FINAL NOTICE

Individual reference:
AAS00001

TAKE NOTICE: The Financial Services Authority of 25 The North Colonnade, Canary
Wharf, London E14 5HS (“the FSA”) has to taken the following action:

1.
ACTION

1.1.
For the reasons listed below the FSA has taken the following action against Anthony
Smith (“Mr Smith”):

(1)
pursuant to section 66 of the Financial Services and Markets Act 2000 (“the
Act”), to imposed on Mr Anthony Arthur Smith (“Mr Smith”), a financial
penalty of £16,000 in respect of breaches of Statement of Principle 7 of the
FSA’s Statements of Principle and Code of Practice for Approved Persons
(“the Statements of Principle”) between 6 April 2006 and April 2008 (“the
relevant period”); and

(2)
made an order, pursuant to section 56 of the Act, prohibiting Mr Smith from
performing any significant influence and any customer function in relation to
the sale of unregulated collective investment scheme (“UCIS”), as defined in
the FSA Handbook (the “prohibition order”). The prohibition order also
prohibits Mr Smith from communicating, or causing any authorised person to
communicate, an invitation or inducement to participate in a UCIS. For the

avoidance of doubt, the exemptions in the Financial Services and Markets Act
2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001
(SI 2001/1060) (the “Order”) and in COBS 4.12 do not apply.

1.2.
Mr Smith agreed to settle the FSA’s investigation and he therefore qualified for a 20
per cent (Stage 2) discount under the FSA’s executive settlement procedures. The
FSA would have otherwise sought to impose a financial penalty of £20,000 on him.

2.
REASONS FOR THE ACTION

2.1.
On the basis of the facts and matters described below, the FSA imposed a financial
penalty on Mr Smith for failing to comply with Statement of Principle 7 in performing
the significant influence functions of CF1 (Director), CF10 (Compliance and
Oversight) and CF30 (Customer), at Perspective Financial Management Limited
(“PFM”) during the relevant period.

2.2.
In summary, while performing his significant influence function Mr Smith failed to:

(1)
take reasonable steps to ensure that the business of PFM for which he is
responsible in his controlled function, complied with the relevant requirements
and standards of the regulatory system, in breach of Statement of Principle 7
by:

(a)
failing to ensure that adequate systems and controls were put in place
so that advice given to PFM’s customers to switch their pensions and/or
invest in a UCIS was suitable;

(b)
failing to take reasonable steps to ensure that PFM’s procedures and
systems of control were reviewed following the identification of
significant concerns by an external compliance consultant (“the
external consultant”) engaged by PFM. This resulted in a risk that
customers would receive unsuitable advice from PFM’s advisers;

(c)
failing to take adequate steps to monitor compliance with relevant
requirements. This resulted in a risk that customers would receive
unsuitable advice; and

(d)
failing to take reasonable steps to have a sufficient understanding of the
regulatory requirements and restrictions relating to the promotion of
UCIS. As a result of the deficiencies in his knowledge regarding the
promotion of UCIS, deficiencies which appear to the FSA to be
reflected in a similar lack of knowledge on the part of advisers at PFM,
there was a risk that unsuitable recommendations to invest in UCIS
would be made to customers.

(2)
As a result of the insufficiently robust compliance and monitoring
arrangements that Mr Smith implemented there was a risk that PFM’s advisers
would recommend pension switches to customers which were not
demonstrably suitable.

2.3.
By virtue of Mr Smith’s lack of understanding of the requirements relating to the
promotion and sales of UCIS the FSA has concluded that he has failed to meet
minimum regulatory standards in terms of competence and capability in respect of
UCIS and that he is not fit and proper to perform both significant influence functions
and customer functions in relation to UCIS sales. Accordingly, the FSA has imposed
on Mr Smith the prohibition order.

3.
RELEVANT STATUTORY AND REGULATORY PROVISIONS

3.1.
The relevant statutory provisions and regulatory requirements are attached at Annex
A.

4.
FACTS AND MATTERS RELIED UPON

4.1.
On 6 April 2006 (“A-Day”), the Government introduced changes to simplify the tax
rules for personal and occupational pensions in the UK. In particular, limits to the
amount that could be paid into a personal pension were removed, although restrictions
on the amount of tax-free cash that could be taken from personal pensions remained.
Additionally, from A-Day, alternatives to drawing a pension as an annuity become
available. Following these changes many advisers reviewed their clients’ existing
pension arrangements. These reviews led to a significant increase in advice given to
customers to transfer their existing pension arrangements into PPPs or SIPPs.

4.2.
In light of the significant increase in pension switches the FSA become concerned that
consumers may have been switched into pension products which carried high charges
and had features or additional flexibility that customers did not need. The FSA was
also concerned about whether firms’ management oversight and compliance
monitoring of this type of advice were robust enough to detect and prevent unsuitable
advice and ensure fair outcomes for customers.

4.3.
In the summer of 2008, the FSA commenced Phase 1 of a thematic review of pension
switching advice, looking at pension switches made since A-Day. For the purposes of
the FSA thematic review a pension switch was defined as advice to switch from any
occupational or individual pension scheme to an individual PPP or SIPP.

4.4.
The review also looked at firms’ management and oversight and compliance
monitoring of this type of advice.

4.5.
In December 2008, the FSA published a report on the findings of phase 1 of the
thematic review. The report noted that the FSA had visited 30 firms and assessed 500
customer files. A quarter of the firms visited were assessed as providing unsuitable
advice in a third or more of the cases sampled. Overall, unsuitable advice was found
in 16% of cases reviewed.

4.6.
In February 2009, the FSA published guidance on assessing the suitability of pension
switches, setting out the standards the FSA expects in relation to pension switches and
the action firms should take to ensure that customers receive suitable advice.

4.7.
The FSA wrote to over 4,500 firms to summarise our findings, to ask them to consider
past and future sales in light of the findings and to take remedial action where
necessary. The FSA then undertook a further programme of firm assessments in the
latter half of 2009 in Phase 2 of the thematic review.

The Firm

4.8.
PFM is an IFA based in Milton Keyes and Wilmslow with approximately 20 advisers
which has been authorised and regulated by the FSA since 1 December 2001.

4.9.
PFM has conducted 210 pension switches in the two years since A-Day, some 30 of
these have been into SIPPs and a further 14 involved customers’ pension funds being
invested in a UCIS.

Conduct in issue

4.10. Throughout the relevant period Mr Smith held the significant influence function of
CF1, CF30 and for the majority of the relevant period (until 2 April 2008) he held the
function of CF10 at PFM. He was also the majority shareholder and responsible for
the day-to day running of the firm.

Failure to Engage with PFM’s Compliance Manager

4.11. As the holder of the CF10 compliance function, Mr Smith delegated the responsibility
for PFM’s regulatory compliance to the compliance manager with whom he appeared
to have had infrequent documented contact. During the course of the investigation, the
FSA found evidence that Mr Smith failed to monitor the compliance manager to
ensure she was discharging her responsibilities effectively. Moreover, when the
compliance manager brought concerns regarding compliance or procedural matters to
his attention, he failed to respond adequately, with the consequence that the concerns
were not properly addressed and this exposed customers to the risk of receiving
unsuitable advice.

Failure to Address the Concerns of PFM’s Compliance Consultant

4.12. In addition to the compliance manager, Mr Smith also engaged the services of the
external consultant to conduct quarterly file reviews. The external consultant was
engaged to review a random sample of 10% of each advisers’ total business. Amongst
the files reviewed by the external consultant were those relating to advice given by
PFM to customers to make pension switches. PFM’s compliance manager received a
series of reports (“the reports”) between 14 July 2006 and 11 April 2007 from the
external consultant. The reports highlighted the following significant concerns:

(1)
the risk profile used in suitability reports contradicted the risk profile used in
the fact find. The external consultant advised PFM to adopt a standardised
approach to risk profiling its customers; and

(2)
the quality of advice being given by three advisers.

4.13. Despite the fact that the external consultant had expressed concern about the quality
of advice being given by these advisers, Mr Smith allowed these advisers to be signed

off as competent advisers and in 2007 and in 2008, two of the advisers were appointed
as supervisors for trainee advisers.

4.14. The compliance manager escalated the issues set out in 4.12 (1) and 4.12 (2) above, to
the board of directors on which Mr Smith sat, yet he failed to address these concerns.
Consequently, no steps were taken to address serious shortcomings in PFM’s sales
processes and in the quality of advice being given. These shortcomings had been
identified by the external consultant, communicated by the external consultant to the
compliance manager who in turn reported them to Mr Smith. This exposed customers
to the risk of receiving unsuitable advice.

Systems and Controls

4.15. Mr Smith is the person authorised to carry out CF1and CF10 functions at PFM. This
means that his decisions and actions are regularly taken into account by the governing
body of the firm1, particularly in respect of compliance matters. In addition, he also
held CF30 at PFM.

4.16. Mr Smith did implement systems and controls at PFM which were intended to ensure
both its compliance with the requirements and standards of the regulatory system and
that the advice it gave to customers was suitable. The systems and controls he
implemented included a process of ‘risk rating’ for advisers to follow and having pre-
submission and post sale file checking. PFM also employed the compliance manager
and the external consultant to manage these systems and to highlight any problems
and/or weaknesses.

4.17. However, these systems and controls were ineffective because they failed to prevent
the failings listed below. The FSA has reached the conclusion following its review of
PFM’s files, that the systems and controls at PFM were not adequate. The review
demonstrated that in 60 % (four files) of the nine pension switching files reviewed and
in 100% (four files) of the four UCIS files reviewed PFM had failed to:

(1)
obtain and/or record sufficient “know your client” (“KYC”) information to
establish its clients’ needs and objectives to demonstrate that the advice to
switch was suitable (COB 5.2.5R/COBS 9.2.2R);

(2)
ensure that sufficient information was recorded on fact finds about customers’
objectives (COB 5.2.5R/COBS 9.2.2R);

(3)
ensure that the customers who were recommended to invest in UCIS fell
within the exemptions set out in the Order and/or COB/COBS (see paragraph
4.23 below);

(4)
failed to communicate clearly to those customers investing in UCIS, the true
nature of the risk involved with investments of that nature;

(5)
put in place a standard risk rating process. The way that PFM defined attitude
to risk varied between its own standard documents. In particular, the fact find,
supplementary fact find and pro forma suitability report all used different risk
rating scales to classify a customer’s attitude to risk. This meant that it was

1 SUP 10.6.4 R (2)(b).

possible for the same client to be assigned differing attitudes to risk in the
same client file (COB 5.2.5R/COBS 9.2.2R); and

(6)
failed to disclose properly all charges connected with the advice.

4.18. As such it appears that Mr Smith failed to ensure the suitability of PFM’s pension
switching advice because he did not take reasonable steps implement adequate and
appropriate systems and controls to ensure PFM’s compliance with regulatory
requirements (as per APER 4.7.3).

Breach of the Restriction on the Promotion of UCIS

4.19. UCIS is defined in the glossary to the FSA Handbook of Rules and Guidance as “a
collective investment scheme which is not a regulated collective investment scheme”.
Unless a collective investment scheme (“CIS”) falls within the narrow definition of a
regulated CIS2, it will be a UCIS. A UCIS does not carry the same level of regulatory
oversight as a CIS in relation to matters such as the clarification of fees charged or
diversification, but it is still subject to regulation, notably around the extent to which
and persons to whom it can be marketed. Section 238 of the Act precludes the
promotion of a UCIS by an authorised person, except in certain specified
circumstances, broadly these include promotions to investment professionals, existing
customers of an authorised person, and certain high net worth individuals or
sophisticated investors.

4.20. UCIS are often characterised by high levels of volatility and illiquidity which in turn,
entail a higher degree of risk for consumers.

4.21. The FSA identified that at least 14 of PFM’s customers were recommended to switch
to a SIPP where the underlying investment was a UCIS.

4.22. During interviews with the FSA, clear deficiencies were demonstrated in the
understanding of the regulatory requirements and restrictions relating to UCIS on the
part of Mr Smith and two of PFM’s advisers. The FSA considers this particularly
serious on Mr Smith’s part as, in addition to his CF1 and CF10 function at PFM, he
also held a CF1, CF3 (Chief Executive) and CF10 function at the company that
operated the specific UCIS (“the investment management company”) that he and his
advisers were recommending to PFM’s customers.

4.23. Mr Smith failed to manage PFM with due care, skill and diligence in that he failed to
take reasonable steps to ensure that PFM carried out adequate due diligence on the
statutory and regulatory restrictions on the promotion of UCIS. It also appears that he
failed to ensure that he and PFM’s advisers were properly trained so as to have
sufficient awareness of the following:

2 A CIS is defined in the Handbook Glossary as follows:
(a) An investment company with variable capital; or
(b) An authorised unit trust scheme: or
(c) A recognised scheme, (ie a CIS constituted overseas and formally recognised under sections 264, 270 or 272
of the Financial services and Markets Act 2000);
Whether or not the units are held within an ISA or personal pension scheme.

(1)
The statutory restriction in section 238 of the Act (“the section 238
restriction”);

(2)
The exemptions on the promotion of UCIS provided in the Order; and

(3)
The exemptions to section 238 of the Act provided in rule 3.1.12 of COB,
which was the relevant part of the FSA’s Handbook at the time this advice was
being given.

4.24. The FSA reviewed a sample of four customer files where a UCIS was recommended.
It was not clear on any of the files reviewed which of the exemptions to the section
238 restriction the customer fell under. As a consequence of this, 14 of PFM’s
customers were exposed to the risk of receiving potentially unsuitable advice.

5.
ANALYSIS OF MISCONDUCT AND SANCTION

5.1.
The FSA has concluded that Mr Smith, as the person authorised to carry out the
controlled functions of CF1, CF10 and CF30 at PFM, was responsible for the
misconduct referred to above.

5.2.
By reason of the facts and matters referred to in paragraphs 4.11 to 4.24 above, the
FSA considered that he has failed to take reasonable steps to ensure that the business
of the firm for which he is responsible in his controlled function complies with the
relevant requirements and standards of the regulatory system, in breach of Statement
of Principle 7. Specifically:

(1)
he failed to ensure that adequate systems and controls were put in place so that
advice given to PFM’s customers to switch their pension and/or invest in a
UCIS was suitable;

(2)
he failed to take steps to inform himself and to ensure that PFM’s advisers
were informed about the restrictions and the related exemptions under the
Order and COB rules which apply/applied to the promotion of UCIS;

(3)
he failed to address the issues raised by either the compliance manager or the
external consultant which included concerns about the competency of three of
PFM’s advisers; and

(4)
he failed to engage effectively with the compliance manager.

5.3.
By reason of the facts and matters referred to in paragraphs 4.22 to 4.24 above, the
FSA considered that Mr Smith’s conduct is so serious as to demonstrate that he lacks
fitness and propriety in terms of the competence and capability required by
individuals operating in the regulated financial services industry in relation to UCIS
sales.

Imposition of financial penalty

5.4.
The FSA’s policy on the imposition of financial penalties is set out in Chapter 6 of the
Decision Procedures and Penalties Manual (“DEPP”) which forms part of the FSA
Handbook. When determining the appropriate level of financial penalty the FSA has
also had regard to Chapter 13 of the Enforcement Manual (“ENF”), the part of the

7


FSA’s Handbook setting out the FSA’s policy on the imposition of financial penalties
which applied up to 27 August 2007 and to Chapter 7 of the Enforcement Guide
(“EG”), in force thereafter.

5.5.
The principal purpose of imposing a financial penalty is to promote high standards of
regulatory 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.

5.6.
In determining whether a financial penalty is appropriate the FSA is required to
consider all the relevant circumstances of a case. Applying the criteria set out in
DEPP 6.2.1 (regarding whether or not to take action for a financial penalty or public
censure) and 6.4.2 (regarding whether to impose a financial penalty or a public
censure), the FSA considers that a financial penalty is an appropriate sanction, given
the serious nature of the breaches, the risks created for customers of PFM and the
need to send out a strong message of deterrence to others of the consequences of
recommending a course of action to its customers without demonstrating the
suitability of those recommendations.

5.7.
DEPP 6.5.2 sets out a non-exhaustive list of factors that may be of relevance in
determining the level of a financial penalty. The FSA considered that the following
factors are particularly relevant in this case:

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

(1)
The FSA considered that by virtue of Mr Smith’s conduct there was a
significant risk to customers arising from the deficiencies in the quality of
advice given by PFM in respect of pension switching and the promotion of
UCIS to retail customers, and this risk was identified by the FSA.

Whether the person on whom the penalty is to be imposed is an individual: DEPP
6.5.2G(4)

(2)
The FSA recognises that the financial penalty imposed on Mr Smith was likely
to have a significant impact on him as an individual.

The size, financial resources and other circumstances of the person on whom the
penalty is to be imposed: DEPP 6.5.2G(5)

(3)
The FSA found no evidence to suggest that Mr Smith will be unable to pay
this penalty.

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

(4)
There is no evidence that Mr Smith benefited directly from his breaches.

Conduct following the breach: DEPP 6.5.2G(8)

(5)
The FSA took into account Mr Smith’s co-operation with the FSA’s
investigation.

Disciplinary record and compliance history: DEPP 6.5.2G (9)

(6)
The FSA took into account the fact that Mr Smith has not been the subject of
previous disciplinary action by the FSA.

5.8.
Having considered all the circumstances set out above, the FSA determined that
£20,000 (before any discount for early settlement) was the appropriate financial
penalty to be imposed on Mr Smith.

5.9.
The FSA has had regard to Chapter 8 of the Enforcement Manual (“ENF”), the part of
the FSA’s Handbook setting out the FSA’s policy on the imposition of prohibition
orders which applied up to 27 August 2007 and to Chapter 9 of the Enforcement
Guide (“EG”), in force thereafter. Having regard to this, the FSA considered it
appropriate to make an order prohibiting Mr Smith from performing any significant
influence and any customer function in relation to the sale and promotion of UCIS.

6.
PROCEDURAL MATTERS

Decision maker

6.1.
The decision which gave rise to the obligation to give this Final Notice was made on
behalf of the FSA by Settlement Decision Makers for the purposes of DEPP. The
effective date of the Prohibition Order is 31 August 2011.

6.2.
This Final Notice is given to Mr Smith in accordance with section 390 of the Act.

6.3.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of information
about the matter to which this Final Notice relates. Under those provisions, the FSA
must publish such information about the matter to which this Notice relates as the
FSA considers appropriate. The information may be published in such manner as the
FSA considers appropriate. However, the FSA may not publish information if such
publication would, in the opinion of the FSA, be unfair to Mr Smith or prejudicial to
the interests of consumers.

6.4.
The FSA intends to publish such information about the matter to which this Final
Notice relates as it considers appropriate.

FSA contacts

6.5.
For more information concerning this matter generally, Mr Smith should contact
Steve Page on 0207 066 1420.

ANNEX A

1.
RELEVANT STAUTORY PROVISIONS, REGULATORY REQUIREMENTS
AND GUIDANCE

Statutory provisions

1.1.
The FSA’s statutory objectives, set out in Section 2(2) of the Act, include the
reduction of financial crime, maintaining confidence in the financial system and the
protection of consumers.

1.2.
The FSA has the power, pursuant to section 66 of the Act, to impose a financial
penalty of such amount as it considers appropriate where the FSA considers an
approved person has failed to comply with a Statement of Principle issued under
section 64 of the Act.

1.3.
The Statements of Principle and Code of Practice for Approved Persons (“APER”) set
out the Statements of Principle in respect of approved persons and conduct which, in
the opinion of the FSA, constitutes a failure to comply with them. They also describe
the factors to be taken into account by the FSA in determining whether an approved
person’s conduct complies with a particular Statement of Principle.

1.4.
APER 3.1.3G states that, when establishing compliance with, or breach of, a
Statement of Principle, account will be taken of the context in which a course of
conduct was undertaken, the precise circumstances of the individual case, the
characteristics of the particular controlled function and the behaviour expected in that
function. APER 3.1.4G states that an approved person will only be in breach of a
Statement of Principle if they are personally culpable, that is, in a situation where their
conduct was deliberate or where their standard of conduct was below that which
would be reasonable in all the circumstances.

1.5.
In this case, the FSA considers the most relevant Statement of Principle to be
Statement of Principle 7.

1.6.
Statement of Principle 7 requires that an approved person performing a significant
influence function must take reasonable steps to ensure that the business of the firm
for which he is responsible in his controlled function complies with the relevant
requirements and standards of the regulatory system.

1.7.
The FSA’s approach to taking disciplinary action is set out in Chapter 2 of EG. In
deciding to take the proposed action the FSA has also had regard to the appropriate
provisions of ENF which was in force until 27 August 2007 and therefore during part
of the Relevant Period. Imposing financial penalties and public censures shows that
the FSA is upholding regulatory standards and helps to maintain market confidence,
promote public awareness of regulatory standards and deter financial crime. An
increased public awareness of regulatory standards also contributes to the protection
of consumers.

1.8.
The FSA’s policy on the imposition of financial penalties is set out in chapter 6 of
DEPP which is a module of the FSA's Handbook of rules and guidance (and,
previously, ENF). The principal purpose of imposing a financial penalty is to promote
high standards of regulatory 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 (DEPP 6.1.2G & previously ENF 13.1.2).

1.9.
The FSA will consider the full circumstances of each case when determining whether
or not to take action for a financial penalty. DEPP 6.2.1G (and previously ENF
12.3.3) sets out guidance on a non-exhaustive list of factors that may be of relevance
in determining whether to take action for a financial penalty, which include the
following:

(a)
DEPP 6.2.1G(1) and previously EG 12.3.3(2): The nature, seriousness
and impact of the suspected breach

(b)
DEPP 6.2.1G(2) and previously 12.3.3(3): The conduct of the person
after the breach

(c)
DEPP 6.2.1G(3) and previously ENF 12.3.3(4): The previous
disciplinary record and compliance history of the person

(d)
DEPP 6.2.1G(4): FSA guidance and other published materials

(e)
DEPP 6.2.1G(5) and previously ENF 12.3.3(5): Action taken by the
FSA in previous similar cases

1.10. The FSA will consider all the relevant circumstances of a case when it determines the
level of financial penalty. DEPP 6.5.2G sets out guidance on a non-exhaustive list of
factors that may be of relevance when determining the amount of a financial penalty,
which include:

(a)
DEPP 6.5.2G(1): Deterrence

(b)
DEPP 6.5.2G(2) and previously ENF 13.3.3(1): The nature,
seriousness and impact of the breach in question;

(c)
DEPP 6.5.2G(4) and previously ENF 13.3.3(3): Whether the person on
whom the penalty is to be imposed is an individual;

(d)
DEPP 6.5.2G(5) and previously ENF 13.3.3(3): The size, financial
resources and other circumstances of the person on whom the penalty
is to be imposed;

(e)
DEPP 6.5.2G(6) and previously ENF 13.3.3(4): The amount of benefit
gained or loss avoided;

(f)
DEPP 6.5.2G(8) and previously ENF 13.3.3(5): Conduct following the
breach;

(g)

DEPP 6.5.2G(9) and previously ENF 13.3.3(6): Disciplinary record
and compliance history;

(h)

DEPP 6.5.2.G(10) and previously ENF 13.3.3(7): Other action
taken by the FSA;

(i)
DEPP 6.5.2G(12): FSA guidance and other published materials; and

(j)

DEPP 6.5.2G(13) and previously ENF 13.3.3(9): The timing of any
agreement as to the amount of the penalty.

Fit and Proper Test for Approved Persons

1.11. The part of the FSA 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. FIT is also relevant in
assessing the continuing fitness and propriety of an approved person.

1.12. FIT 1.3.1G provides that the FSA 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.

1.13. As set out in FIT 2.2, in determining a person’s competence and capability, the FSA
will have regard to matters including but not limited to:

(1)
whether the person satisfies the relevant FSA training and competence
requirements in relation to the controlled function the person performs or is
intended to perform; and

(2)
whether the person has demonstrated by experience and training that the
person is able, or will be able if approved, to perform the controlled function.

FSA’s policy for exercising its power to make a prohibition order

1.14. In deciding to take the proposed action the FSA has also had regard to the appropriate
provisions of ENF which was in force until 27 August 2007 and therefore during part
of the Relevant Period. The FSA’s approach to exercising its powers to make
prohibition orders is set out at Chapter 9 of the Enforcement Guide (“EG”).

1.15. EG 9.1 states that the FSA’s power to make prohibition orders under section 56 of the
Act helps it work towards achieving its regulatory objectives. The FSA 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 functions in relation to regulated
activities or to restrict the functions which he may perform.

1.16. EG 9.4 sets out the general scope of the FSA’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.

1.17. In circumstances where the FSA 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 FSA may consider whether it should prohibit that person from performing
functions in relation to regulated activities. In deciding whether to make a prohibition
order, the FSA will consider whether its regulatory objectives can be achieved
adequately by imposing disciplinary sanctions.

1.18. EG 9.9 states that the FSA will consider all the relevant circumstances when deciding
whether to make a prohibition order against an approved person. 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 for assessing the fitness
and propriety of an approved person in terms of competence and capability as
set out in FIT 2.2;

(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.

1.19. EG 9.12 provides a number of examples of types of behaviour which have previously
resulted in the FSA deciding to issue a prohibition order or withdraw the approval of
an approved person. The examples include serious lack of competence