FINAL NOTICE

To:
Bar Professions Limited (in liquidation)

ACTION

1.
For the reasons given in this notice, the Authority hereby publishes a statement
to the effect that Bar Professions Limited (“Bar”) has contravened regulatory
requirements.

2.
The Authority would have imposed a financial penalty of £509,700 on Bar given
the serious failings in this case. However, the Authority has considered the impact
that a financial penalty would have on Bar given that it is currently in liquidation
and there is likely to be a significant liability to creditors. Taking this into account,
the Authority does not consider that it is appropriate to impose a financial penalty
on Bar and that instead a statement should be issued to the effect that Bar has
contravened regulatory requirements.

3.
The statement will be published on 1 February 2016 and takes the form of this
Final Notice.

SUMMARY OF REASONS

4.
Bar was a specialist London based insurance broker predominantly providing
solicitors’ professional indemnity insurance (“Solicitors’ PII”). Bar negligently
failed to conduct adequate due diligence concerning insurance arrangements for
policyholders and sent a letter to over 1,300 customers inducing them to enter
into contracts of insurance on the basis of materially inaccurate and misleading
information.

5.
Bar operated two binding authority agreements (“BAAs”) during the period from
14 March 2013 to 23 September 2013 (“the Relevant Period”), which were

designed to provide Solicitors’ PII cover for the 2012/13 and 2013/14
underwriting years for approximately 1,300 solicitors across the UK. Without
valid Solicitors’ PII, those firms would have been unable to practise.

6.
The two BAAs were written through the same London based managing general
agent, Aderia UK Limited (“Aderia”), but were insured at different times, with two
European insurers, Balva Insurance Company AAS (“Balva”) and Berliner
Versicherung Aktiengesellschaft (“Berliner”).

7.
In April 2013, Balva’s operating licence was suspended by its home state
regulator, thereby exposing UK policy holders, including those solicitors insured
through the first of the two binding authority agreements with Aderia, to the risk
that no valid insurance was in place.

8.
In an attempt to put in place replacement Solicitors’ PII for policy holders, Bar
entered into a second BAA with Aderia. This BAA purported to give Bar authority
to write Solicitors’ PII on behalf of Berliner up to an annual premium income limit
of £50 million.

9.
At the time that Bar entered into the second BAA with Aderia, Bar had concerns
about a number of matters including the level of the premium income limit. Bar
also had reasonable grounds to question the position, standing and authority of
Mr Shay Reches (“Mr Reches”), the individual who controlled and was the
principal decision maker at Aderia, but was not approved by the Authority.

10.
These grounds for concern should have caused Bar to scrutinise more carefully
the nature of its business relationship with Mr Reches, Aderia and Berliner and to
exercise greater due diligence concerning the arrangement. Instead, between
late May and early June 2013, Bar issued a letter to each of its solicitor
customers, numbering over 1,300, which stated that “alternative arrangements”
had been made with Berliner and inviting them to accept replacement Solicitors’
PII on the basis set out in the letter.

11.
Over 900 solicitors accepted the replacement cover on those terms. The letter
was materially inaccurate and misleading in that the underlying managing general
agency agreement (“MGA Agreement”) was neither signed nor effective at the
time the letter was sent and the premium income limit of €5 million, ultimately
agreed by Berliner, would have been insufficient to provide the cover offered in
the letter.

12.
The MGA agreement between Berliner and Aderia (“the Berliner MGA Agreement”)
was finalised and signed some six weeks after the letter was sent and was
annulled on 23 September 2013. As a consequence, over 900 solicitors, originally
insured through the second BAA, were required to seek new compulsory
Solicitors’ PII from different providers or cease to practise.

13.
During the Relevant Period, Bar breached Principle 2 in that Bar did not exercise
due skill, care and diligence, prior to sending the letter, in that it failed to:

a)
carry out sufficient and adequate due diligence to ensure that the Berliner
MGA Agreement was in place and there was a sufficient premium income limit
to meet the proposed cover, when Bar had reason to doubt that was the
case; and

b)
take reasonable care to ensure that the advice given to its customers to
cancel their current policies with Balva and take out the cover with Berliner
was suitable, in breach of ICOBS 5.3.1R.

14.
Bar breached Principle 7, by failing to communicate information to its customers
in the letter it sent in late May/early June in a way which was clear, fair and not
misleading.

15.
Regulatory action in relation to this matter underlines the need for authorised
firms and approved persons in the distribution chain to ensure that adequate
steps are taken to satisfy themselves that robust and effective arrangements are
in place to mitigate risks to customers. This action supports 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.

16.
This action recognises that failure by one or more firms to comply with regulatory
requirements that safeguard consumers and/or protect market integrity can
distort competition. Tackling conduct failures, such as those detailed in this Final
Notice, in order to ensure firms act with integrity, implement appropriate systems
and controls, and arrange adequate protection for client assets, therefore
supports the Authority’s statutory objective to promote effective competition in
the interests of consumers.

DEFINITIONS

17.
The definitions below are used in this Final Notice.

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

“Aderia” means Aderia UK Limited, now known as II&B UK Limited and previously
known as JCM Insurance Brokers Limited and JCM Brokers Ltd.

“Apro” means Apro Management Limited, Bar’s AR.

“AR” means appointed representative.

“the Authority” means the body corporate previously known as the Financial
Services Authority and renamed on 1 April 2013 as the Financial Conduct
Authority.

“BAA” means a binding authority agreement, an agreement whereby an insurer (or
its MGA) delegates underwriting authority to another party known as the
Coverholder (often an insurance broker) which will act on behalf of the insurer to
the extent permitted by the agreement, which frames the responsibilities,
entitlements and obligations of the parties.

“the First BAA” means a BAA between Aderia and Bar signed on 20 February 2013
governing the marketing and sale of Solicitors’ PII policies underwritten by Balva.

“the Second BAA” means a BAA between Aderia and Bar signed on 17 May 2013
purportedly governing the marketing and sale of Solicitors’ PII policies
underwritten by Berliner.

“Balva” means Balva Insurance Company AAS, a Latvian insurer and a Passported
Firm.

“Bar” means Bar Professions Limited, a UK-based Coverholder.

“Berliner” means Berliner Versicherung Aktiengesellschaft, a German insurer and a
Passported Firm.

“the Berliner MGA Agreement” means the MGA Agreement, which was signed
between Berliner and Aderia on 15 July 2013, and took effect respectively from 1
June 2013.

“Coverholder” means a company (often an insurance broker) authorised to enter
into contracts of insurance, on behalf of an insurer in accordance with the terms of
a BAA.

“DEPP” means the Authority’s Decision Procedure and Penalties Manual.

“EG” means the Authority’s Enforcement Guide.

“the FCMC” means Financial and Capital Market Commission, the Latvian
regulatory authority, also known as Finanšu un Kapitāla Tirgus Komisija (the
FKTK).

“financial promotion” means an invitation or inducement to engage in investment
activity that is communicated in an authorised firm’s course of business.

“ICOBS” means Insurance Conduct of Business Sourcebook.

“MGA” means a managing general agent, an insurance intermediary which has
contractual authority from one or more insurers to provide underwriting services
on their behalf.

“MGA Agreement” means a contractual agreement giving an MGA contractual
authority from one or more insurers to provide underwriting services, including
negotiating and entering into binding authorities with Coverholders for the sale
and fulfilment of policies, on behalf of the insurers.

“the Offer Letter” means the letter sent by Apro in late May/early June 2013 to
most of Bar’s and Apro’s Solicitor Customers or the brokers who introduced those
customers to Bar.

“Passported Firm” means a European Economic Area firm exercising its right to
conduct activities and services regulated under EU legislation in the UK on the
basis of its authorisation in its European Economic Area home state.

“PII” means professional indemnity insurance.

“Principles” means the Authority’s Principles for Businesses.

“Relevant Period” means the period from 14 March 2013 to 23 September 2013.

“the renewal cover” means the policy which was intended to automatically renew
for the 2013/2014 underwriting year.

“the replacement cover” means the new policy, which was intended to be incepted
on 1 June 2013 to replace the previous cover for the 2012/13 underwriting year.

“RPPD” means the Regulatory Guide in the FCA Handbook named The
Responsibilities of Providers and Distributors for the Fair Treatment of Customers.

“Shay Reches” or “Mr Reches” means Shay Jacob Reches.

“Solicitor Customers” means Bar’s solicitor customers, numbering approximately
1,300.

“Solicitors’ PII” means professional indemnity insurance provided to solicitors.

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

FACTS AND MATTERS

18.
Bar was a London based specialist insurance broker. Its principal business was as
a Coverholder authorised under the Act to undertake general insurance mediation
activities. With the authority, or purported authority, of insurers Balva and
Berliner, and through the BAAs it held with their MGA, Aderia, Bar entered into
contracts of insurance, predominantly PII for solicitors in England and Wales. Bar
went into administration on 22 October 2014 and liquidation on 29 January 2015.

19.
Bar arranged PII cover for approximately 1,300 Solicitor Customers for the
2012/13 underwriting year with Balva through the First BAA.

20.
Aderia had made Bar aware on 14 March 2013 that Balva was required by the
FCMC to cease temporarily writing various lines of business, including solicitors’
PII business. During the following three months, Balva’s licence to write new
business in the UK was formally suspended and then withdrawn by the FCMC. As
a consequence, from March 2013 onwards, Bar discussed and then made plans
with Aderia to replace Balva’s cover. Mr Reches, acting through Aderia,
introduced Berliner to Bar in March 2013 as a possible replacement for Balva, and
discussions about this arrangement took place between Bar, Mr Reches and
Aderia. This culminated in Bar and its AR, Apro, entering into the Second BAA
with Aderia for Berliner on 17 May 2013.

21.
The terms of the Second BAA provided that Bar had authority to write solicitors’
PII business on behalf of Berliner up to an annual premium income limit of £50
million.

22.
Both before and after it entered into the Second BAA, Bar had grounds for
concern as to whether the Berliner MGA Agreement had been concluded, signed
and was in effect, as well as what premium income limits were in place for
business written on behalf of Berliner. Bar asked questions of Aderia in respect of
those grounds for concern, but did not receive satisfactory answers to its
questions before entering into the Second BAA, not seeing the substantive
provisions of the signed Berliner MGA Agreement until 15 July 2013.

Due diligence

23.
Under ICOBS 2.5.3G(2), Bar would have been entitled to rely on information
provided to it in writing (such as the Second BAA and the written assurances from
Aderia) by an unconnected authorised person (such as Aderia) unless it was
aware or ought reasonably to have been aware of any fact that would give
reasonable grounds to question the accuracy of that information. Bar had
reasonable grounds to question the accuracy of information, in particular the
provisions of the Berliner MGA Agreement, under which it held its binding
authority. It did not receive satisfactory responses to the enquiries which it made
about those concerns. In the circumstances, Bar should have undertaken further
and more detailed enquiries in order to satisfy its concerns.

24.
The grounds for concern that Bar raised with Aderia relating to the Berliner MGA
Agreement prior to the Offer Letter being sent in late May/early June 2013
included whether:

a)
the Berliner MGA Agreement was in place and had been signed;

b)
Berliner’s premium income limit was sufficient to enable Bar to write the level
of business for which the Second BAA made provision; and

c)
Berliner was appropriately capitalised.

25.
Prior to sending the Offer Letter, Bar had taken some steps through Aderia to
satisfy itself that the Berliner MGA Agreement, and other arrangements, were in
place and effective for the purposes of the Second BAA. However, the steps that
Bar took were inadequate in the following ways:

a)
on a number of occasions, prior to the Offer Letter being sent, Bar asked
Aderia to provide a signed copy of the Berliner MGA Agreement.
Notwithstanding those requests, Bar did not see a signed copy of the Berliner
MGA Agreement until after 15 July 2013, following intervention by the
Authority and over six weeks after sending the Offer Letter;

b)
Bar made a number of requests from March 2013 onwards to meet the chief
executive of Berliner in order to discuss the PII arrangements. That meeting
only took place in July 2013 following intervention by the Authority; and

c)
Bar had concerns about Berliner’s reinsurance arrangements and pressed
Aderia for information between April and May 2013, but only received details
of a draft reinsurance slip on 23 June 2013.

26.
Throughout the Relevant Period, Bar’s dealings with Aderia were conducted
principally through Mr Reches. This should have led Bar to conduct adequate due
diligence in order to satisfy itself concerning the fitness and propriety of the
individual acting on behalf of Aderia. Among the facts and matters (which were
known, or would reasonably have been known, to Bar), which should have led Bar
to make further enquiries were that:

a)
Mr Reches was the controller and majority owner of Aderia but was not
approved by the Authority;

b)
Mr Reches was attempting to purchase shares in Berliner, which was a
potential provider of PII to Bar’s Solicitor Customers, creating a potential
conflict of interest for Mr Reches;

c)
Mr Reches, together with the companies controlled by him, was the subject of
certain restrictions imposed by overseas regulators concerning the carrying
out of unlicensed insurance business, which might adversely affect his status
and standing as a participant in any UK regulated activity; and

d)
Bar had recently experienced difficulties with Balva, which, like Berliner, was
a European insurer, introduced to Bar by Mr Reches and over which Bar
believed that Mr Reches had sought to exert some control and hold shares.

27.
The specific grounds for concern, outlined above, regarding the fitness and
propriety of Mr Reches was further reason for Bar to conduct greater due
diligence concerning the validity and effectiveness of the arrangements being put
in place on behalf of its Solicitor Customers prior to sending the Offer Letter,
which, as a result, contained inaccurate and misleading information.

The role of Apro

28.
Bar notified the Authority in February 2011 of the appointment of Apro as its AR.
Bar did not, however, have an AR agreement with Apro. Bar and Apro had
common directors. The original intention was that Bar would undertake the
broking side of the business with Apro effectively acting as a separate
underwriter. However, in time, the distinction between Bar and Apro became
blurred. Bar and Apro acted as one entity with the same offices, management and
directors.

29.
Apro’s role was effectively to act as a vehicle to facilitate liaison with wholesale
brokers, who would not want to deal with a rival broker (Bar) directly, which was
why the Offer Letter was sent on Apro-headed paper. However, in effect, there
was no distinction between Bar and Apro.

30.
Bar was, in any event, responsible for communicating and approving financial
promotions sent by its AR, Apro in accordance with ICOBS 1.1.1R and ICOBS
2.2.2R. Bar should have taken reasonable steps to ensure that such
communications or financial promotions were clear, fair and not misleading.

The Offer Letter

31.
Bar, through its AR, Apro, sent the Offer Letter between late May/early June 2013
to most of its Solicitor Customers or to the brokers who had introduced those
customers to Bar. The Offer Letter, among other things, stated that:

a)
Balva had been “temporarily suspended”;

b)
Bar/Apro had made “alternative arrangements” with Berliner;

c)
Berliner had “agreed to honour all quotations previously offered by [Balva]
securing all discounted premiums accepted last year on either the 1 or 2 year
deal”;

d)
Bar/Apro remained “very confident that Balva’s position will change”;

e)
Bar/Apro was “suggesting [to its Solicitor Customers that] the current Balva
policy will be cancelled from 1st June and a new policy with Berliner be
incepted on the same day to run continuously to 30th September 2013”; and

f)
Bar/Apro would “be including an automatic extension to the policy effective
1st October 2013 to either 30th September 2014 or 30th April 2015”.

32.
Over 900 of Bar’s Solicitor Customers agreed to this arrangement.

The Berliner MGA Agreement

33.
At the time that Bar entered into the Second BAA with Aderia on 17 May 2013,
and sent the Offer Letter, Berliner had not signed the MGA Agreement authorising
Aderia to delegate authority for Bar and Apro to write Solicitors’ PII on behalf of
Berliner. The Berliner MGA Agreement was not agreed and signed until 15 July
2013 – the day before a short notice visit from the Authority was due to take
place and approximately six weeks after the Offer Letter was sent.

34.
The Berliner MGA Agreement stated that Berliner would provide insurance up to
an annual premium income limit of only €5 million, whereas the Second BAA
purported to provide Bar with the facility to write business on behalf of Berliner

up to an annual premium income limit of £50 million. As a consequence, the
actual premium income limit for 2013 of €5 million would have been exhausted by
the replacement cover for the 2012/13 year alone (and which was due to expire
on 30 September 2013); there would have been no underwriting capacity
available for the renewal cover offered in the Offer Letter for the 2013/14 year.

FAILINGS

35.
The regulatory provisions relevant to this Final Notice are referred to in Annex A.

36.
Principle 2 states that: “A firm must conduct its business with due skill, care and
diligence.”

37.
Bar breached Principle 2, by failing to exercise due skill, care and diligence, prior
to the Offer Letter being sent, by not ensuring that:

a)
the Berliner MGA Agreement was in place, and that there was a sufficient
premium income limit to meet the proposed renewal cover, when Bar had
reason to doubt that was the case. Bar had made enquiries in respect of
those doubts, but received reassurances which did not satisfy those doubts,
as set out in paragraphs 24 and 25;

b)
reasonable care was taken to make sure that the advice to the Solicitor
Customers to cancel their current policies with Balva and take out the
replacement and renewal cover with Berliner was suitable, in breach of ICOBS
5.3.1R; and

c)
it satisfied itself in relation to facts about which it was aware, or should have
been aware, in respect of Mr Reches as set out in paragraphs 26 and 27.

Principle 7

38.
Principle 7 states that: “A firm must pay due regard to the information needs of
its clients, and communicate information to them in a way which is clear, fair and
not misleading.”

39.
Bar breached Principle 7, by failing to:

a)
communicate information to its Solicitor Customers in a way which was clear,
fair and not misleading in that the Offer Letter was written so as to lead
Solicitor Customers to believe that:

i)
Bar/Apro had made arrangements with Berliner for Berliner to
guarantee replacement cover for the existing Balva policies, which in
fact, was not the case; and

ii)
PII cover would automatically be renewed, when, in fact Bar/Apro had
no authority to arrange an automatic renewal nor was there sufficient
underwriting capacity available from Berliner to meet any insurance so
renewed; and

b)
take reasonable steps to communicate to its Solicitor Customers a financial
promotion within the Offer Letter in a way which was clear, fair and not
misleading, in breach of ICOBS 2.2.2R.

40.
The Offer Letter was materially inaccurate and misleading and Solicitor Customers
seeking replacement and renewal PII cover on the basis proposed by the Offer
Letter would have been at risk of being uninsured or of having otherwise
legitimate claims rejected. Bar should have ensured that each aspect of the Offer
Letter was correct, before it was sent.

41.
Based on the facts and matters described above, the Authority considers that Bar
failed to:

a)
carry out its business with due skill, care and diligence, in breach of Principle
2; and

b) pay due regard to the information needs of clients, and communicate

information to them in a way which was clear, fair and not misleading, in
breach of Principle 7.

42.
Bar also breached related ICOBS rules.

SANCTION

Financial penalty

43.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of
DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority
applies a five-step framework to determine the appropriate level of financial
penalty. DEPP 6.5A sets out the details of the five-step framework that applies in
respect of financial penalties imposed on firms.

44.
The application of the Authority’s penalty policy is set out in Annex B to this
Notice in relation to Bar’s breaches of Principles 2 and 7.

45.
In determining the financial penalty to be attributed to Bar’s misconduct, the
Authority had particular regard to the following matters as applicable:

a)
the need for credible deterrence;

b)
the nature, seriousness and impact of the breach;

c)
the risk of consumer detriment as a result of Bar’s failings; and

d)
the consideration of serious financial hardship.

46.
The Authority would have imposed a financial penalty of £509,700 on Bar for
breaching Principles 2 and 7. However, taking into account the financial
circumstances of Bar, the Authority did not impose a financial penalty.

PROCEDURAL MATTERS

Decision maker

47.
The decision which gave rise to the obligation to give this Notice was made by the
Settlement Decision Makers.

48.
This Final Notice is given under, and in accordance with, section 390 of the Act.

49.
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 you or prejudicial to the interests of consumers or
detrimental to the stability of the UK financial system.

50.
The Authority intends to publish such information about the matter to which this
Final Notice relates as it considers appropriate.

Authority contacts

51.
For more information concerning this matter generally, contact Paul Howick
(direct line: 020 7066 7954 /email: paul.howick@fca.org.uk) of the Enforcement
and Financial Crime Division of the Authority.

Financial Conduct Authority, Enforcement and Market Oversight Division

ANNEX A

RELEVANT STATUTORY AND REGULATORY PROVISIONS

RELEVANT STATUTORY PROVISIONS

1.
The Authority’s statutory objectives, set out in section 1B(3) of the Act, include
securing an appropriate degree of protection for consumers and protecting and
enhancing the integrity of the UK financial system.

2.
Section 205 of the Act provides:

“If the [Authority] considers that an authorised person has contravened a
requirement imposed on him by or under this Act, the Authority may publish a
statement to that effect.”

3.
Section 206(1) of the Act provides:

“If the [Authority] considers that an authorised person has contravened a
requirement imposed on him by or under this Act, it may impose on him a penalty,
in respect of the contravention, of such amount as it considers appropriate."

RELEVANT REGULATORY PROVISIONS

Principles for Businesses

4.
The Principles are a general statement of the fundamental obligations of firms
under the regulatory system and are set out in the Authority’s Handbook. They
derive their authority from the Authority’s rule-making powers set out in the Act.
The relevant Principles are as follows.

5.
Principle 2 provides:

“A firm must conduct its business with due skill, care and diligence.”

6.
Principle 7 provides:

“A firm must pay due regard to the information needs of its clients, and
communicate information to them in a way which is clear, fair and not misleading.”

Relevant Handbook rules and guidance

DEPP

7.
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 (please see Annex B).

8.
DEPP 6.5D.4G states that:

(1) The FCA will consider reducing the amount of a penalty if a firm will suffer

serious financial hardship as a result of having to pay the entire penalty. In
deciding whether it is appropriate to reduce the penalty, the FCA will take into
consideration the firm's financial circumstances, including whether the penalty
would render the firm insolvent or threaten the firm's solvency. The FCA will
also take into account its statutory objectives, for example in situations where
consumers would be harmed or market confidence would suffer, the FCA may
consider it appropriate to reduce a penalty in order to allow a firm to continue
in business and/or pay redress.

(2) There may be cases where, even though the firm has satisfied the FCA that

payment of the financial penalty would cause it serious financial hardship, the
FCA considers the breach to be so serious that it is not appropriate to reduce
the penalty. The FCA will consider all the circumstances of the case in
determining whether this course of action is appropriate, including whether:

a) the firm directly derived a financial benefit from the breach and, if so,

the extent of that financial benefit;

b) the firm acted fraudulently or dishonestly in order to benefit financially;

c)
previous FCA action in respect of similar breaches has failed to improve
industry standards; or

d) the firm has spent money or dissipated assets in anticipation of FCA or

other enforcement action with a view to frustrating or limiting the impact
of action taken by the FCA or other authorities.

Insurance Conduct of Business Sourcebook (ICOBS)

9.
ICOBS applied to Bar throughout the Relevant Period. Chapter 1 of ICOBS sets out
the Authority’s rules and guidance on the general application of ICOBS; Chapter 2
of ICOBS sets out the Authority’s rules and guidance on General Matters; and
Chapter 5 of ICOBS sets out the Authority’s rules and guidance on identifying client
needs and advising.

10.
ICOBS 1.1.1R provides:

“This sourcebook applies to a firm with respect to the following activities carried on
in relation to a non-investment insurance contract from an establishment
maintained by it, or its appointed representative, in the United Kingdom:

(1)
an insurance mediation activity;

(2)
effecting and carrying out contracts of insurance;

(3)
managing the underwriting capacity of a Lloyd's syndicate as a managing
agent at Lloyd's;

(4)
communicating or approving a financial promotion; and activities connected
with them.”

11.
ICOBS 2.2.2R provides:

“When a firm communicates information, including a financial promotion, to a
customer or other policyholder, it must take reasonable steps to communicate it in
a way that is clear, fair and not misleading.”

12.
ICOBS 2.5.3G provides:

“(1) Where it is compatible with the nature of the obligation imposed by a

particular rule and with the Principles, in particular Principles 1 (Integrity), 2
(Skill, care and diligence) and 3 (Management and control), firms may


rely on third parties in order to comply with the rules in this sourcebook.

(2) For example, where a rule requires a firm to take reasonable steps to achieve

an outcome, it will generally be reasonable for a firm to rely on information
provided to it in writing by an unconnected authorised person or
a professional firm, unless it is aware or ought reasonably to be aware of
any fact that would give reasonable grounds to question the accuracy of that
information. However, a firm cannot delegate its responsibility under the
regulatory system. For example, where a rule imposes an absolute obligation
(such as the requirement for an insurer to handle claims promptly and fairly)
although a firm could use outsourcing arrangements to fulfil its obligation, it
retains regulatory responsibility for achieving the outcome required.”

13.
ICOBS 5.3.1R provides:

“A firm must take reasonable care to ensure the suitability of its advice for any
customer who is entitled to rely upon its judgment.”

RELEVANT HANDBOOK REGULATORY GUIDES

The Responsibilities of Providers and Distributors for the Fair Treatment of
Customers (RPPD)

14.
The RPPD sets out the Authority’s view on what the combination of Principles for

Businesses and detailed rules require respectively of providers and distributors in

certain circumstances to treat customers fairly.

“In the area of financial promotions, Principles 3, 6 and 7 are particularly relevant.
In particular, a firm:

(1)
should have in place systems and controls to manage effectively the risks
posed by financial promotions;

(2)
in passing on a promotion created by a provider, must act with due skill,
care and diligence. A firm will not contravene the financial promotions rules
where it communicates a promotion produced by another person provided
the firm takes reasonable care to establish that another firm has confirmed
compliance with the relevant detailed rules, amongst other matters”.

The Enforcement Guide (EG)

16.
EG sets out the Authority’s approach to exercising its main enforcement powers
under the Act.

17.
Chapter 7 of EG sets out the Authority’s approach to exercising its power to impose
a financial penalty.

ANNEX B

PENALTY ANALYSIS

1.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of
DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority
applies a five-step framework to determine the appropriate level of financial
penalty. DEPP 6.5A sets out the details of the five-step framework that applies in
respect of financial penalties imposed on firms.

2.
The application of the Authority’s penalty policy is set out below in relation to
Bar’s breaches of Principles 2 and 7.

Step 1: disgorgement

3.
Pursuant to DEPP 6.5A.1G, at Step 1, the Authority seeks to deprive a firm of the
financial benefit derived directly from the breach where it is practicable to
quantify this.

4.
The Authority has not identified any financial benefit that Bar derived directly
from the breaches.

5.
Step 1 is therefore £0.

Step 2: the seriousness of the breach

6.
Pursuant to DEPP 6.5A.2G(1), at Step 2, the Authority determines a figure that
reflects the seriousness of the breach. Where the amount of revenue generated
by a firm from a particular product line or business area is indicative of the harm
or potential harm that its breach may cause, that figure will be based on a
percentage of the firm’s revenue from the relevant products or business area.

7.
The Authority considers that the revenue generated by Bar is indicative of the
harm or potential harm caused by its breach. The period of Bar’s breach was
from March 2013 to September 2013. Pursuant to DEPP 6.5A.2G(2), where a
breach lasts less than 12 months, the Authority determines a firm’s "relevant
revenue" as the revenue derived by the firm in the 12 months preceding the end
of the breach. The Authority considers Bar’s relevant revenue for this period to
be £5,097,984.

8.
In deciding on the percentage of the relevant revenue that forms the basis of the
step 2 figure, the Authority considers the seriousness of the breach and chooses a
percentage between 0% and 20%. This range is divided into five fixed levels
which represent, on a sliding scale, the seriousness of the breach: the more
serious the breach, the higher the level. For penalties imposed on firms, there
are the following five levels:

Level 1 – 0%
Level 2 – 5%
Level 3 – 10%
Level 4 – 15%
Level 5 – 20%


9.
In assessing the seriousness level, the Authority takes into account various
factors which reflect the impact and nature of the breach, and whether it was
committed deliberately or recklessly. DEPP 6.5A.2G(11) lists factors likely to be

considered ‘level 4 or 5 factors’. Of those factors, the Authority considers the
following factor to be relevant:

a)
The breach caused a significant risk of loss to individual consumers (DEPP
6.5A.2G(11)(a)): Had Bar’s customers accepted the proposal to cancel and
replace their policies, given that Bar was not in a position to write the
replacement and renewal policies, there was a risk of Bar’s customers being
uninsured or of having otherwise legitimate claims rejected. Due to the
withdrawal of Berliner, none of the replacement and renewal policies were
ever put in place, so there has been little or no actual loss to Bar’s
customers as a result of the breaches.

10.
DEPP 6.5A.2G(12) lists factors likely to be considered ‘level 1, 2 or 3 factors’. Of
those factors, the Authority considers the following factors to be relevant:

a)
Little, or no, profits were made or losses avoided as a result of the breach,
either directly or indirectly (DEPP 6.5A.2G(12)(a)): Although Bar’s intention
was to facilitate the continuation of the solicitors’ PII business, and the
commission that flowed from it, Bar was unable to secure a replacement
broker, lost its entire book of solicitors’ PII business and caused it
considerable financial difficulty which was the principal reason for Bar being
placed into administration.

b)
The
breach
was
committed
negligently
or
inadvertently
(DEPP

6.5A.2G(12)(e)): For the reasons set out in paragraphs 36-42 of this Notice,
the Authority’s view is that Bar’s failures occurred as a result of negligence,
rather than deliberate misconduct, recklessness or a lack of honesty or
integrity on the part of Bar.

11.
Taking all of these factors into account, the Authority considers the level of
seriousness to be 3 and the Step 2 figure is consequently £509,798 (10% of
£5,097,984).

12.
Step 2 is therefore £509,798.

Step 3: mitigating and aggravating factors

13.
Pursuant to DEPP 6.5A.3G, at Step 3, the Authority may increase or decrease the
amount of the financial penalty arrived at after Step 2, but not including any
amount to be disgorged as set out in Step 1, to take into account factors which
aggravate or mitigate the breach.

14.
The Authority considers that there are no aggravating or mitigating factors in this
case.

15.
Step 3 is therefore £509,798.

Step 4: adjustment for deterrence

16.
Pursuant to DEPP 6.5A.4G, if the Authority considers the figure arrived at after
Step 3 to be insufficient to deter the firm which committed the breach, or other
firms, from committing further or similar breaches, then the Authority may
increase the penalty.

17.
In the Authority’s view, the Step 3 figure of £509,798 represents a sufficient
deterrent to Bar and others, and has not increased the penalty at Step 4.

18.
Step 4 is therefore £509,798.

Serious financial hardship (“SFH”)

19.
Pursuant to DEPP 6.5D.4G, the FCA will consider reducing the amount of a
penalty if a firm will suffer serious financial hardship as a result of having to pay
the entire penalty. In deciding whether it is appropriate to reduce the penalty the
Authority will take into consideration the firm’s financial circumstances. As Bar is
in liquidation, the Authority is not seeking to impose a financial penalty on Bar.
The Authority considers that any realised assets should be made available to its
creditors. Were it not for Bar’s liquidation, the Authority would have imposed a
financial penalty of £509,700 (rounded down from £509,798) on Bar.

Step 5: settlement discount

20.
Pursuant to DEPP 6.5A.5G, if the Authority, and the firm on which a penalty is to
be imposed, agree the amount of the financial penalty and other terms, DEPP 6.7
provides that the amount of the financial penalty which might otherwise have
been payable will be reduced to reflect the stage at which the Authority and the
firm reach agreement.

21.
As the Authority is not seeking to impose a financial penalty on Bar due to the
matters set out above, a settlement discount is not relevant.

22.
The Authority would imposed a financial penalty of £509,700 on Bar for breaching
Principles 2 and 7. However, taking into account the financial circumstances of
Bar, the Authority is not seeking to impose a financial penalty.

23.
The Authority’s policy in relation to the imposition of a public censure is set out in
Chapter 6 of DEPP. DEPP sets out non-exhaustive factors that may be of
particular relevance in determining whether it is appropriate to issue a public
censure rather than impose a financial penalty. DEPP 6.4.2G (1) indicates that it
may be a factor whether or not deterrence may be effectively achieved by issuing
a public censure. Further DEPP 6.4.2G (7) indicates that a relevant factor is the
Authority’s approach in previous similar cases to ensure a consistent approach to
its decisions.

24.
The Authority has had regard to the need to balance deterrence against the need
to act in the wider interests of creditors. The Authority would, in the interests of
creditors, want any assets to be made available to its creditors. The Authority
has not imposed penalties in cases involving insolvent firms where the imposition
of a penalty would impact adversely on creditors. On that basis, the Authority has
not imposed a financial penalty on Bar but instead issue a statement of Bar’s
misconduct under section 205 of the Act.