Final Notice
On , the Financial Conduct Authority issued a Final Notice to Anthony Dale Cuming
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FINAL NOTICE
1.
ACTION
1.1.
For the reasons given in this Final Notice, the Financial Conduct Authority (“the
Authority”) hereby:
(1)
imposes on Mr Cuming a financial penalty of £1,691,259, pursuant to section 66
of the Financial Services and Markets Act 2000 (“the Act”); and
(2)
makes an order prohibiting Mr Cuming from performing any function in relation to
any regulated activity carried on by an authorised person, exempt person or
exempt professional firm, pursuant to section 56 of the Act.
1.2.
However, the Authority has agreed not to enforce the financial penalty provided that
Mr Cuming pays £2,000 to the Financial Services Compensation Scheme (the “FSCS”).
The £2,000 that Mr Cuming has agreed to pay to the FSCS represents substantially all
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of his available assets to meet a penalty or judgment.
2.
REASONS
2.1.
Pensions are a traditional way of saving and investing money in a tax-efficient way for
retirement. The value of an individual’s pension can have a significant impact on their
quality of life during retirement and, in some circumstances, may affect whether they
can afford to retire at all. It is of paramount importance that consumers of financial
services can have confidence that persons exerting significant influence at authorised
firms are accountable to the regulator and have been approved as fit and proper.
2.2.
Between 16 January 2015 and 30 November 2017 (“the Relevant Period”), Mr Cuming,
an independent financial adviser (“IFA”), was an approved person at Grosvenor
Butterworth (Financial Services) Limited (“GBFS”), a small IFA firm authorised by the
Authority to conduct regulated activities, including arranging deals in investments and
advising on pension opt-outs and pension transfers (“Pension Transfers”). By the start
of the Relevant Period, Mr Cuming had over 13 years’ experience of working in financial
services and advising on investments and over 7 years’ experience of working as an
IFA.
2.3.
Mr Cuming was the sole person at GBFS approved to perform the controlled functions
of CF1 (Director), CF10 (Compliance Oversight) and CF11 (Money Laundering
Reporting). He was also responsible for Insurance Mediation, had responsibility for
MCD Intermediation, and was one of the 14 individuals at GBFS approved to perform
the CF30 (Customer) controlled function during the Relevant Period. As CF30, Mr
Cuming’s role included giving advice or performing related activities in connection with
Pension Transfers, pension conversions or pension opt-outs for retail clients.
The Scheme
2.4.
During the Relevant Period, Mr Cuming participated in a scheme involving a number
of firms and individuals (the “Scheme”), including Kyle Jones (“Mr Jones”) who was
another IFA at GBFS, and Steven Sahota (“Mr Sahota”) who was a discretionary fund
manager at Beaufort Securities Limited (“BSL”), a small to medium retail advisory
stockbroker authorised by the Authority, as well as other IFAs, an Unregulated
Individual (the “Unregulated Individual”) who oversaw the Scheme and certain
Introducers (“Introducers”). The Introducers were unregulated firms or individuals who
referred pension holders to regulated IFAs for advice and recommendations concerning
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their pension arrangements.
2.5.
As part of a team, Mr Sahota established and grew a discretionary fund management
service (“DFM Service”), which managed portfolios of assets, including the Strategic
Income Portfolio (the “Strategic Income Portfolio”).
2.6.
The Scheme involved certain participants (principally the Unregulated Individual and
his firms) identifying companies (the “Investment Companies”) which were seeking to
raise capital and contacting them with the promise of receiving significant capital
through BSL’s DFM Service. The Investment Companies issued bonds or shares which
were nearly all high-risk and of limited liquidity.
2.7.
In return, the Investment Companies were to make substantial payments by way of
marketing fees, marketing allowances, introducer fees, commission or other fees
(“Marketing Fees”), which would be distributed between the participants in the
Scheme. The investment products issued by the Investment Companies that agreed
to pay the Marketing Fees (“the Underlying Investments”) were included in the
Strategic Income Portfolio.
2.8.
Incentivised by Marketing Fees, the IFAs involved in the Scheme, including Mr Cuming
and Mr Jones at GBFS, would advise customers, who had been contacted by
Introducers involved in the Scheme, to transfer or switch their existing pensions to the
Beaufort SIPP (“Beaufort SIPP”), a white-labelled self-invested personal pension
(“SIPP”) created by BSL. These pension funds were invested by the DFM Service, at
the direction of Mr Sahota, into products contained within BSL’s Strategic Income
Portfolio, including the Underlying Investments.
2.9.
Certain Introducers would seek to: (a) influence the advice of the IFAs and Mr Sahota’s
investment management decisions, (b) direct Mr Sahota in relation to the investment
of pension holders’ funds into specific investments (including the Underlying
Investments) and (c) direct the IFAs to act as their agent.
2.10.
Pension holders’ funds were specifically placed in the Strategic Income Portfolio and
thereby invested in the Underlying Investments, regardless of whether they were
suitable for those pension holders, so that those involved in the Scheme would receive
a share of the Marketing Fees. Mr Sahota’s team was responsible for these investment
decisions, which were effected by an assistant (who was not involved in the Scheme).
Mr Sahota failed to ensure that pension holders were placed in suitable investments
as he was driven by the desire for personal gain (rather than by the needs of the
pension holders) and exposed the pension holders to a significant risk of detriment and,
in many cases, actual loss.
2.11.
During the Relevant Period, there was little oversight of the DFM Service by BSL senior
management or by BSL’s discretionary fund management committee, whose purpose
was to monitor and supervise the activities of the discretionary fund managers across
BSL.
2.12.
In total, approximately £5.9 million in Marketing Fees was paid to the various
participants in the Scheme. Mr Cuming received directly at least £780,000 in Marketing
Fees, out of which he paid Mr Jones around £177,900 and Mr Sahota around £126,300,
retaining approximately £433,000 for himself. The payment of these Marketing Fees
was not disclosed to the pension holders and was to the ultimate detriment of the
pension holders whose funds were invested in the Underlying Investments. These
Marketing Fees were separate from the fees charged by the IFAs advising the pension
holders and by the DFM Service, which were payable by the pension holders in the
usual way. In some cases, the payment of Marketing Fees directly resulted in certain
Investment Companies facing significant financial difficulty and in turn substantially
impaired the value of the Underlying Investments.
Mr Cuming’s and Mr Jones’ involvement in the Scheme
2.13.
Between 20 January 2015 and 25 October 2016 GBFS advised at least 182 customers,
in respect of around £14 million of customers’ funds to transfer or switch their pensions
to the Beaufort SIPP. At least 167 of these customers were advised by Mr Jones or Mr
Cuming, with Mr Cuming advising no fewer than 99 of these customers.
2.14.
That advice from Mr Cuming and Mr Jones was driven by the Marketing Fees they
would receive and paid little or no regard to the personal circumstances of the
customers and the high-risk nature of nearly all the Underlying Investments included
within the Strategic Income Portfolio.
2.15.
In furtherance of the Scheme, Mr Cuming and Mr Jones regularly discussed with Mr
Sahota where the pension holders’ funds should be invested and the exact allocations.
Mr Cuming and Mr Jones worked closely with Mr Sahota to invest customers’ funds in
particular Underlying Investments.
2.16.
Further, the Authority concludes that Mr Cuming sought to conceal his involvement in
the Scheme and almost all of the financial benefit he derived from it, by receiving the
Marketing Fees directly into his personal bank account or through bank accounts held
by his connected companies, rather than via GBFS.
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2.17.
Mr Cuming was responsible for (amongst other things): (i) monitoring the compliance
of the advice provided to customers; (ii) ensuring that conflicts of interest were
managed appropriately and disclosed to customers; and (iii) conducting due diligence
and monitoring the Introducers and the discretionary fund manager (“DFM”). However,
as a result of his overriding interest and role in the Scheme, driven by his receipt of
Marketing Fees, Mr Cuming paid no real regard to the Underlying Investments and the
risks they posed before advising customers, the suitability of the advice given to GBFS’
customers, properly overseeing the Introducers and Mr Sahota as DFM, or to the clear
and acute conflict of interest in play.
2.18.
Mr Cuming failed to ensure that (a) GBFS’ customers were appropriately informed of
his and GBFS’ relationship with the Introducers and the DFM involved in the Scheme;
(b) GBFS’ customers were informed of the significant Marketing Fees he personally
received when he advised customers to transfer or switch their pensions to the
Beaufort SIPP and their pension funds were then invested in the Underlying
Investments included in the Strategic Income Portfolio; and (c) a suitable process was
put in place for managing the conflict of interest.
2.19.
As a result, GBFS’ customers did not know the true position and were unable to make
a fully informed decision about: (a) seeking advice from GBFS in relation to
transferring or switching their pension funds into a SIPP; (b) accepting the personal
recommendation they received from GBFS; and (c) using their existing pension funds
to purchase investments in the Strategic Income Portfolio. As a consequence, the
customers were exposed to a significant risk of loss and, in many cases, actual loss.
2.20.
On 18 September 2017, following intervention by the Authority, GBFS signed a
voluntary requirement which was imposed by the Authority on GBFS following an
application by GBFS under section 55L(5) of the Act (“VREQ”) to cease all regulated
activities relating to Pension Switches which involved the movement of funds from one
personal pension scheme to another where no safeguarded benefits are involved, or
Pension Transfers.
2.21.
On 31 October 2017, at the request of the Authority, GBFS signed a further VREQ to
cease all regulated activities. GBFS subsequently applied to cancel its Part 4A
permission on 30 November 2017 and this was effected on 1 December 2017.
2.22.
On 17 January 2018, GBFS entered into liquidation.
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Complaints to the Financial Ombudsman Service
2.23.
Some customers who had been advised by GBFS to transfer or switch their pensions
subsequently complained to the Financial Ombudsman Service. A number of these
customers complained that they had been wrongly advised to transfer their pensions
into a SIPP with BSL; that their funds had been wrongly put into high-risk investments
(namely, one or more of the Underlying Investments); and that they had been placed
into investments that were not in line with their attitude to risk.
FSCS claims
2.24.
As a result of GBFS going into liquidation on 17 January 2018, complaints made against
GBFS were subsequently referred to the FSCS. As at 18 March 2024, the FSCS had
paid compensation of approximately £4 million in respect of claims brought against
GBFS. These claims were made by pension holders that, following advice from GBFS,
had switched/transferred their pensions to the Beaufort SIPP and, as a result, their
pension funds were invested in one or more investments included in the Strategic
Income Portfolio.
Provision of information to the Authority
2.25.
Mr Cuming failed to deal with the Authority in an open and cooperative way during the
course of its investigation into his conduct in that he failed, without a reasonable
excuse:
(1)
to attend a compelled interview with the Authority; and
(2)
to respond to a compelled information requirement issued by the Authority.
Mr Cuming’s lack of integrity
2.26.
The Authority considers that throughout the Relevant Period Mr Cuming demonstrated
a lack of integrity and is not a fit and proper person because, while approved by the
Authority to perform the CF1 (Director), CF10 (Compliance Oversight), CF11 (Money
Laundering Officer) and CF30 (Customer) controlled functions he acted dishonestly in
that he:
(1)
participated in the Scheme, as a result of which GBFS’ customers whose pension
funds were invested in the Strategic Income Portfolio were exposed to a
significant risk of detriment and, in many cases, actual loss. Mr Cuming worked
closely with other individuals involved in the Scheme to ensure that customers’
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pension funds were invested in particular products so that significant Marketing
Fees could be generated and paid to himself and Mr Jones and to other
participants in the Scheme. Mr Cuming failed to disclose to customers that their
pension funds were being invested in such products and that he and Mr Jones
(as well as other participants in the Scheme) would, in return, be personally
receiving significant Marketing Fees, and the Authority concludes that he did not
do so because it would have exposed the Scheme; and
(2)
knowing what the Scheme involved and how it was structured, held himself out,
and caused GBFS to hold itself out, to customers as providing bespoke,
independent investment advice based on a comprehensive and fair analysis of
the whole market. Mr Cuming knew that the advice given to customers was not
independent but he did not pay proper regard to such matters. Instead, he
advised GBFS’ customers to transfer or switch their pensions to the DFM Service
at BSL in order that their pension funds would be invested specifically in the
Strategic Income Portfolio. Mr Cuming knew that holding himself out, and
causing GBFS to hold itself out, in this way was misleading to customers as it did
not reflect the reality of the part he and Mr Jones played in the Scheme or the
service GBFS purported to provide. In doing so, Mr Cuming knowingly exposed
customers to a significant risk of loss and made significant personal financial
gain at the expense of customers’ investable funds.
2.27.
Further, the Authority considers that Mr Cuming demonstrated a lack of integrity and
is not a fit and proper person, in that while approved by the Authority to perform the
same controlled functions, he advised, and directed GBFS to advise, customers to
transfer or switch their pensions to the Beaufort SIPP, knowing that their pension funds
would be invested in Underlying Investments included in the Strategic Income Portfolio
at BSL, notwithstanding his awareness that the Underlying Investments were nearly
all high-risk and of limited liquidity and therefore were unlikely to be suitable for many
of GBFS’ customers. As a consequence, the advice provided was unsuitable and was
driven by the significant financial benefit Mr Cuming would receive in return. In
providing such advice, and in directing GBFS to provide such advice, Mr Cuming failed
to pay any real regard to the suitability of the Underlying Investments and the risks
they posed, and thereby recklessly disregarded the interests of GBFS’ customers.
2.28.
The Authority considers Mr Cuming’s misconduct to be particularly serious in light of
matters, including the following:
(1)
customers were not made aware of the true nature of the advice they received,
including the fact of Mr Cuming’s involvement in the Scheme and his financial
interest in the transfer of pension funds into the Underlying Investments within
the Strategic Income Portfolio which created a clear and acute conflict of interest;
(2)
Mr Cuming used this conflict of interest to benefit personally from the transfer of
customers’ funds into these Underlying Investments in return for significant
financial benefit in the form of undisclosed Marketing Fees;
(3)
Mr Cuming knowingly preferred his personal financial gain over ensuring GBFS’
customers received adequate and bespoke advice tailored to their individual
needs and circumstances. Customers were therefore denied the opportunity to
make an informed decision on whether to use GBFS’ services and whether to
invest in the products recommended to them by Mr Cuming. The Authority
considers that had customers known the true state of affairs, it is likely they
would have ceased to use GBFS’ services;
(4)
customers were exposed to a significant risk of loss and, in many cases, actual
loss from the transfer of their pension funds into unsuitable investments. During
the Relevant Period, GBFS advised at least 182 customers, who had pensions
with a total value of approximately £14 million, to transfer or switch their
pensions to BSL’s DFM Service, where their funds were invested in the Strategic
Income Portfolio, with around £10 million invested in the Underlying
Investments.
2.29.
Accordingly, the Authority hereby:
(1)
imposes a financial penalty on Mr Cuming in the amount of £1,691,259 (including
interest) for his breach of Statement of Principle 1 during the Relevant Period;
and
(2)
makes an order prohibiting Mr Cuming from performing any function in relation
to any regulated activity carried on by an authorised person, exempt person or
exempt professional firm.
2.30.
However, Mr Cuming has agreed to pay £2,000 to the FSCS, to contribute towards the
redress paid and payable to customers of GBFS who have been disadvantaged. The
£2,000 that Mr Cuming has agreed to pay to the FSCS represents substantially all of
his assets available to meet a penalty or judgment. Provided Mr Cuming makes the
agreed payment to the FSCS, the Authority will not seek to enforce the financial
penalty against him.
2.31.
This action will advance the Authority’s operational objectives of securing an
appropriate degree of protection for consumers and protecting and enhancing the
integrity of the UK financial system.
3.
FAILINGS
3.1.
The regulatory provisions relevant to this Notice are referred to in the Annex.
3.2.
Statement of Principle 1 required Mr Cuming to act with integrity in carrying out his
controlled functions. A person will lack integrity where they act dishonestly or
recklessly. The Authority considers that during the Relevant Period, Mr Cuming failed
to act with integrity in carrying out his controlled functions at GBFS in breach of
Statement of Principle 1. This is evidenced by Mr Cuming’s conduct set out at
paragraphs 2.26 and 2.27.
Lack of fitness and propriety
3.3.
The Authority considers, based on the facts and matters set out in this Notice, that Mr
Cuming lacks integrity and is not a fit and proper person to perform any function in
relation to any regulated activity carried on by an authorised person, exempt person
or exempt professional firm.
4.
SANCTION
Financial penalty
4.1.
The Authority’s Handbook of rules and Guidance (“Handbook”) entitled Decision
Procedure and Penalties Manual (“DEPP”) at 6.5B sets out the details of the five-step
framework that applies in respect of financial penalties imposed on individuals in non-
market abuse cases.
Step 1: disgorgement
4.2.
Mr Cuming derived direct financial benefit from his breach of Statement of Principle 1
in the form of the Marketing Fees that he received arising from the Scheme, which
were generated from the advice given by GBFS to customers to transfer or switch their
pensions to the BSL DFM Service. The Authority has calculated that the amount of the
direct benefit Mr Cuming received in Marketing Fees during the Relevant Period totalled
£433,213.
4.3.
The Authority will ordinarily also charge interest on the benefit derived directly from
misconduct. The Authority considers it appropriate to apply simple interest at a rate of
0.25% on Mr Cuming’s benefit. Interest calculated on Mr Cuming’s benefit from receipt
to the date of this Notice amounts to £9,846.
4.4.
Step 1 is therefore £443,059 (the total of £433,213 plus interest of £9,846).
Step 2: the seriousness of the breach
4.5.
The period of Mr Cuming’s breach was from 16 January 2015 to 30 November 2017.
The Authority considers Mr Cuming’s relevant income for this period to be £717,397.
4.6.
In deciding on the percentage of the relevant income that forms the basis of the Step
2 figure, the Authority considers the seriousness of the breach and chooses a
percentage between 0% and 40%.
4.7.
In assessing the seriousness level, the Authority takes into account various factors
which reflect the nature and impact of the breach, and whether it was committed
deliberately or recklessly. The Authority considers that the following factors are
relevant.
Impact of the breach
4.8.
Mr Cuming gained significant financial benefit as a result of the advice he and Mr Jones
provided to customers to transfer or switch their pension to the Beaufort SIPP so that
their pension funds could be invested into the Underlying Investments included in the
Strategic Income Portfolio (DEPP 6.5B.2G(8)(a)).
4.9.
Mr Cuming’s breach of Statement of Principle 1 exposed customers who switched or
transferred their pension to the Beaufort SIPP to a significant risk of loss and, in many
cases, caused customers to suffer actual loss (DEPP 6.5B.2G(8)(c)).
Nature of the breach
4.10.
Mr Cuming breached Statement of Principle 1 repeatedly and over an extended period
of time (DEPP 6.5B.2G(9)(b)).
4.11.
Mr Cuming failed to act with integrity because he acted dishonestly and recklessly
throughout the Relevant Period (DEPP 6.5B.2G(9)(e)).
4.12.
Mr Cuming encouraged Mr Jones to participate in the Scheme in breach of Statement
of Principle 1 (DEPP 6.5B.2G(9)(h)).
4.13.
Mr Cuming was an experienced IFA with over 7 years of experience at the start of the
Relevant Period (DEPP 6.5B.2G(9)(j)).
4.14.
Mr Cuming, as the individual approved to perform the CF1 (Director) and CF10
(Compliance Oversight) controlled functions, held a senior position at GBFS (DEPP
6.5B.2G(9)(k) and (l)).
Deliberate misconduct
4.15.
Mr Cuming intentionally and repeatedly breached Statement of Principle 1 so that he
could receive significant Marketing Fees (DEPP 6.5B.2G(10)(a), (b) and (h)).
4.16.
Mr Cuming knew that he and Mr Jones on behalf of GBFS were misleading customers
and treating them unfairly by holding the firm out as providing bespoke, independent
investment advice based on a comprehensive and fair analysis of the whole market
when, as he knew, this did not reflect the reality of the service that GBFS would provide
given his and Mr Jones’ involvement in the Scheme (DEPP 6.5B.2G(10)(c)).
Reckless misconduct
4.17.
Mr Cuming acted recklessly in disregarding the interests of GBFS’ customers when
providing advice and directing GBFS to provide advice to them (DEPP 6.5B.2G(11)(a)).
Level of seriousness
4.18.
DEPP 6.5B.2G(12) lists factors likely to be considered ‘level 4 or 5 factors’. Of these,
the Authority considers the following factors to be relevant:
(1)
Mr Cuming’s breach of Statement of Principle 1 exposed a large number of
customers to a significant risk of loss and, in many cases, caused customers to
suffer actual loss (DEPP 6.5B.2G(12)(a));
(2)
Mr Cuming failed to act with integrity and was dishonest (DEPP 6.5B.2G(12)(d));
and
(3)
Mr Cuming’s breach of Statement of Principle 1 was committed deliberately and
recklessly (DEPP 6.5B.2G(12)(g)).
4.19.
DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 or 3 factors’. The
Authority considers that none of these factors apply.
4.20.
Taking all of these factors into account, the Authority considers the seriousness of the
breach to be level 5 and so the Step 2 figure is 40% of £717,397.
4.21.
Step 2 is therefore £286,958.
Step 3: mitigating and aggravating factors
4.22.
The Authority considers that the following factors aggravate the breach:
(1)
In 2013, prior to the Relevant Period, the Authority issued an alert on investing
pension monies into unregulated products through a SIPP, in which it specified a
model similar to the customer journey in this case. Following this, a second alert
was issued by the Authority in 2014 which stated that pension transfers to SIPPs
intended to hold non-mainstream propositions are unlikely to be suitable options
for the vast majority of retail customers (DEPP 6.5B.3G(2)(k)); and
(2)
The lack of cooperation shown by Mr Cuming during the Authority’s investigation,
in persistently failing without a reasonable excuse to attend a compelled
interview and to respond to a compelled information requirement. Mr Cuming’s
actions undermined the Authority’s ability to conduct its investigation in an
efficient and effective way and to obtain the information it reasonably needed
from him in relation to his own and GBFS’ conduct (DEPP 6.5B.3G(2)(b)).
4.23.
The Authority considers that there are no factors that mitigate the breach.
4.24.
Having taken into account these aggravating factors, the Authority considers that the
Step 2 figure should be increased by 45%.
4.25.
Step 3 is therefore £416,089.
Step 4: adjustment for deterrence
4.26.
The Authority considers the Step 3 figure of £416,089 and the absolute value of the
penalty is too small in relation to the breach to represent a sufficient deterrent to Mr
Cuming and others, and so has increased the penalty at Step 4 by a multiple of 3.
4.27.
The reasons for applying this multiplier are that Mr Cuming made a significant personal
financial gain from his misconduct, which was not included in the calculation of his
relevant income at Step 2, abused the senior position he held at GBFS to participate
in the Scheme, and exposed customers to the risk of, and actual, significant detriment.
4.28.
Step 4 is therefore £1,248,267.
Step 5: settlement discount
4.29.
No settlement discount applies.
4.30.
Step 5 is therefore £1,248,200 (rounded down to the nearest £100 in accordance with
the Authority’s usual practice).
4.31.
The Authority therefore imposes a financial penalty of £1,691,259 (namely £1,248,200
plus the Step 1 figure of £443,059 (including interest)) on Mr Cuming for breaching
Statement of Principle 1.
Prohibition order
4.32.
The Authority has had regard to the guidance in Chapter 9 of the Authority’s Handbook
entitled Enforcement Guide (“EG”) in considering whether to prohibit Mr Cuming.
4.33.
By virtue of the matters addressed in this Notice, in particular the finding at paragraph
3.3 above, and having regard to its statutory objectives, including protecting and
enhancing the integrity of the UK financial system and securing an appropriate degree
of protection for consumers, the Authority considers that it is appropriate and
proportionate in all the circumstances to make a prohibition order in respect of Mr
Cuming under section 56 of the Act in those terms.
5.
PROCEDURAL MATTERS
5.1.
This Notice is given to Mr Cuming in accordance with section 390 of the Act.
5.2.
The following statutory rights are important.
Decision maker
5.3.
The decision which gave rise to the obligation to give this Notice was made by the
Settlement Decision Makers.
Manner and time for payment
5.4.
The financial penalty is due and payable in full by Mr Cuming to the Authority no later
than 12 August 2024.
5.5.
However, the Authority has agreed not to enforce the financial penalty provided that
Mr Cuming pays £2,000 to the Authority, for the purpose of onward payment to the
FSCS, on or before 31 December 2026. The £2,000 that Mr Cuming has agreed to pay
represents substantially all of his available assets to meet a penalty or judgment.
5.6.
If Mr Cuming fails to pay the £2,000 on or before the day it is due to be paid (in
accordance with paragraph 5.5 above), and it remains outstanding after at least 14
days’ notice given by the Authority, then the Authority may immediately recover the
full amount of the financial penalty (less any amounts paid to the Authority) as a debt
owed by Mr Cuming and due to the Authority.
5.7.
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 Authority
must publish such information about the matter to which this Notice relates as the
Authority considers appropriate. The information may be published in such manner as
the Authority considers appropriate. However, the Authority may not publish
information if such publication would, in the opinion of the Authority, be unfair to Mr
Jones or prejudicial to the interests of consumers or detrimental to the stability of the
UK financial system.
5.8.
The Authority intends to publish such information about the matter to which this Notice
relates as it considers appropriate.
Authority contact
5.9.
For more information concerning this matter generally, contact Natalie Rivett at the
Authority (direct line: 020 7066 4166 / email: Natalie.Rivett@fca.org.uk).
Financial Conduct Authority, Enforcement and Market Oversight Division
ANNEX
1.
RELEVANT STATUTORY PROVISIONS
1.1.
The Authority’s statutory objectives, set out in section 1B(3) of the Act, include the
operational objectives of securing an appropriate degree of protection for consumers
and protecting and enhancing the integrity of the UK financial system.
1.2.
Section 66 of the Act provides that the Authority may take action against a person if
it appears to the Authority that he is guilty of misconduct and the Authority is satisfied
that it is appropriate in all the circumstances to take action against him. A person is
guilty of misconduct if, while an approved person, he has failed to comply with a
Statement of Principle issued under section 64 of the Act, or has been knowingly
concerned in a contravention by a relevant authorised person of a relevant requirement
imposed on that authorised person.
1.3.
Section 56 of the Act provides that the Authority may make an order prohibiting an
individual from performing a specified function, any function falling within a specified
description or any function, if it appears to the Authority that that individual is not a
fit and proper person to perform functions in relation to a regulated activity carried on
by an authorised person, exempt person or a person to whom, as a result of Part 20,
the general prohibition does not apply in relation to that activity. Such an order may
relate to a specified regulated activity, any regulated activity falling within a specified
description, or all regulated actives.
2.
RELEVANT REGULATORY PROVISIONS
Statements of Principle and Code of Practice for Approved Persons
2.1.
The Authority’s Statements of Principle and Code of Practice for Approved Persons
have been issued under section 64 of the Act.
2.2.
During the Relevant Period, Statement of Principle 1 stated:
‘An approved person must act with integrity in carrying out his accountable functions.’
2.3.
‘Accountable functions’ include controlled functions and any other functions performed
by an approved person in relation to the carrying on of a regulated activity by the
authorised person to which the approval relates.
2.4.
The Code of Practice for Approved Persons sets out descriptions of conduct which, in
the opinion of the Authority, does not comply with a Statement of Principle. It also
sets out factors which, in the Authority’s opinion, are to be taken into account in
determining whether an approved person’s conduct complies with a Statement of
Principle.
The Fit and Proper Test for Approved Persons
2.5.
The part of the Authority’s Handbook entitled “The Fit and Proper Test for Approved
Persons” (“FIT”) sets out the criteria that the Authority will consider when assessing
the fitness and propriety of a candidate for a controlled function. FIT is also relevant
in assessing the continuing fitness and propriety of an approved person.
2.6.
FIT 1.3.1G states that the Authority will have regard to a number of factors when
assessing the fitness and propriety of a person. The most important considerations
will be the person’s honesty, integrity and reputation, competence and capability and
financial soundness.
The Authority’s policy for exercising its power to make a prohibition order
2.7.
The Authority’s policy in relation to prohibition orders is set out in Chapter 9 of the EG.
2.8.
EG 9.1 states that the Authority may exercise this power where it considers that, to
achieve any of its regulatory objectives, it is appropriate either to prevent an individual
from performing any functions in relation to regulated activities or to restrict the
functions which he may perform.
DEPP
2.9.
Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the
Authority’s statement of policy with respect to the imposition and amount of financial
penalties under the Act.
FINAL NOTICE
1.
ACTION
1.1.
For the reasons given in this Final Notice, the Financial Conduct Authority (“the
Authority”) hereby:
(1)
imposes on Mr Cuming a financial penalty of £1,691,259, pursuant to section 66
of the Financial Services and Markets Act 2000 (“the Act”); and
(2)
makes an order prohibiting Mr Cuming from performing any function in relation to
any regulated activity carried on by an authorised person, exempt person or
exempt professional firm, pursuant to section 56 of the Act.
1.2.
However, the Authority has agreed not to enforce the financial penalty provided that
Mr Cuming pays £2,000 to the Financial Services Compensation Scheme (the “FSCS”).
The £2,000 that Mr Cuming has agreed to pay to the FSCS represents substantially all
2
of his available assets to meet a penalty or judgment.
2.
REASONS
2.1.
Pensions are a traditional way of saving and investing money in a tax-efficient way for
retirement. The value of an individual’s pension can have a significant impact on their
quality of life during retirement and, in some circumstances, may affect whether they
can afford to retire at all. It is of paramount importance that consumers of financial
services can have confidence that persons exerting significant influence at authorised
firms are accountable to the regulator and have been approved as fit and proper.
2.2.
Between 16 January 2015 and 30 November 2017 (“the Relevant Period”), Mr Cuming,
an independent financial adviser (“IFA”), was an approved person at Grosvenor
Butterworth (Financial Services) Limited (“GBFS”), a small IFA firm authorised by the
Authority to conduct regulated activities, including arranging deals in investments and
advising on pension opt-outs and pension transfers (“Pension Transfers”). By the start
of the Relevant Period, Mr Cuming had over 13 years’ experience of working in financial
services and advising on investments and over 7 years’ experience of working as an
IFA.
2.3.
Mr Cuming was the sole person at GBFS approved to perform the controlled functions
of CF1 (Director), CF10 (Compliance Oversight) and CF11 (Money Laundering
Reporting). He was also responsible for Insurance Mediation, had responsibility for
MCD Intermediation, and was one of the 14 individuals at GBFS approved to perform
the CF30 (Customer) controlled function during the Relevant Period. As CF30, Mr
Cuming’s role included giving advice or performing related activities in connection with
Pension Transfers, pension conversions or pension opt-outs for retail clients.
The Scheme
2.4.
During the Relevant Period, Mr Cuming participated in a scheme involving a number
of firms and individuals (the “Scheme”), including Kyle Jones (“Mr Jones”) who was
another IFA at GBFS, and Steven Sahota (“Mr Sahota”) who was a discretionary fund
manager at Beaufort Securities Limited (“BSL”), a small to medium retail advisory
stockbroker authorised by the Authority, as well as other IFAs, an Unregulated
Individual (the “Unregulated Individual”) who oversaw the Scheme and certain
Introducers (“Introducers”). The Introducers were unregulated firms or individuals who
referred pension holders to regulated IFAs for advice and recommendations concerning
3
their pension arrangements.
2.5.
As part of a team, Mr Sahota established and grew a discretionary fund management
service (“DFM Service”), which managed portfolios of assets, including the Strategic
Income Portfolio (the “Strategic Income Portfolio”).
2.6.
The Scheme involved certain participants (principally the Unregulated Individual and
his firms) identifying companies (the “Investment Companies”) which were seeking to
raise capital and contacting them with the promise of receiving significant capital
through BSL’s DFM Service. The Investment Companies issued bonds or shares which
were nearly all high-risk and of limited liquidity.
2.7.
In return, the Investment Companies were to make substantial payments by way of
marketing fees, marketing allowances, introducer fees, commission or other fees
(“Marketing Fees”), which would be distributed between the participants in the
Scheme. The investment products issued by the Investment Companies that agreed
to pay the Marketing Fees (“the Underlying Investments”) were included in the
Strategic Income Portfolio.
2.8.
Incentivised by Marketing Fees, the IFAs involved in the Scheme, including Mr Cuming
and Mr Jones at GBFS, would advise customers, who had been contacted by
Introducers involved in the Scheme, to transfer or switch their existing pensions to the
Beaufort SIPP (“Beaufort SIPP”), a white-labelled self-invested personal pension
(“SIPP”) created by BSL. These pension funds were invested by the DFM Service, at
the direction of Mr Sahota, into products contained within BSL’s Strategic Income
Portfolio, including the Underlying Investments.
2.9.
Certain Introducers would seek to: (a) influence the advice of the IFAs and Mr Sahota’s
investment management decisions, (b) direct Mr Sahota in relation to the investment
of pension holders’ funds into specific investments (including the Underlying
Investments) and (c) direct the IFAs to act as their agent.
2.10.
Pension holders’ funds were specifically placed in the Strategic Income Portfolio and
thereby invested in the Underlying Investments, regardless of whether they were
suitable for those pension holders, so that those involved in the Scheme would receive
a share of the Marketing Fees. Mr Sahota’s team was responsible for these investment
decisions, which were effected by an assistant (who was not involved in the Scheme).
Mr Sahota failed to ensure that pension holders were placed in suitable investments
as he was driven by the desire for personal gain (rather than by the needs of the
pension holders) and exposed the pension holders to a significant risk of detriment and,
in many cases, actual loss.
2.11.
During the Relevant Period, there was little oversight of the DFM Service by BSL senior
management or by BSL’s discretionary fund management committee, whose purpose
was to monitor and supervise the activities of the discretionary fund managers across
BSL.
2.12.
In total, approximately £5.9 million in Marketing Fees was paid to the various
participants in the Scheme. Mr Cuming received directly at least £780,000 in Marketing
Fees, out of which he paid Mr Jones around £177,900 and Mr Sahota around £126,300,
retaining approximately £433,000 for himself. The payment of these Marketing Fees
was not disclosed to the pension holders and was to the ultimate detriment of the
pension holders whose funds were invested in the Underlying Investments. These
Marketing Fees were separate from the fees charged by the IFAs advising the pension
holders and by the DFM Service, which were payable by the pension holders in the
usual way. In some cases, the payment of Marketing Fees directly resulted in certain
Investment Companies facing significant financial difficulty and in turn substantially
impaired the value of the Underlying Investments.
Mr Cuming’s and Mr Jones’ involvement in the Scheme
2.13.
Between 20 January 2015 and 25 October 2016 GBFS advised at least 182 customers,
in respect of around £14 million of customers’ funds to transfer or switch their pensions
to the Beaufort SIPP. At least 167 of these customers were advised by Mr Jones or Mr
Cuming, with Mr Cuming advising no fewer than 99 of these customers.
2.14.
That advice from Mr Cuming and Mr Jones was driven by the Marketing Fees they
would receive and paid little or no regard to the personal circumstances of the
customers and the high-risk nature of nearly all the Underlying Investments included
within the Strategic Income Portfolio.
2.15.
In furtherance of the Scheme, Mr Cuming and Mr Jones regularly discussed with Mr
Sahota where the pension holders’ funds should be invested and the exact allocations.
Mr Cuming and Mr Jones worked closely with Mr Sahota to invest customers’ funds in
particular Underlying Investments.
2.16.
Further, the Authority concludes that Mr Cuming sought to conceal his involvement in
the Scheme and almost all of the financial benefit he derived from it, by receiving the
Marketing Fees directly into his personal bank account or through bank accounts held
by his connected companies, rather than via GBFS.
5
2.17.
Mr Cuming was responsible for (amongst other things): (i) monitoring the compliance
of the advice provided to customers; (ii) ensuring that conflicts of interest were
managed appropriately and disclosed to customers; and (iii) conducting due diligence
and monitoring the Introducers and the discretionary fund manager (“DFM”). However,
as a result of his overriding interest and role in the Scheme, driven by his receipt of
Marketing Fees, Mr Cuming paid no real regard to the Underlying Investments and the
risks they posed before advising customers, the suitability of the advice given to GBFS’
customers, properly overseeing the Introducers and Mr Sahota as DFM, or to the clear
and acute conflict of interest in play.
2.18.
Mr Cuming failed to ensure that (a) GBFS’ customers were appropriately informed of
his and GBFS’ relationship with the Introducers and the DFM involved in the Scheme;
(b) GBFS’ customers were informed of the significant Marketing Fees he personally
received when he advised customers to transfer or switch their pensions to the
Beaufort SIPP and their pension funds were then invested in the Underlying
Investments included in the Strategic Income Portfolio; and (c) a suitable process was
put in place for managing the conflict of interest.
2.19.
As a result, GBFS’ customers did not know the true position and were unable to make
a fully informed decision about: (a) seeking advice from GBFS in relation to
transferring or switching their pension funds into a SIPP; (b) accepting the personal
recommendation they received from GBFS; and (c) using their existing pension funds
to purchase investments in the Strategic Income Portfolio. As a consequence, the
customers were exposed to a significant risk of loss and, in many cases, actual loss.
2.20.
On 18 September 2017, following intervention by the Authority, GBFS signed a
voluntary requirement which was imposed by the Authority on GBFS following an
application by GBFS under section 55L(5) of the Act (“VREQ”) to cease all regulated
activities relating to Pension Switches which involved the movement of funds from one
personal pension scheme to another where no safeguarded benefits are involved, or
Pension Transfers.
2.21.
On 31 October 2017, at the request of the Authority, GBFS signed a further VREQ to
cease all regulated activities. GBFS subsequently applied to cancel its Part 4A
permission on 30 November 2017 and this was effected on 1 December 2017.
2.22.
On 17 January 2018, GBFS entered into liquidation.
6
Complaints to the Financial Ombudsman Service
2.23.
Some customers who had been advised by GBFS to transfer or switch their pensions
subsequently complained to the Financial Ombudsman Service. A number of these
customers complained that they had been wrongly advised to transfer their pensions
into a SIPP with BSL; that their funds had been wrongly put into high-risk investments
(namely, one or more of the Underlying Investments); and that they had been placed
into investments that were not in line with their attitude to risk.
FSCS claims
2.24.
As a result of GBFS going into liquidation on 17 January 2018, complaints made against
GBFS were subsequently referred to the FSCS. As at 18 March 2024, the FSCS had
paid compensation of approximately £4 million in respect of claims brought against
GBFS. These claims were made by pension holders that, following advice from GBFS,
had switched/transferred their pensions to the Beaufort SIPP and, as a result, their
pension funds were invested in one or more investments included in the Strategic
Income Portfolio.
Provision of information to the Authority
2.25.
Mr Cuming failed to deal with the Authority in an open and cooperative way during the
course of its investigation into his conduct in that he failed, without a reasonable
excuse:
(1)
to attend a compelled interview with the Authority; and
(2)
to respond to a compelled information requirement issued by the Authority.
Mr Cuming’s lack of integrity
2.26.
The Authority considers that throughout the Relevant Period Mr Cuming demonstrated
a lack of integrity and is not a fit and proper person because, while approved by the
Authority to perform the CF1 (Director), CF10 (Compliance Oversight), CF11 (Money
Laundering Officer) and CF30 (Customer) controlled functions he acted dishonestly in
that he:
(1)
participated in the Scheme, as a result of which GBFS’ customers whose pension
funds were invested in the Strategic Income Portfolio were exposed to a
significant risk of detriment and, in many cases, actual loss. Mr Cuming worked
closely with other individuals involved in the Scheme to ensure that customers’
7
pension funds were invested in particular products so that significant Marketing
Fees could be generated and paid to himself and Mr Jones and to other
participants in the Scheme. Mr Cuming failed to disclose to customers that their
pension funds were being invested in such products and that he and Mr Jones
(as well as other participants in the Scheme) would, in return, be personally
receiving significant Marketing Fees, and the Authority concludes that he did not
do so because it would have exposed the Scheme; and
(2)
knowing what the Scheme involved and how it was structured, held himself out,
and caused GBFS to hold itself out, to customers as providing bespoke,
independent investment advice based on a comprehensive and fair analysis of
the whole market. Mr Cuming knew that the advice given to customers was not
independent but he did not pay proper regard to such matters. Instead, he
advised GBFS’ customers to transfer or switch their pensions to the DFM Service
at BSL in order that their pension funds would be invested specifically in the
Strategic Income Portfolio. Mr Cuming knew that holding himself out, and
causing GBFS to hold itself out, in this way was misleading to customers as it did
not reflect the reality of the part he and Mr Jones played in the Scheme or the
service GBFS purported to provide. In doing so, Mr Cuming knowingly exposed
customers to a significant risk of loss and made significant personal financial
gain at the expense of customers’ investable funds.
2.27.
Further, the Authority considers that Mr Cuming demonstrated a lack of integrity and
is not a fit and proper person, in that while approved by the Authority to perform the
same controlled functions, he advised, and directed GBFS to advise, customers to
transfer or switch their pensions to the Beaufort SIPP, knowing that their pension funds
would be invested in Underlying Investments included in the Strategic Income Portfolio
at BSL, notwithstanding his awareness that the Underlying Investments were nearly
all high-risk and of limited liquidity and therefore were unlikely to be suitable for many
of GBFS’ customers. As a consequence, the advice provided was unsuitable and was
driven by the significant financial benefit Mr Cuming would receive in return. In
providing such advice, and in directing GBFS to provide such advice, Mr Cuming failed
to pay any real regard to the suitability of the Underlying Investments and the risks
they posed, and thereby recklessly disregarded the interests of GBFS’ customers.
2.28.
The Authority considers Mr Cuming’s misconduct to be particularly serious in light of
matters, including the following:
(1)
customers were not made aware of the true nature of the advice they received,
including the fact of Mr Cuming’s involvement in the Scheme and his financial
interest in the transfer of pension funds into the Underlying Investments within
the Strategic Income Portfolio which created a clear and acute conflict of interest;
(2)
Mr Cuming used this conflict of interest to benefit personally from the transfer of
customers’ funds into these Underlying Investments in return for significant
financial benefit in the form of undisclosed Marketing Fees;
(3)
Mr Cuming knowingly preferred his personal financial gain over ensuring GBFS’
customers received adequate and bespoke advice tailored to their individual
needs and circumstances. Customers were therefore denied the opportunity to
make an informed decision on whether to use GBFS’ services and whether to
invest in the products recommended to them by Mr Cuming. The Authority
considers that had customers known the true state of affairs, it is likely they
would have ceased to use GBFS’ services;
(4)
customers were exposed to a significant risk of loss and, in many cases, actual
loss from the transfer of their pension funds into unsuitable investments. During
the Relevant Period, GBFS advised at least 182 customers, who had pensions
with a total value of approximately £14 million, to transfer or switch their
pensions to BSL’s DFM Service, where their funds were invested in the Strategic
Income Portfolio, with around £10 million invested in the Underlying
Investments.
2.29.
Accordingly, the Authority hereby:
(1)
imposes a financial penalty on Mr Cuming in the amount of £1,691,259 (including
interest) for his breach of Statement of Principle 1 during the Relevant Period;
and
(2)
makes an order prohibiting Mr Cuming from performing any function in relation
to any regulated activity carried on by an authorised person, exempt person or
exempt professional firm.
2.30.
However, Mr Cuming has agreed to pay £2,000 to the FSCS, to contribute towards the
redress paid and payable to customers of GBFS who have been disadvantaged. The
£2,000 that Mr Cuming has agreed to pay to the FSCS represents substantially all of
his assets available to meet a penalty or judgment. Provided Mr Cuming makes the
agreed payment to the FSCS, the Authority will not seek to enforce the financial
penalty against him.
2.31.
This action will advance the Authority’s operational objectives of securing an
appropriate degree of protection for consumers and protecting and enhancing the
integrity of the UK financial system.
3.
FAILINGS
3.1.
The regulatory provisions relevant to this Notice are referred to in the Annex.
3.2.
Statement of Principle 1 required Mr Cuming to act with integrity in carrying out his
controlled functions. A person will lack integrity where they act dishonestly or
recklessly. The Authority considers that during the Relevant Period, Mr Cuming failed
to act with integrity in carrying out his controlled functions at GBFS in breach of
Statement of Principle 1. This is evidenced by Mr Cuming’s conduct set out at
paragraphs 2.26 and 2.27.
Lack of fitness and propriety
3.3.
The Authority considers, based on the facts and matters set out in this Notice, that Mr
Cuming lacks integrity and is not a fit and proper person to perform any function in
relation to any regulated activity carried on by an authorised person, exempt person
or exempt professional firm.
4.
SANCTION
Financial penalty
4.1.
The Authority’s Handbook of rules and Guidance (“Handbook”) entitled Decision
Procedure and Penalties Manual (“DEPP”) at 6.5B sets out the details of the five-step
framework that applies in respect of financial penalties imposed on individuals in non-
market abuse cases.
Step 1: disgorgement
4.2.
Mr Cuming derived direct financial benefit from his breach of Statement of Principle 1
in the form of the Marketing Fees that he received arising from the Scheme, which
were generated from the advice given by GBFS to customers to transfer or switch their
pensions to the BSL DFM Service. The Authority has calculated that the amount of the
direct benefit Mr Cuming received in Marketing Fees during the Relevant Period totalled
£433,213.
4.3.
The Authority will ordinarily also charge interest on the benefit derived directly from
misconduct. The Authority considers it appropriate to apply simple interest at a rate of
0.25% on Mr Cuming’s benefit. Interest calculated on Mr Cuming’s benefit from receipt
to the date of this Notice amounts to £9,846.
4.4.
Step 1 is therefore £443,059 (the total of £433,213 plus interest of £9,846).
Step 2: the seriousness of the breach
4.5.
The period of Mr Cuming’s breach was from 16 January 2015 to 30 November 2017.
The Authority considers Mr Cuming’s relevant income for this period to be £717,397.
4.6.
In deciding on the percentage of the relevant income that forms the basis of the Step
2 figure, the Authority considers the seriousness of the breach and chooses a
percentage between 0% and 40%.
4.7.
In assessing the seriousness level, the Authority takes into account various factors
which reflect the nature and impact of the breach, and whether it was committed
deliberately or recklessly. The Authority considers that the following factors are
relevant.
Impact of the breach
4.8.
Mr Cuming gained significant financial benefit as a result of the advice he and Mr Jones
provided to customers to transfer or switch their pension to the Beaufort SIPP so that
their pension funds could be invested into the Underlying Investments included in the
Strategic Income Portfolio (DEPP 6.5B.2G(8)(a)).
4.9.
Mr Cuming’s breach of Statement of Principle 1 exposed customers who switched or
transferred their pension to the Beaufort SIPP to a significant risk of loss and, in many
cases, caused customers to suffer actual loss (DEPP 6.5B.2G(8)(c)).
Nature of the breach
4.10.
Mr Cuming breached Statement of Principle 1 repeatedly and over an extended period
of time (DEPP 6.5B.2G(9)(b)).
4.11.
Mr Cuming failed to act with integrity because he acted dishonestly and recklessly
throughout the Relevant Period (DEPP 6.5B.2G(9)(e)).
4.12.
Mr Cuming encouraged Mr Jones to participate in the Scheme in breach of Statement
of Principle 1 (DEPP 6.5B.2G(9)(h)).
4.13.
Mr Cuming was an experienced IFA with over 7 years of experience at the start of the
Relevant Period (DEPP 6.5B.2G(9)(j)).
4.14.
Mr Cuming, as the individual approved to perform the CF1 (Director) and CF10
(Compliance Oversight) controlled functions, held a senior position at GBFS (DEPP
6.5B.2G(9)(k) and (l)).
Deliberate misconduct
4.15.
Mr Cuming intentionally and repeatedly breached Statement of Principle 1 so that he
could receive significant Marketing Fees (DEPP 6.5B.2G(10)(a), (b) and (h)).
4.16.
Mr Cuming knew that he and Mr Jones on behalf of GBFS were misleading customers
and treating them unfairly by holding the firm out as providing bespoke, independent
investment advice based on a comprehensive and fair analysis of the whole market
when, as he knew, this did not reflect the reality of the service that GBFS would provide
given his and Mr Jones’ involvement in the Scheme (DEPP 6.5B.2G(10)(c)).
Reckless misconduct
4.17.
Mr Cuming acted recklessly in disregarding the interests of GBFS’ customers when
providing advice and directing GBFS to provide advice to them (DEPP 6.5B.2G(11)(a)).
Level of seriousness
4.18.
DEPP 6.5B.2G(12) lists factors likely to be considered ‘level 4 or 5 factors’. Of these,
the Authority considers the following factors to be relevant:
(1)
Mr Cuming’s breach of Statement of Principle 1 exposed a large number of
customers to a significant risk of loss and, in many cases, caused customers to
suffer actual loss (DEPP 6.5B.2G(12)(a));
(2)
Mr Cuming failed to act with integrity and was dishonest (DEPP 6.5B.2G(12)(d));
and
(3)
Mr Cuming’s breach of Statement of Principle 1 was committed deliberately and
recklessly (DEPP 6.5B.2G(12)(g)).
4.19.
DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 or 3 factors’. The
Authority considers that none of these factors apply.
4.20.
Taking all of these factors into account, the Authority considers the seriousness of the
breach to be level 5 and so the Step 2 figure is 40% of £717,397.
4.21.
Step 2 is therefore £286,958.
Step 3: mitigating and aggravating factors
4.22.
The Authority considers that the following factors aggravate the breach:
(1)
In 2013, prior to the Relevant Period, the Authority issued an alert on investing
pension monies into unregulated products through a SIPP, in which it specified a
model similar to the customer journey in this case. Following this, a second alert
was issued by the Authority in 2014 which stated that pension transfers to SIPPs
intended to hold non-mainstream propositions are unlikely to be suitable options
for the vast majority of retail customers (DEPP 6.5B.3G(2)(k)); and
(2)
The lack of cooperation shown by Mr Cuming during the Authority’s investigation,
in persistently failing without a reasonable excuse to attend a compelled
interview and to respond to a compelled information requirement. Mr Cuming’s
actions undermined the Authority’s ability to conduct its investigation in an
efficient and effective way and to obtain the information it reasonably needed
from him in relation to his own and GBFS’ conduct (DEPP 6.5B.3G(2)(b)).
4.23.
The Authority considers that there are no factors that mitigate the breach.
4.24.
Having taken into account these aggravating factors, the Authority considers that the
Step 2 figure should be increased by 45%.
4.25.
Step 3 is therefore £416,089.
Step 4: adjustment for deterrence
4.26.
The Authority considers the Step 3 figure of £416,089 and the absolute value of the
penalty is too small in relation to the breach to represent a sufficient deterrent to Mr
Cuming and others, and so has increased the penalty at Step 4 by a multiple of 3.
4.27.
The reasons for applying this multiplier are that Mr Cuming made a significant personal
financial gain from his misconduct, which was not included in the calculation of his
relevant income at Step 2, abused the senior position he held at GBFS to participate
in the Scheme, and exposed customers to the risk of, and actual, significant detriment.
4.28.
Step 4 is therefore £1,248,267.
Step 5: settlement discount
4.29.
No settlement discount applies.
4.30.
Step 5 is therefore £1,248,200 (rounded down to the nearest £100 in accordance with
the Authority’s usual practice).
4.31.
The Authority therefore imposes a financial penalty of £1,691,259 (namely £1,248,200
plus the Step 1 figure of £443,059 (including interest)) on Mr Cuming for breaching
Statement of Principle 1.
Prohibition order
4.32.
The Authority has had regard to the guidance in Chapter 9 of the Authority’s Handbook
entitled Enforcement Guide (“EG”) in considering whether to prohibit Mr Cuming.
4.33.
By virtue of the matters addressed in this Notice, in particular the finding at paragraph
3.3 above, and having regard to its statutory objectives, including protecting and
enhancing the integrity of the UK financial system and securing an appropriate degree
of protection for consumers, the Authority considers that it is appropriate and
proportionate in all the circumstances to make a prohibition order in respect of Mr
Cuming under section 56 of the Act in those terms.
5.
PROCEDURAL MATTERS
5.1.
This Notice is given to Mr Cuming in accordance with section 390 of the Act.
5.2.
The following statutory rights are important.
Decision maker
5.3.
The decision which gave rise to the obligation to give this Notice was made by the
Settlement Decision Makers.
Manner and time for payment
5.4.
The financial penalty is due and payable in full by Mr Cuming to the Authority no later
than 12 August 2024.
5.5.
However, the Authority has agreed not to enforce the financial penalty provided that
Mr Cuming pays £2,000 to the Authority, for the purpose of onward payment to the
FSCS, on or before 31 December 2026. The £2,000 that Mr Cuming has agreed to pay
represents substantially all of his available assets to meet a penalty or judgment.
5.6.
If Mr Cuming fails to pay the £2,000 on or before the day it is due to be paid (in
accordance with paragraph 5.5 above), and it remains outstanding after at least 14
days’ notice given by the Authority, then the Authority may immediately recover the
full amount of the financial penalty (less any amounts paid to the Authority) as a debt
owed by Mr Cuming and due to the Authority.
5.7.
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 Authority
must publish such information about the matter to which this Notice relates as the
Authority considers appropriate. The information may be published in such manner as
the Authority considers appropriate. However, the Authority may not publish
information if such publication would, in the opinion of the Authority, be unfair to Mr
Jones or prejudicial to the interests of consumers or detrimental to the stability of the
UK financial system.
5.8.
The Authority intends to publish such information about the matter to which this Notice
relates as it considers appropriate.
Authority contact
5.9.
For more information concerning this matter generally, contact Natalie Rivett at the
Authority (direct line: 020 7066 4166 / email: Natalie.Rivett@fca.org.uk).
Financial Conduct Authority, Enforcement and Market Oversight Division
ANNEX
1.
RELEVANT STATUTORY PROVISIONS
1.1.
The Authority’s statutory objectives, set out in section 1B(3) of the Act, include the
operational objectives of securing an appropriate degree of protection for consumers
and protecting and enhancing the integrity of the UK financial system.
1.2.
Section 66 of the Act provides that the Authority may take action against a person if
it appears to the Authority that he is guilty of misconduct and the Authority is satisfied
that it is appropriate in all the circumstances to take action against him. A person is
guilty of misconduct if, while an approved person, he has failed to comply with a
Statement of Principle issued under section 64 of the Act, or has been knowingly
concerned in a contravention by a relevant authorised person of a relevant requirement
imposed on that authorised person.
1.3.
Section 56 of the Act provides that the Authority may make an order prohibiting an
individual from performing a specified function, any function falling within a specified
description or any function, if it appears to the Authority that that individual is not a
fit and proper person to perform functions in relation to a regulated activity carried on
by an authorised person, exempt person or a person to whom, as a result of Part 20,
the general prohibition does not apply in relation to that activity. Such an order may
relate to a specified regulated activity, any regulated activity falling within a specified
description, or all regulated actives.
2.
RELEVANT REGULATORY PROVISIONS
Statements of Principle and Code of Practice for Approved Persons
2.1.
The Authority’s Statements of Principle and Code of Practice for Approved Persons
have been issued under section 64 of the Act.
2.2.
During the Relevant Period, Statement of Principle 1 stated:
‘An approved person must act with integrity in carrying out his accountable functions.’
2.3.
‘Accountable functions’ include controlled functions and any other functions performed
by an approved person in relation to the carrying on of a regulated activity by the
authorised person to which the approval relates.
2.4.
The Code of Practice for Approved Persons sets out descriptions of conduct which, in
the opinion of the Authority, does not comply with a Statement of Principle. It also
sets out factors which, in the Authority’s opinion, are to be taken into account in
determining whether an approved person’s conduct complies with a Statement of
Principle.
The Fit and Proper Test for Approved Persons
2.5.
The part of the Authority’s Handbook entitled “The Fit and Proper Test for Approved
Persons” (“FIT”) sets out the criteria that the Authority will consider when assessing
the fitness and propriety of a candidate for a controlled function. FIT is also relevant
in assessing the continuing fitness and propriety of an approved person.
2.6.
FIT 1.3.1G states that the Authority will have regard to a number of factors when
assessing the fitness and propriety of a person. The most important considerations
will be the person’s honesty, integrity and reputation, competence and capability and
financial soundness.
The Authority’s policy for exercising its power to make a prohibition order
2.7.
The Authority’s policy in relation to prohibition orders is set out in Chapter 9 of the EG.
2.8.
EG 9.1 states that the Authority may exercise this power where it considers that, to
achieve any of its regulatory objectives, it is appropriate either to prevent an individual
from performing any functions in relation to regulated activities or to restrict the
functions which he may perform.
DEPP
2.9.
Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the
Authority’s statement of policy with respect to the imposition and amount of financial
penalties under the Act.