FINAL NOTICE

To:
Mr Mark Anthony Kelsey (“Mr Kelsey”)

TAKE NOTICE: The Financial Services Authority of 25 The North Colonnade, Canary
Wharf, London E14 5HS (“the FSA”) gives you final notice about the following action.

1.
ACTION

1.1.
The FSA gave you a Decision Notice on 3 February 2011 which notified you that
pursuant to section 66 of the Financial Services and Markets Act 2000 (“the Act”),
the FSA had decided to publish a statement of your misconduct for failing to comply
with Statement of Principle 7 of the FSA’s Statements of Principle and Code of
Practice for Approved Persons (the “Statements of Principle”) between 13 December
2006 and 7 August 2009 (the “relevant period”).

1.2.
The FSA would have imposed a financial penalty of £15,000 on you, pursuant to
section 66 of the Act, but you have provided verifiable evidence that imposing such a
financial penalty would cause you serious financial difficulties. Consequently, the
FSA will not impose any financial penalty on you.

1.3.
You agreed on 1 February 2011 that you will not be referring this matter to the Upper
Tribunal (Tax and Chancery Chamber).

1.4.
Accordingly, for the reasons set out below, the FSA issues this public statement of
your misconduct.

2.
REASONS FOR ACTION

Introduction

2.1.
On the basis of the facts and matters described below, the FSA has decided to publicly
censure you for failing to comply with Statement of Principle 7 as an approved person
performing controlled and significant influence function CF10 (compliance oversight)
at Cricket Hill Financial Planning Limited (“Cricket Hill”) during the relevant period.
In summary, the FSA has concluded that you failed to take reasonable steps to ensure
that:

(1)
Cricket Hill and its appointed representative, Firm A, had adequate systems
and controls in place to comply with the relevant requirements and standards
of the regulatory system in relation to their pension switching business;

(2)
Cricket Hill and Firm A identified and managed potential conflicts of interest;
and

(3)
Cricket Hill and Firm A had adequate systems and procedures in place to
demonstrate the suitability of advice given to customers in relation to pension
switches and that information and advice provided by Cricket Hill to its
customers in suitability reports was clear, fair and not misleading.

2.2.
The FSA regards these failings as particularly serious because Cricket Hill’s principal
customers were unsophisticated investors, many of whom had small pension pots.

2.3.
The FSA has taken into account that you have co-operated fully with the FSA’s
investigation, which is regarded as a mitigating factor.

2.4.
During the relevant period, Cricket Hill promoted a type of discretionary management
service (the “RMS”), which was managed and administered by a third party (the
“RMS Operator”). The RMS average performance appears to be higher than its
selected benchmarks. In practice, this means that although the FSA has found
significant levels of potentially unsuitable advice, the RMS has performed well and
many of the affected customers may not have suffered financial detriment. In the
small number of pension switches that had been reviewed at the time of this Final
Notice, no customers had suffered financial detriment as a result of their pension
switch.

3.
RELEVANT STATUTORY PROVISIONS, REGULATORY REQUIREMENTS
AND FSA GUIDANCE

3.1.
The relevant statutory provisions, regulatory requirements and FSA guidance are set
out at Annex A to this notice.

4.
FACTS AND MATTERS RELIED ON

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 became
available. Following these changes many advisers reviewed their customers’ existing
pension arrangements. These reviews led to a significant increase in advice given to
customers to transfer their existing pension arrangements into Personal Pension Plans
(“PPPs”) or Self Invested Personal Pensions (“SIPPs”).

4.2.
In light of the significant increase in pension switches, the FSA became concerned
that consumers may have been switched into pension products which carried high
charges and had features or additional flexibility that they did not need. The FSA was
also concerned about whether firms’ controls, 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.
In January 2009, Cricket Hill was referred to the Enforcement and Financial Crime
Division of the FSA for investigation as a result of concerns that Cricket Hill
appeared to be advising a significant proportion of its customers to switch their
pensions to one provider, which used a particular RMS. The referral took place at
around the same time as other referrals resulting from the FSA’s thematic review of
pension switching.

Mr Kelsey’s role at Cricket Hill

4.5.
You joined Cricket Hill in September 2006 and since 13 December 2006 you have
been approved to perform the following controlled and significant influence functions
at Cricket Hill: CF10 (Compliance Oversight) and CF11 (Money Laundering
Reporting).

4.6.
Cricket Hill is a small IFA which is based in Barnsley, Yorkshire. The majority of its
business comprises the provision of pension switching advice. Cricket Hill became
authorised and regulated by the FSA on 2 November 2004 and, during the relevant
period, was authorised to carry on the following regulated activities:

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

(2)
agreeing to carry on a regulated activity;

(3)
arranging (bringing about) deals in investments; and

(4)
making arrangements with a view to transactions in investments.

4.7.
During the relevant period, Cricket Hill’s personnel included one controlling director,
one non-executive director and up to nine further customer advisers.

4.8.
Cricket Hill has two appointed representatives of which only one, Firm A, is active. It
has been an appointed representative of Cricket Hill since 27 March 2007. During the
relevant period, you were the sole approved person, director and compliance officer at
Firm A.

4.9.
Cricket Hill and Firm A used the same sales advisers. Cricket Hill transacted all
pension switching business until July 2007; Firm A transacted the majority of the
business thereafter.

4.10. During the relevant period, Cricket Hill and Firm A conducted 1,864 pension
switches. Cricket Hill and Firm A actively promoted a type of discretionary
management service (the “RMS”), which was managed and administered by a third
party (the “RMS Operator”). The RMS provides investment management for
customers’ pension funds, which includes regular monitoring of the funds and asset
reallocation where appropriate. There is a 1% annual charge for this service, which is
paid by the product provider from the customer’s pension fund and is divided between
either Cricket Hill or Firm A (depending on which entity advised on the switch) and
the RMS Operator.

4.11. Of the 1,864 pension switches completed by Cricket Hill and Firm A during the
relevant period, 1,858 customers opted to use the RMS.

The FSA’s investigation

4.12. The FSA reviewed a total of 46 customer files from the relevant period, in which
Cricket Hill or Firm A recommended to customers that they switch their pensions.
The FSA found deficiencies in Cricket Hill’s pension switching sales, including the
fact that its fact finding, product research and recommendation processes were
tailored towards recommending the RMS, its communications with customers were
not clear, fair and not misleading and it failed to identify, manage and disclose
appropriately conflicts of interest.

4.13. The FSA required Cricket Hill to instruct a skilled person to produce a report in
relation to Cricket Hill’s pension switching business in the relevant period. The
skilled person produced an interim report in September 2010 of its findings following
a review of four customer files. The skilled person’s findings support the FSA’s
wider findings below.

Findings against Mr Kelsey

Systems and controls

4.14. You failed to ensure that in your role at Cricket Hill as approved to perform CF10 and
as the sole approved person, director and compliance officer at Firm A, both firms
had adequate and appropriate systems and controls in place to prevent standardised
advice being given to customers. You also failed to identify and challenge the
standardised nature of the advice given by Cricket Hill and Firm A. These failures
are evidenced by the following facts:

(1)
the RMS provided by the RMS Operator was recommended in all of the
customer files reviewed by the FSA. In all files, the RMS was recommended

in the initial meeting with the customer, before alternative products were
researched;

(2)
in 44 of 46 files reviewed, the customer’s objectives, as stated in the initial
meeting note, were said to be, “to consider an alternative…provider who
would have the potential to improve on fund growth/benefits”. There was no
evidence of the customer’s specific objectives being discussed;

(3)
Cricket Hill did not undertake sufficient product research before
recommending pension switches. In 34 of 46 customer files reviewed, Cricket
Hill limited its research to only those product providers who could
accommodate an annual management charge to cover the cost of the RMS;

(4)
there were inadequacies in Cricket Hill’s customer information gathering and
Cricket Hill did not adequately check the accuracy of the customer
information it recorded. For example, in two of the 46 files reviewed by the
FSA, the planned retirement age of the customer was incorrectly recorded in
the suitability letter;

(5)
recommendations made to customers, as recorded in the suitability reports,
were standardised and directed the customer towards investing in a scheme
with the RMS without considering whether the RMS was suitable for the
particular customer. In all customer files reviewed, standard explanations
were given as to why the particular product provider recommended and RMS
were suitable;

(6)
in all of the customer files reviewed, the suitability reports did not contain
clear, fair and not misleading information about the cost of the recommended
pension switch.

4.15. You failed to ensure that Cricket Hill’s financial promotions were compliant with
relevant regulations. Specifically, you failed to recognise that initial verbal
communications with customers about potentially switching pensions constituted
financial promotions and were therefore subject to regulatory requirements. In breach
of these requirements, the scripts on which these communications were based failed to
provide a fair and prominent indication of the relevant risks and disadvantages of the
proposed pension switch and omitted keys facts on the payment of fees.

Conflicts of interest

4.16. You failed in your role as an approved person to ensure that Cricket Hill identified,
managed and, where necessary, disclosed conflicts of interest between the firm,
including its managers, employees and appointed representatives, and customers of
the firm. This was within your remit as Cricket Hill’s compliance officer.

4.17. Specifically, you failed to identify, manage and, where appropriate, disclose to
customers the following potential conflicts:

(1)
that Cricket Hill’s director held shares (up until July 2007) in the RMS
Operator. In the same period, the director and other Cricket Hill advisers
advised customers to invest in the RMS Operator’s RMS; and

(2)
during the relevant period, Firm A was ultimately controlled by individuals
who also controlled the RMS Operator.

4.18. The FSA has found no evidence that payments, such as salaries, fees, commission, or
dividends to shareholders, were made by the RMS Operator to Cricket Hill or Firm A
directors and employees. However, Cricket Hill failed to identify, manage and, where
appropriate, disclose the potential conflicts of interest to customers to whom it
recommended the RMS and as a result these customers did not have sufficient
information to make an objective and balanced decision as to whether to accept
Cricket Hill’s recommendation to switch to a new pension arrangement and use the
RMS.

4.19. You failed to take reasonable steps to ensure that Cricket Hill managed this conflict of
interest between itself and its customers.

Suitability of advice

4.20. You failed to ensure, in accordance with your responsibilities as compliance officer,
that Cricket Hill had adequate systems and controls in place to demonstrate the
suitability of advice given to customers. Specifically, you failed to ensure that:

(1)
Cricket Hill obtained and retained sufficient personal and financial
information about its customers to enable the suitability of the advice to be
assessed. In 38 of 46 files reviewed, there was insufficient evidence that it had
assessed the customer’s knowledge and experience of making investments and
in 45 out of 46 files the customer’s pension needs in retirement were not
identified;


(2)
Cricket Hill adequately assessed and described each customer’s attitude to risk
(“ATR”). In all files, Cricket Hill assessed customers’ future ATR at the fact
finding stage using only the RMS profiler tool. This indicated Cricket Hill
was already disposed towards recommending the RMS even though it had not
yet considered whether other products could be more suitable for the
customer;

(3)
Cricket Hill undertook and/or retained adequate product or provider research
to support its recommendations. Cricket Hill’s product provider analysis
involved using an external personal pension projection system to select the
best funds for the customers. It input customers’ data into the system and the
results were subsequently listed in projected maturity value order. In 34 out of
46 sales, Cricket Hill limited its research to only those product providers who
could accommodate an annual management charge to cover the cost of the
RMS, and did not research any other providers. It therefore excluded
stakeholder pensions, which could have been a suitable option for a number of
customers. In 44 of the 46 sales, the recommended RMS fund was not the best
performing fund in terms of projected maturity values and there was no
evidence on the files of research into the alternative product providers;

(4)
Cricket Hill obtained sufficient information from the customer’s ceding
scheme. In all sales, there was insufficient information, particularly in relation

7


to costs, to enable a meaningful comparison between the ceding system and
the recommended product. This meant that it was difficult for the customer to
make an objective and balanced decision as to whether to accept Cricket Hill’s
recommendation to switch to a new pension arrangement and use the RMS;

(5)
Cricket Hill produced suitability reports which were clear, fair and not
misleading and explained sufficiently why recommendations were suitable. In
all files reviewed, the suitability reports did not contain sufficient information
about the costs of the switch. Cost illustrations (which purported to show when
the recommended product would outperform the ceding scheme) were
included in appendices at the back of the suitability reports. This meant that
customers’ attention was not sufficiently drawn to the illustrations, even
though they provided fundamental information as to whether or not the
customers would benefit from the proposed switch;

(6)
Cricket Hill explained the main consequences, including costs, charges and
risks, associated with its recommendations. In 42 out of 46 sales, the projected
value of the receiving scheme at retirement on a cost basis was lower than the
projected value of the ceding scheme. The suitability reports did not explain
the total cost of the recommended scheme or compare the total cost in a clear
way with the total cost of the ceding scheme. Although the suitability reports
indicated that the recommended scheme would cost more, they did not clearly
set out by how much, taking into account the RMS charge, the provider’s
charges, Cricket Hill’s commission, any penalty charge imposed by the ceding
scheme provider and any loss of guaranteed benefits under the ceding scheme.
All of these failings made it difficult for customers to make an informed
decision as to whether to accept Cricket Hill’s recommendation to switch to a
new pension arrangement and use the RMS; and

(7)
Cricket Hill produced suitability reports which were tailored sufficiently to
each customer. The suitability reports used standard phrases, for example in
all files the following standard customer objective was stated: “To maximise
your income in retirement by a combination of contributions, charges and
investment performance”. Also, in relation to different customers, standard
wording was used to recommend three different RMS pension providers, on
the basis of “…financial strength, product features, value for money and fund
performance…”.

5.
ANALYSIS OF BREACHES

5.1.
As a result of the facts and matters set out in paragraphs 4.14 to 4.20 above, the FSA
has determined that you failed, as an approved person performing a significant
influence function, to take reasonable steps to ensure that the business of Cricket Hill
and Firm A, for which you are responsible in your controlled functions, complied
with the relevant requirements and standards of the regulatory system in breach of
Statement of Principle 7.

6.
ANALYSIS OF PROPOSED SANCTION

6.1.
The FSA’s policy on issuing a public censure or imposing a financial penalty is set
out in Chapter 6 of the Decision Procedures and Penalties Manual (“DEPP”), which is
part of the FSA Handbook. In addition, the FSA has had regard to the corresponding
provisions of Chapter 13 of the Enforcement Manual (“ENF”) in force during the
relevant period until 27 August 2007 and Chapter 7 of the Enforcement Guide (“EG”),
in force thereafter.

6.2.
The principal purpose of issuing a public censure or imposing a financial penalty is to
promote high standards of conduct by deterring persons who have committed
regulatory breaches from committing further breaches, helping to deter others from
committing similar breaches and demonstrating generally the benefits of compliant
behaviour.

Financial penalty

6.3.
In determining whether a financial penalty is appropriate, the FSA is required to
consider all the relevant circumstances of the case. Applying the criteria set out in
DEPP 6.2.1 and 6.4.2, the FSA has determined that a financial penalty would be an
appropriate sanction in this case, given the serious nature of the breaches, the risks
created for customers of Cricket Hill and the need to send out a strong message of
deterrence to others.

6.4.
DEPP 6.5.2G sets out a non-exhaustive list of factors which may be relevant to
determining the appropriate level of financial penalty. The FSA considered that the
following factors were particularly relevant in this case.

Deterrence (DEPP 6.5.2(1))

6.5.
Imposing a financial penalty will deter you from committing further breaches and
deter others from committing similar breaches, as well as demonstrating generally the
benefits of compliant behaviour.

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

6.6.
In determining the appropriate sanction, the FSA has had regard to the seriousness of
the breaches, the duration and frequency of the breaches, and whether the breaches
revealed serious failings in your oversight of Cricket Hill’s systems and controls. The
FSA considers the breaches are serious as they:

(1)
occurred over a significant period of time and potentially affected a significant
number of customers, most of whom were unsophisticated investors with small
pension pots; and

(2)
reveal systematic weaknesses in Cricket Hill’s procedures and internal
controls which you failed to identify or rectify.

6.7.
The FSA notes that you did not benefit personally from the breaches.

The extent to which the breach was deliberate or reckless (DEPP 6.5.2(3))

6.8.
The FSA has found no evidence that the breaches were deliberate or reckless.

Whether the person on whom the penalty is to be imposed is an individual
(DEPP 6.5.2(4)) and the financial resources of the person on whom the penalty is
to be imposed (DEPP 6.5.2(5))

6.9.
The FSA has taken into account in determining the amount of penalty to be imposed
on you that you are an individual and that enforcement action may have a greater
impact on you than, for example, on Cricket Hill.

6.10. The FSA has taken into account in determining the amount of penalty to be imposed
on you that you are an individual and that enforcement action may have a greater
impact on you than, for example, Cricket Hill.

6.11. The FSA has reviewed the Statement of Means signed by you on 2 November 2010
and the documentary evidence that you have provided and considers that there is
verifiable evidence that you will suffer serious financial difficulties if you were
required to pay the level of fine appropriate to this breach. Accordingly, in light of
this evidence, the FSA considers that the financial penalty it would otherwise have
sought to impose should be reduced to nil.

Conduct following the breach – DEPP 6.5.2(8)

6.12. The FSA has taken into account that you have cooperated with the FSA’s
investigations and the past business review and you are taking steps to ensure that
similar problems do not arise at Cricket Hill in the future.

Other action taken by the FSA (DEPP 6.5.2(10))

6.13. In determining the level of financial penalty, the FSA has taken into account penalties
imposed on other approved persons for similar behaviour.

6.14. Having regard to all the circumstances, the FSA considers the appropriate level of
financial penalty would be £15,000, but for the evidence that this would create serious
financial difficulties for you.

Public censure (DEPP 6.4)

6.15. Because of the factors considered above to determine the appropriate level of
financial penalty, and specifically because of the serious financial difficulties which
you would suffer were a financial penalty imposed, the FSA has concluded that the
financial penalty should be reduced to nil. Therefore, the FSA considers a public
censure to be an appropriate sanction in this case.

7.
DECISION MAKER

7.1.
The decision which gave rise to the obligation to give this notice was made by the
Settlement Decision Makers on behalf of the FSA.

8.
IMPORTANT

8.1.
This Final Notice is given to you in accordance with section 390 of the Act.


8.2.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of information
about the matter to which this notice relates. Under those provisions, the FSA must
publish such information about the matter to which this notice relates as the FSA
considers appropriate. The information may be published in such manner as the FSA
considers appropriate. However, the FSA may not publish information if such
publication would, in the opinion of the FSA, be unfair to you or prejudicial to the
interests of consumers.


FSA contacts

8.3.
For more information about this matter, you should contact Anna Hynes of the
Enforcement and Financial Crime Division of the FSA (direct line: 020 7066 9464;
fax: 020 7066 9465).

Tom Spender
FSA Enforcement and Financial Crime Division

ANNEX A

RELEVANT STATUTORY PROVISIONS, REGULATORY REQUIREMENTS AND
FSA GUIDANCE

1.
Statutory provisions

1.1.
The FSA’s statutory objectives are set out in section 2(2) of the Act. In relation to this
case, the most relevant statutory objective is the protection of consumers.

1.2.
Section 66 of the Act provides that the FSA may take action against a person if it
appears to the FSA that he is guilty of misconduct and the FSA is satisfied that it is
appropriate in all the circumstances to take action against him. Misconduct includes
failure, while an approved person, to comply with a statement of principle issued
under section 64 of the Act. The action that may be taken by the FSA includes the
imposition of a penalty on the approved person of such amount as it considers
appropriate.

2.
Handbook provisions

2.1.
In exercising its power to impose a financial penalty, the FSA must have regard to
relevant provisions in the FSA Handbook of rules and guidance (“the FSA
Handbook”). The main provisions relevant to the action specified above are set out
below.

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

2.2.
APER sets out the Statements of Principle as they relate to approved persons and
descriptions of conduct which, in the opinion of the FSA, do not comply with a
Statement of Principle. It further describes factors which, in the opinion of the FSA,
are to be taken into account in determining whether or not an approved person’s
conduct complies with a Statement of Principle.

2.3.
APER 3.1.3G states that when establishing compliance with or a breach of a
Statement of Principle, account will be taken of the context in which a course of
conduct was undertaken, including the precise circumstances of the individual case,
the characteristics of the particular controlled function and the behaviour to be
expected in that function.

2.4.
APER 3.1.4G provides that an approved person will only be in breach of a Statement
of Principle where he is personally culpable, that is in a situation where his conduct
was deliberate or where his standard of conduct was below that which would be
reasonable in all the circumstances.

2.5.
APER 3.1.6G provides that APER (and in particular the specific examples of
behaviour which may be in breach of a generic description of conduct in the code) is
not exhaustive of the kind of conduct that may contravene the Statements of Principle.

2.6.
The Statement of Principle relevant to this matter is Statement of Principle 7 which
provides 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.

2.7.
APER3.1.8G provides, in relation to applying Statements of Principle 5 to 7, that the
nature, scale and complexity of the business under management and the role and
responsibility of the individual performing a significant influence function within the
firm will be relevant in assessing whether an approved person’s conduct was
reasonable.

2.8.
APER 3.3.1E states that in determining whether or not the conduct of an approved
person performing a significant influence complies with Statements of Principle 5 to
7, the following are factors which, in the opinion of the FSA, are to be taken into
account:

(1)
whether he exercised reasonable care when considering the information
available to him;

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

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

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

(5)
the knowledge he had, or should have had, of regulatory concerns, if any,
arising in the business under his control.

2.9.
APER 4.7 lists types of conduct which, in the opinion of the FSA, do not comply with
Statement of Principle 7.

2.10. APER 4.7.3E states that failing to take reasonable steps to implement (either
personally or through a compliance department or other departments) adequate and
appropriate systems of control to comply with the relevant requirements and standards
of the regulatory system in respect of its regulated activities is conduct that does not
comply with Statement of Principle 7.

2.11. APER 4.7.4E states that failing to take reasonable steps to monitor (either personally
or through a compliance department or other departments) compliance with the
relevant requirements and standards of the regulated system in respect of its regulated
activities is conduct that does not comply with Statement of Principle 7.

2.12. APER 4.7.47E provides that failing to take steps to ensure that procedures and
systems of control are reviewed and, if appropriate, improved, following the
identification of significant breaches (whether suspected or actual) of the relevant
requirements and standards of the regulatory system relating to its regulated activities
is conduct that does not comply with Statement of Principle 7.

Conduct of Business Sourcebook (“COBS”)

2.13. COBS 4.2.1R provides that a firm must ensure that a communication or a financial
promotion is fair, clear and not misleading.

2.14. COBS 4.5.2R provides that a firm must ensure that information is accurate and in
particular does not emphasis any potential benefits of relevant business or a relevant
investment without also giving a fair and prominent indication of any relevant risks,
and that information does not disguise, diminish or obscure important items,
statements or warnings.

Conduct of Business (“COB”) (applicable before 31 October 2007)

2.15. COB 3.8.4 provides that a firm must be able to show it has taken reasonable steps to
ensure that a non-real time financial promotion is clear, fair and not misleading.

2.16. COB 3.2.4R extends the scope of COB 3.8.4 to certain unsolicited real time financial
promotions approved by a firm.

3.
Other relevant regulatory provisions

3.1.
The FSA’s policy on exercising its enforcement power is set out in the Enforcement
Guide (“EG”), which came into effect on 28 August 2007. Although the references in
the Decision Notice are to EG, the FSA has also had regard to the appropriate
provisions of the FSA’s Enforcement Manual, which preceded EG and applied during
part of the relevant period.

Decision Procedure and Penalties Manual (“DEPP”)

3.2.
Guidance on the imposition and amount of penalties is set out in Chapter 6 of DEPP.

3.3.
DEPP 6.1.2G provides that the principal purpose of imposing a financial penalty is to
promote high standards of regulatory and/or market conduct by deterring persons who
have committed breaches from committing further breaches, helping to deter other
persons from committing similar breaches, and demonstrating generally the benefits
of compliant behaviour. Financial penalties are tools that the FSA may employ to
help it to achieve its regulatory objectives.

3.4.
DEPP 6.4.1G provides that the FSA will consider all the relevant circumstances of the
case when deciding whether to impose a penalty or issue a public censure.

3.5.
DEPP 6.4.2G(8)(a) provides that a particular consideration in determining whether to
impose a financial penalty or a public censure is where there is verifiable evidence
that the person would suffer serious financial hardship if the FSA imposed a financial
penalty.

3.6.
DEPP 6.5.1G(1) provides that the FSA will consider all the relevant circumstances of
a case when it determines the level of financial penalty (if any) that is appropriate and
in proportion to the breach concerned.

3.7.
DEPP 6.5.2 sets out a non-exhaustive list of factors that may be relevant to
determining the appropriate level of financial penalty to be imposed on a person under
the Act. The following factors are relevant to this case:

Deterrence: DEPP 6.5.2G(1)

3.8.
When determining the appropriate level of financial penalty, the FSA will have regard
to the principal purpose for which it imposes sanctions, namely to promote high
standards of regulatory and/or market conduct by deterring persons who have
committed breaches from committing further breaches and helping to deter other
persons from committing similar breaches, as well as demonstrating generally the
benefits of compliant business.

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

3.9.
The FSA will consider the seriousness of the breach in relation to the nature of the
rule, requirement or provision breached, which can include considerations such as the
duration and frequency of the breach, whether the breach revealed serious or systemic
weaknesses in the person’s procedures or of the management systems or internal
controls relating to all or part of a person’s business, the nature and extent of any
financial crime facilitated, occasioned or otherwise attributable to the breach and the
loss or risk of loss caused to consumers, investors or other market users.

The extent to which the breach was deliberate or reckless: DEPP 6.5.2G(3)

3.10. The FSA will regard as more serious a breach which is deliberately or recklessly
committed, giving consideration to factors such as whether the person has given no
apparent consideration to the consequences of the behaviour that constitutes the
breach. If the FSA decides that the breach was deliberate or reckless, it is more likely
to impose a higher penalty on a person than would otherwise be the case.

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

3.11. When determining the amount of penalty to be imposed on an individual, the FSA
will take into account that individuals will not always have the resources of a body
corporate, that enforcement action may have a greater impact on an individual, and
further, that it may be possible to achieve effective deterrence by imposing a smaller
penalty on an individual than on a body corporate. The FSA will also consider
whether the status, position and/or responsibilities of the individual are such as to
make a breach committed by the individual more serious and whether the penalty
should therefore be set at a higher level.

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

3.12. The FSA may take into account whether there is verifiable evidence of serious
financial hardship or financial difficulties if the person were to pay the level of
penalty appropriate for the particular breach.

Conduct following the breach: DEPP 6.5.2G(8)

3.13. The FSA may take into account the degree of co-operation the person showed during
the investigation of the breach by the FSA.

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

3.14. The FSA seeks to apply a consistent approach to determining the appropriate level of
penalty. The FSA may take into account previous decisions made in relation to
similar misconduct.

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

3.15. The FSA will consider the nature and accessibility of the guidance or other published
materials when deciding whether they are relevant to the level of penalty and, if they
are, what weight to give them in relation to other relevant factors.