARM bonds before the regulatory position had been resolved. Mr

Wilkins should have recognised that Catalyst’s communications with investors

needed to reflect ARM’s regulatory position so that investors were aware of the

potential risks.

4.33. Mr Wilkins was responsible, as a director of Catalyst, for taking reasonable steps

to ensure that Catalyst’s financial promotions were clear, fair and not misleading

and for providing approval for financial promotions. In practice, Mr Wilkins was

usually responsible for providing approval for Catalyst’s financial promotions.

4.34. From 28 November 2007, when Mr Wilkins became aware that ARM considered

that it was required to obtain a licence from the CSSF, his conduct fell below the

required regulatory standards in that he demonstrated a lack of competence and

capability in his capacity as a director of Catalyst. Mr Wilkins proceeded on the

basis that it was appropriate for the financial promotions, such as brochures

Catalyst had approved on behalf of ARM, to remain in use by IFAs and not be

amended to reflect ARM’s regulatory position. This failing of competence and

capability became increasingly serious over time, in particular from 20 November

2009, following the CSSF’s request to ARM to cease issuing bonds, and from 24

December 2009, when Mr Wilkins became aware of the potential risk of

liquidation.

4.35. When he became aware, on 20 November 2009, that the CSSF had requested that

ARM cease issuing bonds pending approval of its licence application, Mr Wilkins

should have realised that it was not appropriate or in the interests of investors to

continue arranging for the acceptance of funds for tranches 9 to 11, when

investors had not been made fully aware of the risks. He should have taken steps

to prevent further sales. Although he raised concerns about whether Catalyst

should continue to sell ARM bonds once ARM stopped issuing bonds, he took no

action to prevent such sales.

5.
FAILINGS

5.1.
The statutory and regulatory provisions and policy relevant to this Decision Notice

are referred to in Annex A.

5.2.
Mr Wilkins breached Statement of Principle 6 by failing to exercise due skill, care

and diligence in managing Catalyst’s business.

5.3.
As a director of Catalyst, Mr Wilkins was jointly responsible for Catalyst’s decision

to continue to promote ARM bonds, and to arrange for ARM to receive funds from

investors, from 20 November 2009 until he ceased to be a director on 23 March

2010, without ARM’s regulatory position being clearly disclosed to investors. He

was aware that sales were continuing on this basis and took insufficient steps to

prevent funds from being collected from investors although ARM had ceased, at

the CSSF’s request, issuing further bonds in November 2009, instead allowing

IFAs’ sales activities to continue on the basis that the matter would be resolved

shortly. In the circumstances, Mr Wilkins demonstrated a serious lack of

competence and capability.

5.4.
Mr Wilkins approved the December 2009 letter sent to IFAs which presented an

unfair and misleading picture of ARM’s regulatory position, by implying that ARM’s

application for a licence was voluntary, and by omitting to disclose the risk of

liquidation of ARM if the licence was not obtained. The December 2009 letter was

sent after Mr Wilkins became aware on about 20 November 2009 that ARM would

not be issuing bonds unless and until its licence application was approved and

after he was aware of the risk of liquidation. In approving this letter, which did

not give a clear, fair and not misleading picture of ARM’s regulatory position and

the risks of investing, Mr Wilkins demonstrated a serious lack of competence and

capability.

5.5.
Further, Mr Wilkins failed to take reasonable steps during the relevant period

(until 24 December 2009) to inform Catalyst’s compliance officer that ARM were

required to have a licence.

5.6.
By failing to exercise due skill, care and diligence in regard to these matters, Mr

Wilkins breached Statement of Principle 6.

Additional fitness and propriety issues

5.7.
In addition to the matters set out above, Mr Wilkins’ conduct as one of the

directors responsible for approving Catalyst’s financial promotions is relevant to

his fitness and propriety. During the relevant period he did not amend Catalyst’s

financial promotions to give a clear, fair and not misleading picture of ARM’s

regulatory position and of the regulatory risk associated with ARM and the ARM

bonds. In particular, he failed to take reasonable steps to ensure the financial

promotions disclosed appropriately:

(a)
(from 28 November 2007) Catalyst’s view that ARM required a licence from

the CSSF to issue bonds;

(b)
(from 20 November 2009) that ARM would not issue bonds pending

authorisation; and

(c) (from 24 December 2009) that one potential consequence for ARM of failing

to obtain a licence was liquidation.

These were significant issues, giving rise to risks about which investors should

have been warned to put them in a position to make an informed decision about

whether or not to invest in the ARM bonds.

5.8.
By reason of the failings set out in this Notice, the Authority considers that Mr

Wilkins is not a fit and proper person to perform significant influence functions

because he lacks the competence and capability to do so.

6.
SANCTION

Financial penalty

6.1.
The Authority’s policy in relation to the imposition of a financial penalty is set out

in Chapter 6 of DEPP which forms part of the Authority’s Handbook. The

regulatory provisions governing the determination of financial penalties changed

on 6 March 2010, and the Authority has had regard to the fact that part of Mr

Wilkins’ misconduct occurred after the new provisions came into force. However,

as the majority of Mr Wilkins’ misconduct occurred before that change, the

Authority has applied the penalty regime as set out in DEPP that was in place up

to 5 March 2010. All references to DEPP in this section are references to the

version that was in force up to and including 5 March 2010. The relevant

provisions are set out in detail in Annex A.

6.2.
The Authority has also had regard to the provisions of Chapter 7 of EG.

6.3.
In determining whether a financial penalty is appropriate, the Authority is

required to consider all the relevant circumstances of the case. DEPP 6.5.2G sets

out a non-exhaustive list of factors which may be relevant to determining the

appropriate level of financial penalty. The Authority considers that the following

factors are particularly relevant in this case.

Deterrence: DEPP 6.5.2G(1)

6.4.
When determining the level of penalty, the Authority has regard to the principal

purpose for which it imposes sanctions, namely to promote high standards of

regulatory and/or market conduct by deterring persons who have committed

breaches from committing further breaches and helping to deter other persons

from committing similar breaches, as well as demonstrating generally the benefits

of compliant business.

The nature, seriousness and impact of the breach in question: DEPP

6.5.2G(2)

6.5.
The Authority has had regard to the seriousness of the breaches, the duration of

the breaches and the risk of loss to consumers. The Authority considers Mr

Wilkins’ breaches to be serious particularly in light of the risk of consumer loss

occasioned by the breaches and the length of time over which the breaches

occurred.

6.6.
Mr Wilkins took some steps to seek to clarify the position for investors and

expressed some concern for investors. He recommended obtaining legal advice in

January 2010 on whether investors should be allowed to continue to invest new

funds and suggested that a letter sent by Catalyst to investors in late March 2010

should disclose that ARM was awaiting the outcome of its application to the CSSF

for authorisation, although this wording was not included in the final version of

the letter sent out after he had ceased to be a director. However, these steps

were not sufficient in the circumstances.

Whether the person on whom the penalty is to be imposed is an

individual: DEPP 6.5.2G(4)

6.7.
Notwithstanding that he is an individual, in the light of Mr Wilkins’ seniority and

his director role at Catalyst, including having joint responsibility for approving its

communications with IFAs and investors, and his knowledge of ARM’s affairs, the

Authority regards his breaches as serious.

The amount of benefit gained or loss avoided: DEPP 6.5.2G(6)

6.8.
The Authority understands that Mr Wilkins received benefits worth over £250,000

from Catalyst in the period from 1 January 2009 until 23 March 2010 (when he

left the firm).

Other action taken by the Authority: DEPP 6.5.2G(10)

6.9.
In determining the level of financial penalty, the Authority has taken into account

penalties imposed on other approved persons for similar breaches.

6.10. Having considered all the circumstances set out above, the Authority considers

that £100,000 is the appropriate financial penalty to impose on Mr Wilkins.

6.11. Given the nature and seriousness of the failures outlined above, the Authority

considers that Mr Wilkins’ conduct demonstrated a lack of competence and

capability, such that he is not fit and proper to perform significant influence

functions in relation to regulated activities carried on by an authorised person,

exempt person or exempt professional firm. The Authority therefore considers Mr

Wilkins should be prohibited from doing so.

6.12. The Authority has had regard to the guidance in Chapter 9 of EG in deciding that

Mr Wilkins be prohibited from performing any significant influence function in

relation to regulated activities. The relevant provisions of EG are set out in the

Annex of this Notice.

7.
REPRESENTATIONS

7.1.
Annex B contains a brief summary of the key representations made by:

(1) Mr Wilkins; and

(2) ARM, a third party identified in the reasons set out in this Notice, and to

whom in the opinion of the Authority the matter is prejudicial;

and how they have been dealt with. In making the decision which gave rise to the

obligation to give this notice, the Authority has taken into account all of the

representations made by Mr Wilkins and ARM, whether or not set out in Annex B.

8.
PROCEDURAL MATTERS

Decision maker

8.1.
The decision which gave rise to the obligation to give this Notice was made by the

Regulatory Decisions Committee.

8.2.
This Decision Notice is given to Mr Wilkins under sections 57 and 67 and in

accordance with section 388 of the Act. The following statutory rights are

important.

The Tribunal

8.3.
Mr Wilkins has the right to refer the matter to which this Decision Notice relates to

the Upper Tribunal (the “Tribunal”). Under paragraph 2(2) of Schedule 3 of the

Tribunal Procedure (Upper Tribunal) Rules 2008, Mr Wilkins has 28 days from the

date on which this Decision Notice is given to him to refer the matter to the

Tribunal. A reference to the Tribunal is made by way of a signed reference notice

(Form FTC3) filed with a copy of this Notice. The Tribunal’s address is: The Upper

Tribunal, Tax and Chancery Chamber, 45 Bedford Square, London WC1B 3DN

(tel: 020 7612 9700; email financeandtaxappeals@tribunals.gsi.gov.uk). Further

details are contained in “Making a Reference to the UPPER TRIBUNAL (Tax and

Chancery Chamber)” which is available from the Upper Tribunal website:

8.4.
Mr Wilkins should note that a copy of the reference notice (Form FTC3) must also

be sent to the Authority at the same time as filing a reference with the Tribunal. A

copy of the reference notice should be sent to Rebecca Irving at the Financial

Conduct Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.

Access to evidence

8.5.
Section 394 of the Act applies to this Decision Notice. Mr Wilkins has the right to

access:

(1)
the material upon which the Authority has relied in deciding to give this

Notice; and

(2)
the secondary material which, in the opinion of the Authority, might

undermine that decision. There is no such material.

Confidentiality and publicity

8.6.
This Decision Notice may contain confidential information and should not be

disclosed to a third party (except for the purpose of obtaining advice on its

contents). Section 391 of the Act provides that a person to whom this Notice is

given or copied may not publish the notice or any details concerning it, unless the

Authority has published the Notice or those details.

8.7.
However, the Authority must publish such information about the matter to which

a Decision Notice or Final Notice relates as it considers appropriate. Mr Wilkins

should be aware, therefore, that the facts and matters contained in this Notice

may be made public.

Third party rights

8.8.
A copy of this Notice is being given to ARM as a third party identified in the

reasons above and to whom in the opinion of the Authority the matter is

prejudicial. That party has similar rights of representation and access to material

in relation to the matter which identifies it.

Contacts

8.9.
For more information concerning this matter generally, contact Anne Pike at the

Financial Conduct Authority (direct line: 020 7066 8856 or by email

Acting Chairman, Regulatory Decisions Committee

Annex A

Relevant regulatory provisions

1.
The Act

1.1.
The Authority’s operational objectives are set out in section 1B of the Act and

include securing an appropriate degree of protection for consumers.

1.2.
Section 56 of the Act provides that the Authority may make a Prohibition Order if

it appears to the Authority that an individual is not a fit and proper person to

perform functions in relation to a regulated activity carried on by an authorised

person. Such an order may relate to a specific regulated activity, an activity

falling within a specified description or all regulated activities.

1.3.
Section 66 of the Act provides that the Authority may take action against a person

if he is guilty of misconduct. If the Authority takes action under this section, it

may impose a penalty on the person in such amount as it considers appropriate.

2.
The Statements of Principle and APER

2.1.
APER (the part of the FSA Handbook which has the title “Statements of Principle

and Code of Practice for Approved Persons”) sets out the Statements of Principle

as they relate to approved persons and descriptions of conduct which, in the

opinion of the Authority, do not comply with a Statement of Principle. It further

describes factors which, in the opinion of the Authority, are to be taken into

account in determining whether or not an approved person’s conduct complies

with a Statement of Principle. All references to APER in this section are references

to the version that was in force during the relevant period.

2.2.
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, including the precise circumstances of the individual

case, the characteristics of the particular controlled function and the behaviour to

be expected in that function.

2.3.
APER 3.1.4G provides that an approved person will only be in breach of a

Statement of Principle where 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.

2.4.
APER 3.1.6G provides that APER (and in particular the specific examples of

behaviour which may be in breach of a generic description of conduct in the code)

is not exhaustive of the kind of conduct that may contravene the Statements of

Principle.

2.5.
The Statement of Principle relevant to this matter is 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.

2.6.
APER 3.1.8G provides, in relation to applying Statements of Principle 5 to 7, that

the nature, scale and complexity of the business under management and the role

and responsibility of the individual performing a significant influence function

within the firm will be relevant in assessing whether an approved person’s

conduct was reasonable.

2.7.
APER 3.3.1E states that in determining whether or not the conduct of an approved

person performing a significant influence function complies with Statements of

Principle 5 to 7, the following are factors which, in the opinion of the Authority,

are to be taken into account:

(1)
whether he exercised reasonable care when considering the information

available to him;

(2)
whether he reached a reasonable conclusion which he acted on;

(3)
the nature, scale and complexity of the firm’s business;

(4)
his role and responsibility as an approved person performing a significant

influence function; and

(5)
the knowledge he had, or should have had, of regulatory concerns, if any,

arising in the business under his control.

2.8.
APER 4.6 lists types of conduct which, in the opinion of the Authority, do not

comply with Statement of Principle 6. APER 4.6.11G states that an approved

person performing a significant influence function will not always manage the

business on a day to day basis himself. The extent to which he does so will

depend on a number of factors, including the nature, scale and complexity of the

business and his position within it. When issues come to his attention, he should

deal with them in an appropriate way.

3.
FIT

3.1.
The part of the Authority’s Handbook entitled “FIT” sets out the Fit and Proper

Test for Approved Persons. The purpose of FIT is to outline the main criteria for

assessing the fitness and propriety of a candidate for a controlled function. These

criteria are also relevant in assessing the continuing fitness and propriety of an

approved person.

3.2.
FIT 1.3.1G provides that the Authority will have regard to a number of factors

when assessing a person’s fitness and propriety. One of the considerations will be

the person’s competence and capability.

4.
DEPP

4.1.
Guidance on the Authority’s approach to penalties is set out in DEPP. DEPP came

into effect on 28 August 2007.

4.2.
The Authority’s policy on the imposition and amount of penalties that applied for

misconduct is set out in Chapter 6 of DEPP. DEPP is being applied as it stood prior

to 6 March 2010 for the reasons set out in the body of this Notice. All references

to DEPP in this section are references to the version that was in force up to and

including 5 March 2010.

4.3.
DEPP 6.1.2G provides that the principal purpose of imposing a financial penalty or

public censure is to promote high standards of regulatory and/or market conduct

by deterring persons who have committed breaches from committing further

breaches, helping to deter other persons from committing similar breaches, and

demonstrating generally the benefits of compliant behaviour. Financial penalties

are therefore tools that the Authority may employ to help it to achieve its

regulatory objectives.

Financial penalty

4.4.
DEPP 6.5.1G(1) provides that the Authority will consider all the relevant

circumstances of a case when it determines the level of financial penalty (if any)

that is appropriate and in proportion to the breach concerned.

4.5.
DEPP 6.5.2G sets out a non-exhaustive list of factors that may be relevant to

determining the appropriate level of financial penalty to be imposed on a person

under the Act. The following factors are relevant to this case:

Deterrence: DEPP 6.5.2G(1)

4.6.
When determining the appropriate level of financial penalty, the Authority will

have regard to the principal purpose for which it imposes sanctions, namely to

promote high standards of regulatory and/or market conduct by deterring persons

who have committed breaches from committing further breaches and helping to

deter other persons from committing similar breaches, as well as demonstrating

generally the benefits of compliant business.

The nature, seriousness and impact of the breach in question: DEPP 6.5.2G(2)

4.7.
The Authority will consider the seriousness of the breach in relation to the nature

of the rule, requirement or provision breached, which can include considerations

such as the duration and frequency of the breach, whether the breach revealed

serious or systemic weaknesses in the person’s procedures or of the management

systems or internal controls relating to all or part of a person’s business and the

loss or risk of loss caused to consumers, investors or other market users.

Whether the person on whom the penalty is to be imposed is an individual: DEPP

6.5.2G(4)

4.8.
The Authority will take into account that individuals will not always have the

resources of a body corporate, that enforcement action may have a greater

impact on an individual, and further, that it may be possible to achieve effective

deterrence by imposing a smaller penalty on an individual than a body corporate.

The
Authority
will
also
consider
whether
the
status,
position
and/or

responsibilities of the individual are such as to make a breach committed by the

individual more serious and whether the penalty should therefore be set at a

higher level.

The size, financial resources and other circumstances of the person on whom the

penalty is to be imposed: DEPP 6.5.2G(5)

4.9.
The degree of seriousness of a breach may be linked to the size of the firm. For

example, a systemic failure in a large firm could damage or threaten to damage a

much larger number of consumers or investors than would be the case with a

small firm: breaches in firms with a high volume of business over a protracted

period may be more serious than breaches over similar periods in firms with a

smaller volume of business.

4.10. In addition, the size and resources of a person may be relevant in relation to

mitigation, in particular what steps the person took after the breach had been

identified; the Authority will take into account what it is reasonable to expect

from a person in relation to its size and resources, and factors such as what

proportion of a person's resources were used to resolve a problem.

The amount of benefit gained or loss avoided: DEPP 6.5.2G(6)

4.11. The Authority may have regard to the amount of benefit gained or loss avoided as

a result of the breach, for example:

(1)
The Authority will propose a penalty which is consistent with the principle

that a person should not benefit from the breach; and

(2)
The penalty should also act as an incentive to the person (and others) to

comply with regulatory standards and required standards of market

conduct.

Conduct following the breach: DEPP 6.5.2G(8)

4.12. The Authority may take into account the conduct of the person in bringing (or

failing to bring) quickly, effectively and completely the breach to the Authority’s

attention, the degree of cooperation the person showed during the investigation

and any remedial steps taken since the breach was identified, including whether

these were taken on the person’s own initiative or that of the Authority.

Other action taken by the Authority (or a previous regulator): DEPP 6.5.2G(10)

4.13. The Authority seeks to apply a consistent approach to determining the appropriate

level of penalty. The Authority may take into account previous decisions made in

relation to similar misconduct.

5.
Enforcement Guide

5.1.
The Authority’s policy on exercising its enforcement power is set out in EG, which

came into effect on 28 August 2007.

5.2.
The Authority’s approach to exercising its powers to make prohibition orders and

withdraw approvals is set out at Chapter 9 of EG.

5.3.
EG 9.1 states that the Authority’s power to make prohibition orders under section

56 of the Act helps it work towards achieving its regulatory objectives. The

Authority may exercise this power where it considers that, to achieve any of those

objectives, it is appropriate either to prevent an individual from performing any

function in relation to regulated activities or to restrict the functions which he may

perform.

5.4.
EG 9.3 states that the Authority will consider all relevant circumstances in

deciding whether to make a prohibition order and/or to withdraw approval.

5.5.
EG 9.4 sets out the general scope of the Authority’s powers in this respect, which

include 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. EG 9.5 provides that the

scope of a prohibition order will vary according to 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 posed by him to consumers or the

market generally.

5.6.
In circumstances where the Authority has concerns about the fitness and

propriety of an approved person, EG 9.8 to 9.14 provides guidance. In particular,

EG 9.8 states that the Authority may consider whether it should prohibit that

person from performing functions in relation to regulated activities, withdraw that

person’s approval or both. In deciding whether to withdraw approval and/or make

a prohibition order, the Authority will consider whether its regulatory objectives

can be achieved adequately by imposing disciplinary sanctions.

5.7.
EG 9.9 states that the Authority will consider all the relevant circumstances when

deciding whether to make a prohibition order against an approved person and/or

to withdraw that person’s approval. Such circumstances may include, but are not

limited to, the following factors:

(1)
whether the individual is fit and proper to perform functions in relation to

regulated activities, including in relation to the criteria set out in FIT;

(2)
the relevance and materiality of any matters indicating unfitness;

(3)
the length of time since the occurrence of any matters indicating

unfitness;

(4)
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;

(5)
the severity of the risk which the individual poses to consumers and to

confidence in the financial system; and

(6)
the previous disciplinary record and general compliance history of the

individual.

5.8.
EG 9.12 provides a number of examples of types of behaviour which have

previously resulted in the Authority deciding to issue a prohibition order or

withdraw the approval of an approved person.

5.9.
EG 9.23 provides that in appropriate cases the Authority may take other action against

an individual in addition to making a prohibition order and/or withdrawing its approval,

including the use of its power to impose a financial penalty.

Annex B

Representations

1.
Mr Wilkins’ representations

1.1.
Mr Wilkins made the following representations: much of the relevant flow of

information about the application was conducted through lawyers, and Mr Wilkins

did not have the authority to waive privilege in their communications. Substantial

parts of the case against Mr Wilkins were capable of being affected by such

privileged material. His alleged failure to inform the compliance officer may be

affected by documents to and from lawyers. The accusation of over-optimism of

ARM obtaining a licence may be met by demonstrating the advice received. It

would not be appropriate for the Authority to proceed on the basis that it can only

decide the matter on the basis of the material before it – it was not permissible to

discount the possibility of supportive material on the basis that the Authority had

not seen it. The Authority had to give Mr Wilkins the benefit of the doubt where

there was any reasonable uncertainty - any other approach would violate his right

to a fair hearing under Article 6(1) of the European Convention on Human Rights.

If Mr Wilkins could establish that it was credible that he might have derived

reassurance from privileged communications as to, for example, the risk of the

CSSF not approving the licence application, the Authority should find that that

part of the case was not made out. The approach should be the same as that

which applies where an advocate faces a wasted costs order where privilege is not

waived, in which circumstances judges make full allowance for the inability of a

respondent lawyer to tell the whole story by giving them the benefit of the doubt

where there is room for doubt.

1.2.
The Authority has reached the following conclusions: it recognises that privilege

has not been waived by the relevant parties over communications with legal

advisers which may be relevant to Mr Wilkins’ case. However, while it is

appropriate to draw reasonable inferences from the material available, the

appropriate test in an administrative decision making process is whether, on the

basis of the material available and any such reasonable inferences, the breaches

alleged were more likely than not to have occurred. The position is not the same

as a court considering a wasted costs order. Mr Wilkins has not shown on the

material available that it was more likely than not that advice, in which privilege

was maintained, had been given which materially altered his responsibility for the

breaches alleged.

Continuing to promote ARM bonds and arrange for ARM to receive investor funds

1.3.
Mr Wilkins made the following representations:

a. he accepted that he had failed to exercise due skill, care and diligence (in

breach of Statement of Principle 6) in not taking what steps he could as a

director of Catalyst to prevent or advise against the continued promotion

and sale of bonds from 20 November 2009 in circumstances where IFAs

had not been sent updated financial promotions clearly setting out ARM’s

position in relation to CSSF authorisation.

b. He noted however that the CSSF’s letter did not ask ARM to stop

marketing or accepting funds. Catalyst (and Mr Wilkins) had thought that

ARM was permitted to continue issuing bonds pending authorisation and

that the CSSF was aware of and content with this position – he therefore

considered that the CSSF’s letter was addressing this misunderstanding

and preventing ARM issuing bonds ‘continuously’ in breach of the law prior

to being authorised, but not going further, to prevent marketing or the

acceptance of funds. Further, following the letter it was clear that the

CSSF was aware that Catalyst was continuing to promote ARM bonds and

that investors’ funds continued to be accepted by ARM, and raised no

objections. Catalyst’s legal advisers gave advice that whether to continue

promoting the bonds was a commercial decision for Catalyst.

c. Catalyst had been given advice that ARM would be licensed by the CSSF

within a relatively short period of time. Even if not, it was developing

alternative strategies (transfer of operations to Ireland and/or reduction in

bond issues to no more than 3 per year so as to avoid the need for a

licence) which would within a reasonably short period allow bonds to be

issued in accordance with investors’ expectations. In the meantime

investors’ funds were not at significant risk (even taking into account

commission payments which would be made), and until ARM was licensed

promotion of bonds would not be actively encouraged, but only permitted

to continue on a residual basis. Learning about the possible risk of

liquidation did not change Mr Wilkins’ view that approval would be

obtained shortly, though he did take steps to assess the impact of the

liquidation risk. ARM paid interest at the bond rate to all investors from the

moment their money was received by the receiving agents, regardless of

whether their bond was in fact issued, so the prospect of a slightly delayed

issue was not unduly concerning. Finally, oral and email updates were

being provided to IFAs regarding the status of the application in and after

November 2009.

d. Mr Wilkins tendered his resignation on 9 February 2010 and thereafter

played a much diminished role within Catalyst until his resignation took

effect on 23 March 2010.

1.4.
The Authority has reached the following conclusions:

a. It notes Mr Wilkins’ acceptance that his behaviour breached Statement of

Principle 6.

b. Although the CSSF’s letter did not request that ARM stop marketing bonds

or accepting funds, in the circumstances it was not reasonable for Mr

Wilkins to allow Catalyst to continue promoting the bonds or effecting the

acceptance of funds. Irrespective of whether the CSSF was aware that

Catalyst was continuing to promote ARM bonds and investors’ funds were

being collected, it was not appropriate for Catalyst to do so. Further no

documentary evidence has been produced of the legal advice given, and in

any event it is not clear that the legal advisers were aware of the full facts

when giving advice. Although the Authority accepts that Mr Wilkins

honestly believed that the licence would be granted, there were also

indications that it would not, and in any event this was not a certainty.

c. The Authority has not been provided with the legal advice referred to. In

any event, it accepts that Mr Wilkins believed that ARM’s regulatory

position would be resolved within a relatively short period of time, and

believed that the risk to investors was minimal. However, in the

circumstances, it was not reasonable for Mr Wilkins to allow the continued

promotion of bonds and the acceptance of funds. Notwithstanding that

there may have been other communications with IFAs regarding the status

of the application, Catalyst continued to promote the bonds in

circumstances in which ARM’s regulatory position had not been clearly

disclosed to investors.

d. It is accepted that Mr Wilkins tendered his resignation on 9 February 2010.

However, until that resignation took effect, he was still subject to the

Statements of Principle in his capacity as a director of Catalyst.

The December 2009 letter

1.5.
Mr Wilkins made the following representations:

a. He accepted that he had failed to exercise due skill, care and diligence (in

breach of Statement of Principle 6) in approving the December 2009 letter,

since the letter did not make the position clear. He accepted that it should

have included a clearer and fuller explanation of the position in relation to

the licensing application, the ability to issue, and the liquidation risk.

b. He had wrongly thought that it was unnecessary to apprise investors of the

stage which the licence application process had reached, and therefore had

believed the December 2009 letter was not misleading, because that

process would very shortly be resolved and in the meantime investors’

interests were protected. The letter was sent urgently to update investors

whereas he had needed time to reflect and consult after learning of the

liquidation risk (in which respect there was a meeting on 7 January 2010).

The primary purpose of the letter was to inform investors in Tranche 9

about a delay to the issue of the bonds, in circumstances in which Mr

Wilkins reasonably believed that the CSSF would grant ARM a licence,

within a relatively short period. He believed the risk of rejection or of

liquidation was extremely slight. Further he took comfort in the fact that

the letter was reviewed by other members of the management of Catalyst,

such as its more experienced CEO, and he relied on the compliance officer

to ensure that the letter complied with Catalyst’s obligations.

1.6.
The Authority has reached the following conclusions:

a. It notes Mr Wilkins’ acceptance that his behaviour breached Statement of

Principle 6.

b. The circumstances in which the letter was sent, and its primary purpose,

are noted. However, in the circumstances, as Mr Wilkins accepts, he

should not have approved the letter as it was not true, fair and not

misleading. In this regard the Authority considers that Mr Wilkins

demonstrated a serious failure to exercise due skill, care and attention.

Failure to inform the compliance officer of the mandatory nature of the licence

1.7.
Mr Wilkins made the following representations: he reasonably believed that the

compliance officer was aware from the beginning that ARM and Catalyst

understood that the licence was mandatory. As a general rule the compliance

officer knew what was going on. Catalyst was a small company with an open and

collegiate environment, and there were regular management meetings, which the

compliance officer attended, at which the application was discussed at some

length.

1.8.
The Authority has reached the following conclusions: Mr Wilkins should have

ensured that the compliance officer was aware of the view that ARM was required

to have a licence. This was a critical piece of information and it was not

reasonable for Mr Wilkins simply to assume that the compliance officer was aware

of it. He should have ensured that the compliance officer had sufficient

information about ARM’s licence to carry out that role properly.

Financial promotions

1.9.
Mr Wilkins made the following representations:

a. he accepted that he had failed to exercise due skill, care and diligence

from November 2009 in not seeking to ensure that Catalyst’s financial

promotions were updated, in circumstances where the promotion and sale

of bonds was continuing. However, he did not accept that this impacted on

his fitness and propriety to perform a significant influence function in

future.

b. Though he accepted that he, along with others, bore responsibility for

failing to update the financial promotions, and he regretted this, he noted

that he had still believed that the application would be granted shortly and

in good time before the need for any further bond issues, and therefore

that investors’ interests would not be prejudiced. He also took some

comfort from the Authority’s review during a Supervision visit in July 2009

of Catalyst’s financial promotions – that they were ‘broadly compliant’ with

the Authority’s rules (and further the Authority made no criticisms in

respect of the matters raised in this Notice). He also thought that new

material would be issued shortly – no new material was produced from

around September 2009, though he accepted that he had failed to amend

or revoke the existing materials (having not been advised to do so by

Catalyst’s compliance officer). Further Catalyst did not ‘actively’ market

the bonds from January 2010. Finally, oral and email updates were being

provided to IFAs regarding the status of the application in and after

November 2009.

c. he did not accept that he had failed to exercise due skill, care and

diligence prior to November 2009. At that stage it was not necessary for

the financial promotions to refer to CSSF authorisation and ARM’s

application. He accepted that any application process has a risk of failure,

but stated that this was risk not considered material. There was no

obligation to bring these matters to investors’ attention – he reasonably

believed there was no real or appreciable risk that a licence would not be

granted within a reasonably short period, that in the meantime ARM was

entitled to continue issuing bonds, and that investors’ interests were fully

protected. In any event he felt confident that the involvement of a number

of experienced professionals meant that the application would succeed and

that any concerns about risk of failure of the application would be

communicated appropriately. No such concerns were ever articulated to

him during the relevant period.

1.10. The Authority has reached the following conclusions:

a. It notes Mr Wilkins’ acceptance that he failed to exercise due skill, care

and diligence from November 2009. However, as set out in this Notice

(and covered further below) the Authority considers that Mr Wilkins also

failed to exercise due skill, care and diligence during the rest of the

relevant period (i.e. from 28 November 2007, by which date he considered

that ARM required a licence from the CSSF). In the circumstances, the

Authority considers that his conduct fell well below the required standard

and that he would present a serious and ongoing risk if he were permitted

to perform significant influence functions.

b. It notes Mr Wilkins’ submissions but considers that, in all the

circumstances, he demonstrated a serious lack of competence and

capability. The fact that the Authority’s supervisors did not raise matters

pertaining to the licence at, or in the follow-up to, the visit in July 2009

(which in any event did not focus on ARM’s licence position) does not

absolve Mr Wilkins of responsibility for carrying out his duties to the

required standard. Further, irrespective of whether Catalyst ‘actively’

marketed the bonds from January 2010, this did not discourage the IFAs

who were existing distributors of the ARM bonds and familiar with the

product from promoting it to new or existing customers. Significant sums

continued to be received from investors from January 2010.

c. The Authority considers that Mr Wilkins failed to exercise due skill, care

and diligence throughout the relevant period i.e. from 28 November 2007,

by which date he considered that ARM required a licence from the CSSF.

Even if it may have appeared likely that the licence application would

succeed, the risk of failure carried with it potential adverse consequences

for ARM. In the circumstances, Mr Wilkins should have ensured that

Catalyst’s financial promotions were amended to reflect the position, so

that they were clear, fair and not misleading. The Authority considers that

his conduct in failing to do so fell well below the required standard in

terms of competence and capability and as a result he is not fit and proper

to perform any significant influence function.

1.11. Mr Wilkins made the following representations:

a. A prohibition order was not an appropriate sanction in the circumstances,

and in particular considering that his skill and care failings had been

strongly mitigated. A prohibition order would be life-changing for him -

since leaving Catalyst he has been involved with a new business but this

would be ended by a prohibition.

b. He noted the following points in mitigation of his failings:

i. he had accepted that he had made mistakes, and recognised that in

the period from November 2009 to March 2010 his conduct or

inaction fell below the standards required by Statement of Principle

6, in that he failed to exercise due skill and care in some ways.

ii. His failings were competence failings, rather than reckless or

deliberate.

iii. At the relevant time he was young and relatively inexperienced.

Catalyst and ARM were closely controlled by their CEO, on whose

judgment, and that of others in Catalyst and their advisers, Mr

Wilkins relied.

iv. He had repeatedly raised the issue of investors’ interests – whether

they should be given more information or treated differently – with

others in Catalyst, and taken steps personally to try and protect

their interests.

c. He accepted that a relatively modest fine would be appropriate. A large

penalty on the other hand was not warranted and would force the sale of

the family home.

1.12. The Authority has reached the following conclusions:

a. A significant influence function prohibition order is appropriate in the

circumstances. Mr Wilkins demonstrated serious competence failings in his

capacity as a director of Catalyst. Although he raised some issues and took

some positive steps, he failed to recognise the clear risks to investors and

failed to take decisive steps to remedy the issues that he did identify. In so

doing he exposed a substantial number of consumers to risk. As such his

conduct fell substantially below what the Authority would expect in the

circumstances from someone in his position with responsibility as an

approved person performing a significant influence function. Mr Wilkins

demonstrated a serious lack of due skill and care, and the Authority has

ongoing concerns about his fitness and propriety in terms of his

competence and capability to hold a significant influence function,

notwithstanding the admissions that he has made.

b. The Authority notes the points raised by Mr Wilkins in mitigation, and has

taken into account of all the relevant circumstances. In assessing the

appropriate level of penalty the Authority has given Mr Wilkins credit for

his admissions of failings, and recognises that his failings related to his

competence and not his integrity. Notwithstanding that Mr Wilkins was not

the most senior director at Catalyst, and put some reliance on others, and

that he made efforts to raise and protect the interests of investors, he was

a director and as such was required to meet the appropriate standards. In

terms of his competence he failed to do so, particularly from November

2009 when he was not new to the role, and his failings in this regard were

serious, with the result that investors were put at serious risk of loss.

c. The Authority notes that Mr Wilkins has not claimed that the imposition of

a penalty of the level proposed would cause him serious financial hardship

(as defined in DEPP). As set out in this Notice the Authority has taken into

account all relevant factors in assessing the appropriate level of penalty.

Given the seriousness of Mr Wilkins’ competence failings, but taking into

account all of the circumstances, including his admissions, the Authority

has determined the appropriate level of penalty to be £100,000.

2.
Third party representations

2.1.
ARM made representations that CSSF authorisation was not compulsory for ARM

on the proper interpretation of the relevant Luxembourg law because it was not,

in fact, issuing securities to the public on a continuous basis.

2.2.
The Authority has concluded that whether the proper interpretation of the

relevant Luxembourg law is that a company in ARM’s position would be

considered to be issuing securities to the public on a continuous basis is not

relevant to a consideration of Mr Wilkins’ conduct during the relevant period.