DECISION NOTICE

Number:
DAR00040

Date:

2 May 2023

1.
ACTION

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

Darren Reynolds has referred this Decision Notice to the

Upper Tribunal to determine (a) in relation to the FCA’s

decision to impose a disciplinary sanction, what (if any)

is the appropriate action for the FCA to take, and remit

the matter to the FCA with such directions as the

Tribunal considers appropriate; and (b) in relation to

the prohibition order, whether to dismiss the reference

or remit it to the FCA with a direction to reconsider the

scope of the prohibition and reach a decision in

accordance with the findings of the Tribunal.

Therefore, the findings outlined in this Decision Notice

reflect the FCA’s belief as to what occurred and how it

considers the behaviour of Darren Reynolds should be

characterised. The proposed action outlined in the

Decision Notice will have no effect pending the

determination of the case by the Tribunal. The

Tribunal’s decision will be made public on its website.

impose on Darren Reynolds a financial penalty of £2,212,316 pursuant to

section 66 of the Act; and

make an order prohibiting Mr Reynolds from performing any function in

relation to any regulated activities carried on by any authorised or exempt

persons or exempt professional firm pursuant to section 56 of the Act.

2.
SUMMARY OF REASONS

2.1.
The Authority considers that between 12 March 2015 and 5 February 2018 (the

Relevant Period), Mr Reynolds breached Statement of Principle 1 (Integrity) of the

Authority’s Statements of Principle for Approved Persons. He did this by acting

dishonestly and recklessly when performing his controlled functions in relation to

the pension business of Active Wealth (UK) Limited (Active Wealth) and by acting

dishonestly in his interactions with the Authority. In addition, the Authority

considers that Mr Reynolds acted without honesty and integrity in the course of the

Authority’s investigation of these matters, during the Relevant Period and

afterwards (between 6 February 2018 and 27 February 2019). For all of the above

reasons, the Authority has concluded that Mr Reynolds lacks fitness and propriety.

2.2.
Mr Reynolds was an approved person at Active Wealth, a small financial advice firm

which went into liquidation on 5 February 2018, and which has since been

dissolved. Active Wealth was authorised by the Authority with permission to

conduct regulated activities, including advising on investments, pension transfers

and arranging (bringing about) deals in investments.

2.3.
Mr Reynolds was the sole person responsible for the management and oversight of

Active Wealth’s conduct. He was the only person at Active Wealth approved to

perform the controlled functions of CF1 (Director), CF10 (Compliance Oversight)

and CF11 (Money Laundering Reporting) and he was one of two persons approved

to perform the CF30 (Customer) function. He was also the sole shareholder of the

company.

2.4.
Pensions are a traditional and tax-efficient way of saving money for retirement. The

benefits someone obtains from their pension can have a significant impact on their

quality of life during retirement and, in some circumstances, may affect whether

they can afford to retire at all. Customers who engage advisers and authorised

firms to provide them with advice in relation to their pensions place significant trust

in those providing the advice. Where an adviser fails to act with integrity, it exposes

their customers to a significant risk of harm.

2.5.
The Authority’s rules prohibited Active Wealth and its advisers, including Mr

Reynolds, from receiving commissions, remuneration or benefits of any kind apart

from charging for advice provided. Mr Reynolds dishonestly contravened this rule

by arranging for himself and other advisers at Active Wealth, to receive prohibited

commission payments derived from investments made by Active Wealth’s

customers. These payments were funneled via companies connected to Mr

Reynolds and were intentionally designed to disguise their true origins.

2.6.
The Authority’s prohibition on commission payments (COBS 6.1A.4R) was

introduced to prevent advisers having a conflict of interest when recommending

that customers invest their pensions in particular pension products. Such

commissions create an incentive to recommend the product that would produce the

highest payment for the adviser rather than the best outcome for the customer.

The purpose of prohibiting these payments is to protect customers’ pensions from

being placed into investments that are unsuitable.

2.7.
Mr Reynolds dishonestly established, maintained and concealed a conflict of interest

that was at the heart of Active Wealth’s business model so that he, and the other

advisers, could receive prohibited commission payments. He exploited this conflict

of interest to the detriment of Active Wealth’s customers, including customers who

had no option but to make a decision about their pension because the British Steel

Pension Scheme was closing. He received prohibited commission payments in the

total amount of £1,014,976.

2.8.
Mr Reynolds dishonestly:

(1) advised Active Wealth’s customers to invest in an investment portfolio created

by Greyfriars Asset Management LLP (P6) consisting of mini-bonds knowing

that it was not suitable for them;

(2) falsified the P6 Application Forms in order to create the false impression that

P6 was suitable for Active Wealth’s customers when it was not;

(3) advised and persuaded customers to transfer out of the British Steel Pension

Scheme when he knew it was not in their best interests;

(4) wrote suitability reports to create the false impression that he had provided

suitable advice; and

(5) failed to disclose adequately or at all the existence of exit fees from customers

and misled some of those customers about the existence of the exit fees.

2.9.
As a result of Mr Reynolds’ misconduct, the FSCS had, as at 5 August 2022, paid

compensation of over £17.6 million to over 470 of Active Wealth’s customers. Many

customers – at least 231 - suffered losses that exceeded the FSCS compensation

cap of £50,000.

2.10. Further, Mr Reynolds knowingly allowed two people to provide pensions advice to

Active Wealth’s customers without being approved persons at Active Wealth,

recklessly disregarding the risk to those customers’ interests, and misled the

Authority about it.

2.11. Mr Reynolds dishonestly misled the Authority and the Insolvency Service during the

Relevant Period and thereafter (including during the course of their respective

investigations). After the Relevant Period he also recklessly allowed the destruction

of evidence relevant to the Authority’s investigation.

2.12. The Authority has concluded, on the basis of the facts and matters described in this

Notice (including the facts and matters occurring after the Relevant Period), that

Mr Reynolds lacks honesty and integrity and, therefore, is not a fit and proper

person to perform functions in relation to any regulated activity carried on by any

authorised or exempt person or exempt professional firm. The Authority also

considers that Mr Reynolds poses a risk to consumers and to the integrity of the

financial system. The nature and seriousness of Mr Reynolds’ breach of Statement

of Principle 1 warrants the imposition of a financial penalty and his lack of fitness

and propriety merits the imposition of an order prohibiting him from performing

any function in relation to any regulated activities carried on by any authorised or

exempt person or exempt professional firm.

2.13. For the reasons given above, the Authority has decided to:

impose on Mr Reynolds a financial penalty of £2,212,316 pursuant to section

66 of the Act; and

make an order prohibiting Mr Reynolds from performing any function in

relation to any regulated activities carried on by any authorised or exempt

person, or exempt professional firm, pursuant to section 56 of the Act.

3.
DEFINITIONS

3.1.
The definitions below are used in this Notice:

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

“Active PMC” means Active PMC Limited, a company of which Mr Reynolds was the

sole director and shareholder;

“Active Wealth” means Active Wealth (UK) Limited (FRN 631415), the firm

established and controlled by Mr Reynolds;

“the Active Wealth P6 Agreement” means the Portfolio Six Discretionary Portfolio

Management Agreement between Active Wealth and Greyfriars dated 23 May 2015;

“Adviser A” means one of the two persons at Active Wealth that provided pensions

advice without being an approved person at Active Wealth;

“Adviser B” means one of the two persons at Active Wealth that provided pensions

advice without being an approved person at Active Wealth;

“the Authority” means the body corporate previously known as the Financial

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

“the British Steel Pension Scheme” means the British Steel Defined Benefit Pension

Scheme that was in place during the Relevant Period;

“BSPS 2” means the Defined Benefit Pension Scheme which replaced the BSPS after

13 December 2017 and was created after the RAA came into effect;

“COBS” means the Authority’s Conduct of Business Sourcebook, part of the

Handbook;

“Defined Benefit Scheme” means an occupational pension scheme as defined by

Article 3(1) of the Financial Services and Markets Act (Regulated Activities) Order

2001, namely where the amount paid to the beneficiary is based on how many

years the beneficiary has been employed and the salary the beneficiary earned

during that employment (rather than the value of their investments);

“Defined Contribution Scheme” means a pension scheme that pays out a non-

guaranteed and unspecified amount depending on the “defined contributions” made

and the performance of investments;

“DEPP” means the Decision Procedure and Penalties Manual, part of the Handbook;

“DFM” means a discretionary fund manager, i.e. an authorised firm that provides

investment management services for investment funds;

“exit fee” means a charge applied where a customer sought to take their funds

from an investment prior to the end of the investment term;

“the first close family member” means the director of the First Company who was

a close family member of Mr Reynolds;

“the First Company” means the first company used by Mr Reynolds to funnel

prohibited commission payments;

“the First Transfer” means Mr Reynolds’ transfer of ownership in a property to the

first close family member on 14 June 2017;

“the FSCS” means the Financial Services Compensation Scheme;

“Greyfriars” means Greyfriars Asset Management LLP (FRN 229285), a DFM

through which some of Active Wealth’s customers were advised to invest in P6;

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

“IFA” means an independent financial adviser;

“illiquid investment” means an investment the value of which cannot be easily

realised through the availability of a secondary market;

“the Insolvency Service” means the government agency whose responsibilities

include
conducting
investigations
into
insolvent
companies
for
financial

wrongdoing;

“introducer” means any authorised or unauthorised entity or individual that referred

customers to Active Wealth;

“introduction agreement” means an agreement entered into to facilitate the

payment of commission from the issuers to the Second Company;

“the Loan Agreement” refers to the agreement purporting to represent a loan

between the Second Company and Darren Reynolds;

“marketing agreements” means agreements entered into to facilitate the payment

of commission from the issuers to the First or Second Companies;

“mini-bond” means an illiquid investment that is a debt instrument issued by an

issuer, typically for a fixed interest rate repayable over a period of time;

“The Pensions Regulator” is the UK regulator for occupational pensions;

“PPF” means the Pension Protection Fund, which pays benefits to Defined Benefit

Scheme members when the sponsoring employer becomes insolvent;

“Portfolio Six” or "P6" means an investment portfolio created by Greyfriars

consisting of mini-bonds;

“P6 Application Form” means Greyfriars’ application form for investments in P6;

“RAA” means the regulated apportionment arrangement under which the British

Steel Pension Scheme separated from its sponsoring employers;

“RDC” means the Regulatory Decisions Committee of the Authority (see further

under Procedural Matters below);

“Relevant Period” means 12 March 2015 to 5 February 2018;

“the Retail Distribution Review” means the review of how investments are

distributed to retail consumers in the UK commenced by the Authority in 2006;

“the second close family member” means the director of the First Company who

was also a close family member of Mr Reynolds;

“the Second Company” means the second company used by Mr Reynolds to funnel

prohibited commission payments;

“the Second Transfer” means the first close family member’s transfer of ownership

in a property to a trust on 30 January 2018;

“SIPP” means a self-invested personal pension, a trust-based wrapper for an

individual’s pension investment;

“SSAS” means a small self-administered scheme, a type of employer-sponsored

defined contribution workplace pension that can give the employer additional

investment flexibility;

“suitability report” means the document or letter prepared by Active Wealth

purporting to set out its advice to a customer;

“SUP” means the Supervision Manual, part of the Handbook;

“the third close family member” means the director of the Second Company who

was also a close family member of Mr Reynolds;

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

“UCITS” means an Undertaking for Collective Investment in Transferable Securities,

a type of investment fund subject to European Union regulations;

“the UCITS sub-funds” means the two sub-funds of the UCITS products promoted

by Active Wealth; and

“the Warning Notice” means the warning notice given to Mr Reynolds dated 10

August 2022.

4.
FACTS AND MATTERS

4.1.
Active Wealth was a small firm based in Willenhall, West Midlands. It was authorised

on 1 December 2014 with permission to conduct regulated activities, including

advising on pension transfers and opt outs and advising on and arranging deals in

investments. Active Wealth’s primary business was the provision of pension and

investment advice to retail customers.

4.2.
During the Relevant Period, Mr Reynolds was the sole director and shareholder of

Active Wealth. He was the only person at Active Wealth approved to perform the

controlled functions of CF1 (Director), CF10 (Compliance Oversight) and CF11

(Money Laundering Reporting) and was one of two persons approved to perform

the CF30 (Customer) function.

4.3.
Andrew Deeney was the only other person approved to hold controlled functions at

Active Wealth. Mr Deeney was approved from 6 February 2015 to 12 December

2017 to perform the controlled function of CF30 (Customer).

4.4.
Both Mr Reynolds and Mr Deeney provided pensions and investment advice to

Active Wealth’s customers. In addition, individuals referred to in this Notice as

Adviser A and Adviser B also provided pensions advice and investment advice to

Active Wealth’s customers, however, neither of these individuals had the necessary

approvals to provide that advice.

4.5.
On 18 July 2017, Mr Reynolds voluntarily agreed to the variation of Active Wealth’s

permission to show that no advice on investments into new non-standard assets

could be given.

4.6.
At the request of the Authority, on 24 November 2017 Active Wealth voluntarily

agreed to the imposition of requirements that it cease accepting new retail

customers in respect of its pensions business and to refrain from advising any

existing customers, except where the advice had been signed off by an independent

third party, until such time as agreed by the Authority.

4.7.
The requirements were not lifted before Active Wealth entered into liquidation on

5 February 2018. Mr Reynolds ceased to be an approved person on this date. Active

Wealth was declared in default by the FSCS in March 2018, meaning that customers

were eligible to claim compensation. Active Wealth was dissolved on 14 May 2019.

4.8.
As of 15 August 2022, the FSCS had paid over £17.6 million in compensation to

over 470 former customers of Active Wealth. This represented more than 70% of

Active Wealth’s customers. Almost half of these customers – at least 231 - suffered

losses that exceeded the FSCS compensation cap of £50,000 and were significantly

harmed as a result of Mr Reynolds’ misconduct.

4.9.
On 25 May 2021, Mr Reynolds was disqualified by the High Court from being a

company director for 13 years following an investigation by the Insolvency Service

that found that he failed to act in the best interests of Active Wealth’s customers

in respect of advice he gave to transfer their pensions to SIPPs and invest in P6.

Pension switching and transfer advice

4.10. Customers who engage advisers and authorised firms to provide them with advice

in relation to their pensions place significant trust in those providing the advice

because the benefits someone obtains from their pension can have a significant

impact on their quality of life during retirement and, in some circumstances, may

affect whether they can afford to retire at all. It is therefore of paramount

importance that advisers act with integrity when advising such customers regarding

the switch or transfer of their pensions and ensure that the advice given to a

customer is suitable for them, having regard to their circumstances as a whole.

Where an adviser fails to do so, it exposes customers to a significant risk of harm.

4.11. The risk of harm is heightened in relation to decisions to transfer out of a Defined

Benefit Scheme. A Defined Benefit Scheme is one that guarantees to pay a specified

amount to the customer based on factors such as the number of years worked and

the customer’s salary. Defined Benefit Schemes provide valuable benefits, so most

people are best advised not to transfer out of them. A pension transfer from a

Defined Benefit Scheme means giving up the guaranteed lifetime income for the

person and their dependents.

4.12. Defined Benefit Schemes can be contrasted with Defined Contribution Schemes,

where income is not guaranteed but variable depending on the underlying

investments of the fund.

4.13. Firms advising customers on whether to transfer their defined benefit pension

benefits to another pension scheme should start by assuming that it will not be

suitable and should only consider it suitable if the firm can clearly demonstrate,

based on contemporary evidence, that the transfer is in the customer’s best

interests (COBS 19.1.6G).

4.14. An adviser may advise a customer to switch or transfer their pensions from their

existing arrangements into a SIPP. A SIPP is a trust-based wrapper for an

individual’s pension investment. It gives tax relief on the individual’s contributions

and tax-free growth and offers much wider investment powers than are generally

available for other types of personal pensions and group personal pensions. In

addition, a SIPP offers a greater degree of control over where and when funds are

invested or moved than is permitted by traditional pension arrangements run by

investment management and life assurance companies or defined benefit pensions.

4.15. When a financial adviser is advising on an investment wrapper product, such as a

SIPP, the financial adviser ought to consider the suitability of the overall proposition

i.e., the suitability of both the SIPP wrapper and the underlying investment, in order

to be able to provide suitable advice to the customer. The recommendation must

be suitable for the customer having regard to the customer’s investment knowledge

and experience, financial situation, and investment objectives.

4.16. SIPPs are sometimes used to invest in high risk, often highly illiquid unregulated

investments. Such investments are unlikely to be suitable for many customers, and

even for those customers for whom they may be suitable, it is likely only to be

suitable for them to invest a small proportion of their investable assets in such

investments.

4.17. The investments that Active Wealth recommended for customers’ SIPPs typically

depended on the date of the recommendation:

(1)
from about March 2015 to September 2016, Active Wealth recommended that

at least 288 customers invest in – among other things – a portfolio of high

risk, illiquid investments called Portfolio Six or P6 that was managed by

Greyfriars, a DFM. The Authority required Greyfriars to cease accepting new

funds into P6 in October 2016;

(2)
from no later than December 2016 to March 2017, Active Wealth

recommended that about 100 customers invest through a second DFM. One

of the investments that this DFM invested in were the sub-funds of a UCITS,

which is an investment fund subject to European Union regulations; and

(3)
from about April 2017 to November 2017, Active Wealth recommended

approximately 290 customers to invest through a third DFM. That DFM

invested customer funds in the UCITS sub-funds.

4.18. Active Wealth’s customers included about 150 members of the British Steel Pension

Scheme who transferred, or took steps to transfer, their pensions to SIPPs following

Active Wealth’s advice. About 140 of these customers’ SIPPs were invested, or were

to invest, in the UCITS sub-funds.

Prohibited commission payments

4.19. COBS 6.1A.4R requires firms to ensure that advisers, such as Mr Reynolds and Mr

Deeney, do not receive commission, remuneration or benefits of any kind apart

from charging for advice provided. The purpose of this rule, introduced in 2012 as

a result of the Authority’s Retail Distribution Review, is to ensure that advisers act

in customers’ best interests and do not simply recommend product providers that

pay the highest commission.

4.20. Active Wealth charged customers a flat advice fee, typically of about £1,500, which

was either paid by the customer directly or was deducted from the customer’s SIPP.

Active Wealth typically shared 50% of that flat advice fee with the business that

introduced the customer to Active Wealth. This meant that typically Active Wealth

earned £750 from each of its customers that it advised. Active Wealth received

approximately £232,000 in advice fees in the 2016/2017 financial year. This

revenue model was not in breach of the Authority’s rules.

4.21. The advice fees were the main source of Active Wealth’s income. For the three

years of Active Wealth’s operation:

(1)
Mr Reynolds received a total salary from Active Wealth of £12,425;

(2)
Mr Deeney received total income from Active Wealth of £94,773;

(3)
Adviser A received total income from Active Wealth of £17,324; and

(4)
Adviser B received total income from Active Wealth of £33,164.

4.22. However, in reality, Active Wealth’s advisers had a second source of remuneration

which was in breach of the Authority’s rules, namely commission paid directly or

indirectly from Active Wealth’s customers’ investments as described in paragraphs

4.25 to 4.41 below. The two sources of remuneration are depicted in the diagram

below.

4.23. As set out in paragraphs 4.27 to 4.33 below, Mr Reynolds set up the First Company

purportedly to provide administration services for SSASs, and a close relative set

up the Second Company purportedly to provide administration services for IFA

firms (see paragraphs 4.34 to 4.39). However, in respect of both companies, the

vast majority of their income derived from commission payments paid by issuers

of investments into which Active Wealth’s customers invested on Active Wealth’s

personal recommendations. Those payments reflected a percentage of the amounts

invested. Mr Reynolds used the First Company and the Second Company to receive

and distribute the commission paid to persons including himself and Active Wealth’s

advisers and companies they controlled. Such commission payments are (and were

throughout the Relevant Period) prohibited by COBS 6.1A.4R.

4.24. In addition to the above salary payments in the total amount of £12,425 from

Active Wealth, Mr Reynolds directly received net payments of:

(1)
£232,000 from the First Company; and

(2)
£579,002 from the Second Company.

4.25. Mr Reynolds further financially benefited from the prohibited commission payments

the First Company paid £150,000 to Active PMC, of which Mr Reynolds was

the sole director and shareholder, and Active PMC directly paid £149,900 of

these funds to Mr Reynolds;

the First Company purchased a vehicle costing £41,475 for Mr Reynolds;

and

the Second Company also paid Mr Reynolds’ legal fees of £12,599.

4.26. In addition to the above payments, prohibited commission payments were also

made to other individuals as a result of the advice they provided to customers of

(1)
Mr Deeney received total payments of £123,326 from the First Company

and £83,023 from the Second Company;

(2)
Adviser A and a company they controlled received total payments of

£252,238 from the First Company and £138,379 from the Second Company;

and

(3)
Adviser B received total payments of £128,402 from the First Company and

£104,000 from the Second Company.

The First Company

4.27. Mr Reynolds and the first close family member were the sole directors and

shareholders of the First Company, although the first close family member had no

actual involvement in the running of the First Company. The First Company

commenced trading in the autumn of 2014. Although Mr Reynolds and the first

close family member purportedly ceased to be directors of the First Company in

December 2016, and the second close family member was subsequently appointed

as the sole director in January 2017, in reality Mr Reynolds remained in control of

the First Company’s activities for the remainder of the Relevant Period.

4.28. The First Company purported to carry out administration services for SSASs. For

the period 12 March 2015 to 22 October 2018, the First Company’s bank statements

show that it received almost £3 million into its bank account. Although Mr Reynolds

initially told the Authority that the First Company’s income came from providing

SSAS administration services, only payments of cheques amounting to £4,926

(0.16% of the total income) could have possibly related to SSAS business, although

the Authority has not identified evidence showing that this sum did in fact relate to

such business.

4.29. In reality, the First Company received commission pursuant to marketing

agreements that it entered into with the issuers of the investments. Of the

agreements obtained by the Authority, the commission ranged between 7% and

17% of the sums invested in the investments, and in one instance the percentage

was not specified in the agreement. In addition, the First Company also received

commission from firms that had their own marketing agreements with issuers for

selling investments.

4.30. Mr Reynolds told the Authority that the First Company did not itself conduct any

“marketing” or provide marketing materials to introducers, but merely distributed

the commission to the introducers. These introducers introduced customers to

Active Wealth that went on to be advised by Active Wealth to invest in the

investments, as a result of which the First Company collected commission.

4.31. The First Company’s bank statements for the period 12 March 2015 to 22 October

2018 show that the First Company received commission of £2.7 million (90.4% of

the First Company’s receipts for the period) for investments that Active Wealth

recommended that its customers invest in, including investments through P6 and

one other investment.

4.32. Mr Reynolds received net payments of £381,900 from the First Company to his

bank accounts and the bank account of Active PMC (almost of all of which was then

transferred from Active PMC’s account to Mr Reynolds’ personal account). The First

Company also purchased a vehicle costing £41,475 for Mr Reynolds. These

payments and vehicle purchase represented prohibited commission payments

directly derived from investments made by Active Wealth’s customers on Active

Wealth’s personal recommendation.

4.33. Mr Reynolds was also responsible for the payments from the First Company’s

account to Mr Deeney, Adviser A and Adviser B. These payments represented

prohibited commission payments directly derived from investments made by Active

Wealth’s customers on Active Wealth’s personal recommendation.

The Second Company

4.34. The Second Company was established in June 2016 by the third close family

member who was its sole director. The Second Company purported to provide

administration services to IFA firms. The Second Company’s bank statements for

the period 14 July 2016 to 23 October 2018 show that during this period the Second

Company received a total of £1.74 million into its bank account. Of that, only

payments totalling £20,197 (1.2% of total income) actually related to the Second

Company’s administration services business.

4.35. In reality, 93.4% of the Second Company’s receipts were commission payments:

(1)
£305,244 (17.6%) represented commission payments for investments in

products available through P6;

(2)
£1,080,628 (62.1%) represented commission payments for investments in

the UCITS sub-funds; and

(3)
£237,327 (13.7%) represented commission payments for three other

investments.

4.36. Mr Reynolds introduced the Second Company’s director, the third close family

member, to the issuers and intermediaries for the purposes of setting up marketing

and introduction agreements for the above investments. The Second Company then

received commission payments pursuant to the marketing and introduction

agreements it entered into with issuers and intermediaries, in which the Second

Company agreed to sell investments to prospective investors.

4.37. According to the agreements obtained by the Authority, the commission ranged

between 4% and 17% of the total amount invested and in several instances the

percentage was not specified in the agreement. Mr Reynolds saw the Second

Company’s activities as being a continuation of those conducted by the First

Company. In reality, the third close family member was the Second Company’s

director in name only and the Second Company was operated under Mr Reynolds’

direction and for his benefit. Mr Reynolds therefore knew that the Second Company

received commission payments from investments made by Active Wealth’s

customers on Active Wealth’s personal recommendations, including investments

through P6, the UCITS sub-funds and three other investments.

4.38. Mr Reynolds received net payments of £579,002 from the Second Company which

were directly derived from commission payments paid to the Second Company by

the issuers and intermediaries. However, Mr Reynolds, when interviewed by the

Authority, and the third close family member, when interviewed by the Insolvency

Service, both denied that the payments to Mr Reynolds represented prohibited

commission payments to him; they instead maintained that the payments were

advances under the Loan Agreement which Mr Reynolds was liable to repay. This,

in the view of the Authority, was false and misleading because nothing in the

balance sheet of the Second Company reflected the Loan Agreement, and the

Second Company has never accounted for these monies as loan monies. The

liquidators of the Second Company have subsequently confirmed that they consider

that these payments were not made to Mr Reynolds pursuant to a valid loan

agreement. The Authority considers that both parties knew that the payments to

Mr Reynolds represented prohibited commission payments from investments made

by Active Wealth’s customers on Active Wealth’s personal recommendation and, in

reality, Mr Reynolds was not expected to repay the sums to the Second Company.

4.39. Mr Reynolds was also aware that the Second Company paid prohibited commission

payments to Mr Deeney, Adviser A, Adviser A’s company and Adviser B which

derived from investments made by Active Wealth’s customers on Active Wealth’s

personal recommendations.

Conflict of interest

4.40. Contrary to COBS 6.1A.4R, each of Mr Reynolds, Mr Deeney, Adviser A and Adviser

B financially benefited from the prohibited commission payments paid to the First

Company and the Second Company by the issuers for Active Wealth’s part in the

facilitation of the sale of the investments to Active Wealth’s customers.

4.41. Although Mr Reynolds knew that neither he nor Mr Deeney, nor Adviser A nor

Adviser B were permitted to receive the prohibited commission payments, he

dishonestly used the First Company and the Second Company as mechanisms to

make payments to his bank accounts and bank accounts held by the other advisers.

4.42. These prohibited commission payments represented a conflict of interest between

the interests of Mr Reynolds (and the other advisers) on the one hand and the

customers’ interests on the other hand. This was a conflict of interest that Mr

Reynolds created and maintained for his own benefit and the benefit of the other

advisers. Mr Reynolds exploited this conflict of interest to the detriment of Active

Wealth’s customers. There was a significant risk of detriment to Active Wealth’s

customers because:

(1)
the commission provided a financial incentive for Active Wealth’s advisers to

provide unsuitable advice to customers to invest in the investments;

(2)
as a result of the false and misleading information provided by Mr Reynolds

to Greyfriars and the SIPP provider about Active Wealth’s customers as set

out at paragraphs 4.53 to 4.64, Mr Reynolds exposed customers to a

significant risk of loss from investments through P6 that he knew were highly

likely not to have been suitable for them;

(3)
as set out at paragraphs 4.66 to 4.86, Mr Reynolds was responsible for

unsuitable advice given by Active Wealth to customers to transfer out of the

British Steel Pension Scheme into SIPPs; and

(4)
as set out at paragraphs 4.87 to 4.91, Mr Reynolds failed to disclose

adequately or at all the exit fee levied by the UCITS sub-funds to customers

and deprived them of the opportunity to consider whether the exit fee was

contrary to their investment objectives or whether they could bear the risks

of the exit fee.

4.43. This risk of detriment crystallised and, as of 15 August 2022, the FSCS had paid

over £17.6 million in compensation to over 470 former customers of Active Wealth.

4.44. Further, Mr Reynolds withheld the fact of the prohibited commission payments from

Active Wealth’s customers.

Active Wealth’s relationship with Greyfriars and P6

4.45. The Greyfriars DFM service operated a range of investment portfolios aimed at

financial advisers. One of these portfolios was P6, which was made up of mini-

bonds including overseas investments in real estate, car parks, renewable energy

and holiday resorts. The mini-bonds were not listed on a regulated market and

promised returns of between 6% and 15% per annum. P6 investments were high-

risk and illiquid and were unlikely to be suitable for retail customers. Following

intervention by the Authority, P6 closed to new investment in October 2016.

4.46. On 23 May 2015, Active Wealth entered into the Active Wealth P6 Agreement with

Greyfriars. Under the agreement, Active Wealth was responsible for selecting and

assessing the suitability of P6 when advising the customer to invest in the portfolio.

4.47. Mr Reynolds was aware of the warnings contained in Greyfriars’ documentation

about the risks of investing in P6. In addition, the terms of the Active Wealth P6

Agreement signed by Mr Reynolds confirmed his understanding that “[P6] isn’t as

liquid as more conventional investments” and that customers could be “locked into

a security for an indefinite period”.

Mr Reynolds’ P6 advice

4.48. Mr Reynolds told the Authority that he believed that P6 was suitable for customers

that were high net worth investors who owned more than one property and that

Active Wealth only recommended P6 to this type of customer.

4.49. Mr Reynolds’ assertion that Active Wealth only advised customers who he defined

as high net worth, or who owned more than one property, to invest in P6 was false.

Rather, P6 was Active Wealth’s default investment for its customers. Active Wealth

advised some customers to invest in P6 when it had no genuine basis for believing

that they were high net worth individuals or owned more than one property, or

both.

4.50. Further, Mr Reynolds admitted that the so-called high net worth customers included

those that had “very cautious” or “cautious” attitudes to risk, being those that only

wanted to take limited risks with their investments. Mr Reynolds’ advice to invest

in high-risk, illiquid investments was entirely unsuitable for customers who had

“very cautious” or “cautious” attitudes to risk. Mr Reynolds told the Authority that

either he or Mr Deeney had a discussion with each of the customers and advised

them that to achieve their targeted income they would have to accept greater risk.

However, the evidence shows that it was not true that either Mr Reynolds or Mr

Deeney gave such advice or that the customers agreed to accept the greater risk.

4.51. Mr Reynolds knew that Greyfriars would not normally accept an investment into P6

where it represented more than 25% of a customer’s “investable wealth”. The

Greyfriars P6 documentation stated that P6 was appropriate only for a “small

proportion” of an investor’s funds. However, Active Wealth advised customers to

invest up to 62% of their “investable assets” in P6.

4.52. For these reasons, Mr Reynolds knew that P6 was not a suitable investment for all

of Active Wealth’s retail customers but nonetheless allowed it to be Active Wealth’s

default recommendation and arranged for customers to invest a higher proportion

of their SIPP funds than he knew was suitable. This gave rise to a significant risk

that Active Wealth’s customers would suffer loss that they could not financially

bear.

False and misleading statements in P6 Application Forms

4.53. Mr Reynolds, on behalf of Active Wealth, signed a declaration in the P6 Application

Form that investments in unregulated investments to the proportions specified

were suitable for the relevant customer’s risk profile, circumstances, knowledge

and experience.

4.54. The Authority has reviewed the P6 Application Forms of 18 customers that invested

in P6. In the application forms for each of the 18 customers, Active Wealth specified

that one of the reasons that the investment in unregulated investments would be

suitable for them was that they each had a “high” risk profile and capacity for loss.

This contradicted Active Wealth’s assessment of the attitude to risk and capacity

for loss of seven customers because it assessed one customer as having a “very

cautious” profile; three customers as having “cautious” profiles; and three

customers as having “balanced” profiles.

4.55. The Authority considers that Active Wealth and Mr Reynolds knowingly and falsely

represented on the P6 Application Forms, and to the Authority in interview, that

some customers had a “high” risk tolerance and capacity for loss.

4.56. Customer A, Customer B and Customer C are examples of three customers about

whom Active Wealth provided false and misleading information in the P6 Application

Forms.

Customer A and Customer B

4.57. Customer A and Customer B are married to one another. Active Wealth arranged

for their respective Defined Benefit Scheme benefits to be transferred into two

separate SIPPs. Mr Reynolds advised them to invest their respective SIPP funds in

P6 and arranged for 62% of Customer A’s SIPP funds and 74% of Customer B’s

SIPP funds to be invested in P6.

4.58. Mr Reynolds completed and signed the P6 Application Forms for both Customer A

and Customer B. Both forms stated that investments in unregulated investments

were suitable for them because they each had “a high risk profile [and] capacity

for loss, while understanding […] the risks associated with these investments.” The

statements were untrue because neither of them had high risk appetites or

capacities for loss. In particular the statements contradicted Active Wealth’s

assessment of Customer A as being a “cautious” investor. It was also untrue that

Customer A and Customer B understood and accepted the risks of the investments

because they were not experienced investors, Mr Reynolds did not tell them P6 was

a high-risk investment and he did not adequately explain the risks to them.

4.59. When the Authority asked Mr Reynolds about Customer A’s P6 Application Form,

Mr Reynolds told the Authority that he wrote the statements in respect of Customer

A because it would give Greyfriars the mandate to invest in higher risk portfolios

that would provide a better return, and that Customer A had agreed to this course

of action. However, Customer A and Customer B told the Authority that they had

not agreed to invest in higher risk portfolios. Having regard also to the fact that

Active Wealth assessed Customer A as being a “cautious investor”, the Authority

therefore considers that Mr Reynolds’ explanation to the Authority was false.

4.60. In addition, Mr Reynolds knowingly made the following false and misleading

statements about Customer A and Customer B in their respective P6 Application

that they were high net worth investors, when in fact there was no

reasonable basis for making these statements;

the investments in P6 represented 9% of Customer A’s and 11% of

Customer B’s “investable assets”, when in fact Mr Reynolds had only

collected sufficient information to support an assessment that the

investments represented 62% of Customer A’s and 40% of Customer B’s

investable assets; and

that they were experienced investors primarily in property and equities,

when in fact they had little investment experience.

4.61. Following a meeting between Customer C and Mr Deeney, Active Wealth arranged

for Customer C’s existing pension benefits to be switched to a SIPP. Active Wealth

arranged for 47% of Customer C’s SIPP funds to be invested in P6.

4.62. The P6 Application Form, which Mr Reynolds completed and signed, stated that

investment in unregulated investments was suitable for Customer C because he

“has a high risk profile [and] capacity for loss. He understands [and] accepts the

risks associated with investing”. This statement was untrue and contradicted Active

Wealth’s assessment of Customer C as being a “very cautious” investor. Customer

C had a limited capacity for loss because he was retired and reliant on his pension,

nearly half of which Mr Reynolds arranged to be invested in P6, for an income. It

was also untrue that Customer C understood the risks of investing in P6 because

he had very limited understanding of investment matters, Active Wealth did not tell

him that P6 was a high-risk investment and Active Wealth did not adequately

explain the risks of investing in P6. The Authority concludes that Mr Reynolds knew

that the statements in the P6 Application Form were false.

4.63. Mr Reynolds told the Authority that he would have spoken to Customer C on the

telephone and received Customer C’s agreement to accept a higher level of risk to

achieve his target investment income. However, Mr Reynolds never spoke with

Customer C about this nor did Customer C ever agree to accept a higher level of

risk.

4.64. In addition, Mr Reynolds knowingly made the following false and misleading

statements about Customer C in his P6 Application Form:

that he “usually invests in property, land [and] cash”, which was false

because Customer C had never invested in property or land; and

that he was investing 25% of his “investable assets” in P6, when he knew

that Customer C in fact invested about 41% of his investable assets;

4.65. The Authority concludes that Active Wealth and Mr Reynolds knowingly and falsely

represented that Customer A, Customer B and Customer C were high net worth,

experienced investors with a high-risk tolerance and that they were investing only

a small proportion of their investable assets.

The British Steel Pension Scheme

4.66. The British Steel Pension Scheme was one of the largest Defined Benefit Schemes

in the UK, with approximately 125,000 members and £15 billion in assets as at 30

June 2017. In March 2017, the British Steel Pension Scheme was closed to future

accruals, which meant that no new members could join it and existing members

could no longer build up their benefits. The British Steel Pension Scheme also had

an ongoing funding deficit.

4.67. In early 2016, various options were being explored in relation to the British Steel

Pension Scheme as a result of insolvency concerns relating to one of the sponsoring

employers of the scheme. These options included seeking legislative changes which

would have allowed pension increases available under the British Steel Pension

Scheme to be reduced to the statutory minimum levels, and the sale of one of the

sponsoring employers. Ultimately, the position was resolved by an RAA that allowed

the sponsoring employer to detach itself from its liabilities in respect of the British

Steel Pension Scheme.

4.68. On 11 August 2017, The Pensions Regulator gave its clearance for the RAA. Under

the RAA, the British Steel Pension Scheme would receive £550 million from, and a

33% equity stake in, one of the sponsoring employers. The British Steel Pension

Scheme would also transfer into the PPF which pays benefits to Defined Benefit

Scheme members when the sponsoring employer becomes insolvent. In addition,

a new Defined Benefit Scheme was proposed by the sponsoring employers in

combination with the RAA proposal. The Pensions Regulator formally approved the

RAA on 11 September 2017, which resulted in the British Steel Pension Scheme

being separated from the sponsoring employers.

4.69. The consequences of the RAA were that members of the British Steel Pension

Scheme were required to make a choice between two options offered by the

scheme, namely to either:

remain in the old British Steel Pension Scheme and therefore move into the

PPF; or

transfer their benefits into the new Defined Benefit Scheme (BSPS 2) that

had been proposed by the sponsoring employers.

4.70. There was also a third option for members to transfer their pension benefits to a

Defined Contribution Scheme.

4.71. In October 2017, the British Steel Pension Scheme distributed information packs to

members about these options. This was known as the “Time to Choose” pack.

Members were required to decide by 22 December 2017.

4.72. The decision presented to members was not necessarily straightforward,

particularly for those who had not yet started drawing their pension. The members

were in a vulnerable position due to the uncertainty surrounding the future of the

scheme. Throughout the entire period, both before the Time to Choose packs were

distributed and afterwards, it was important that financial advisers advised

customers in a fair and balanced way about the options available to them based on

the information available at the time, and that the advice which was given

considered the specific customers’ circumstances.

Advice process

4.73. During the Relevant Period, Active Wealth advised 153 customers to transfer their

British Steel Pension Scheme to an alternative pension arrangement, usually a

SIPP. Mr Reynolds advised the vast majority of those British Steel Pension Scheme

customers.

4.74. Active Wealth’s advice process in relation to the British Steel Pension Scheme was

typically as follows.

4.75. First, Active Wealth, or an introducer, met with the customer to collect information

about them and their British Steel Pension Scheme pensions. This included

personal details, financial details and details about the customer’s objectives and

attitude to investment risk. A staff member of Active Wealth then typically

conducted a comparison of the customer’s benefits under the British Steel Pension

Scheme and benefits under a Defined Contribution Scheme such as a SIPP.

4.76. An Active Wealth financial adviser subsequently met with the customer and

provided their recommendation in relation to the British Steel Pension Scheme.

Sometimes during the meeting, the customer signed forms to transfer out from the

British Steel Pension Scheme. Pension transfers are generally not reversible once

the scheme trustees receive the signed transfer forms and monies have been

moved, and therefore it is not possible for the customer to change their mind about

the transfer (although in some cases where funds had not already been transferred

out, the British Steel Pension Scheme trustees did stop the transfer if requested by

the customer).

4.77. Active Wealth’s written policy stated that an adviser should present a document to

the customer setting out its advice in writing, called a “suitability report”, at the

same time or prior to the meeting at which Active Wealth provided its oral

recommendation and the customer signed the transfer forms. However, as set out

in the following paragraphs, Active Wealth did not always provide the suitability

report to its customers and, if it did, in most cases it did not prepare the suitability

report until after the customer had signed the transfer forms and Active Wealth had

submitted them to the SIPP provider.

Unsuitable advice

4.78. Mr Reynolds knew that a transfer from the British Steel Scheme to a SIPP was

unlikely to be suitable for most of Active Wealth’s customers. He knew that Defined

Benefit Schemes offered valuable, guaranteed benefits which increased annually.

He also knew the risks to which a customer would be exposed if they transferred

out of a Defined Benefit Scheme following his advice and the potential impact this

could have on the customer’s pension fund. Mr Reynolds also knew that after

transferring to a Defined Contribution Scheme, the customer’s pension benefits

were not guaranteed but would be dependent on the performance of the underlying

investments.

4.79. Mr Reynolds told the Authority that he advised most customers to remain in the

British Steel Pension Scheme in order to receive a guaranteed income in retirement,

but that customers were “adamant” on transferring to achieve other objectives such

as accessing their pension benefits flexibly, improving the death benefits available

to the customer’s spouse, accessing their pension benefits before reaching the

scheme’s normal retirement age of 65 years, and accessing a pension

commencement lump sum.

4.80. However, customers told the Authority that in fact they were orally advised by Mr

Reynolds to transfer out of the British Steel Pension Scheme. Some customers

reported that they were encouraged to transfer, with Mr Reynolds telling them that

it was a “no brainer” to transfer or that they would “lose everything” if they did not

transfer as soon as possible. They thought that they were following Mr Reynolds’

advice by transferring out of the British Steel Pension Scheme to alternative

arrangements including SIPPs. Mr Reynolds knew that this advice was unlikely to

be suitable for most customers. He therefore dishonestly advised and persuaded

customers to transfer out of the British Steel Pension Scheme when he knew it was

not likely to be in their best interests. Therefore, the Authority considers Mr

Reynolds’ account to be untrue.

4.81. Some customers also reported that they did not receive any recommendation from

Active Wealth, and that Mr Reynolds merely “went along” with the customer’s

request to transfer; in these cases, Mr Reynolds failed to provide the advice that

the customers were entitled to receive.

Suitability reports

4.82. Active Wealth was required to send a suitability report to each of its customers

setting out its advice in writing. The Authority reviewed Active Wealth’s files for 23

British Steel customers and each of them contained a copy of a suitability report

addressed to the customer.

4.83. However, none of the suitability reports prepared by Active Wealth reflected Mr

Reynolds’ oral advice to transfer out of the British Steel Pension Scheme. Twenty

of the 23 customer files reviewed by the Authority contained suitability reports

setting out Mr Reynolds’ apparent recommendation in identical or very similar

wording. The most common version of the written recommendation, which was

contained under the heading “Benefits”, was as follows:

“It is our recommendation, despite your wish to gain flexibility and control over

your benefits […], that you do not take benefits earlier than the normal retirement

age of the scheme. Your British Steel Pension Scheme would offer much better

benefits if you decided not to take benefits before age 65 and you are unlikely to

achieve the same overall income at 65 via a money purchase arrangement. On an

income basis alone, without early access, the guarantees offered by a Defined

Benefit scheme and their revaluation annually, must draw the conclusion that a

transfer of benefit to an alternate arrangement should not be undertaken.

However, even though this was discussed at our previous meeting, you had already

made up your mind to access the benefits of your British Steel Pension Scheme

You instructed us to provide an intermediation service and recommend a suitable

pension and investment provider for your benefits accrued in the British Steel

Pension Scheme.”

4.84. In the Authority’s view, Mr Reynolds deliberately drafted the suitability reports to

give the false impression that Active Wealth customers had been given suitable

advice to remain in the British Steel Pension Scheme and that customers had

insisted on transferring to a SIPP against Mr Reynolds’ recommendation. This was

contrary to Mr Reynolds’ oral advice to customers to transfer to a SIPP. The

suitability reports were deliberately drafted in this way because Mr Reynolds knew

that his oral advice to transfer out of the British Steel Pension Scheme to a SIPP

was likely to be unsuitable for most customers.

4.85. Further, some of Active Wealth’s customers reported that they never received a

suitability report from Active Wealth. In the Authority’s view, Active Wealth did not

send suitability reports to all of the British Steel customers because Mr Reynolds

knew that the suitability reports did not reflect the advice he provided but he

wanted to give the Authority the false impression that he had provided suitable

advice.

4.86. In most cases the suitability reports were not provided until after Active Wealth

had taken steps to transfer them out of the British Steel Pension Scheme and it

was too late for them to change their minds. As set out above at paragraph 4.77,

this timing was against Active Wealth’s written policy. The customers did not have

any opportunity or any significant time to read and understand the written

recommendation contained in the suitability report and it was unlikely to have

influenced their decision to proceed with the transfer. In the Authority’s view, the

purpose of the timing was to ensure that Active Wealth’s customers proceeded with

the transfer that they believed was in accordance with Mr Reynolds’

recommendation.

The UCITS sub-funds


4.87. Active Wealth instructed two DFMs to create investment portfolios that partly or

wholly contained investments in the UCITS sub-funds. Between December 2016

and November 2017, Active Wealth advised about 400 customers to switch or

transfer their pensions to SIPPs and to invest in the portfolios consisting of the

UCITS sub-funds.

4.88. Active Wealth’s customers invested in two share classes of the UCITS sub-funds

which imposed a contingent deferred sales charge, commonly referred to as an exit

fee, of up to 5% for disinvesting from the UCITS sub-funds within the first five

years. The exit fee was 5% for disinvesting in the first year of investment, 4% for

disinvesting in the second year, 3% in the third year, 2% in the fourth year and

1% in the fifth year. The exit fee was disclosed in the prospectus and key investor

information documents for the sub-funds.

4.89. Mr Reynolds failed to disclose adequately or at all the exit fee to Active Wealth’s

customers. In some cases (particularly where customers specifically raised with

him the question of exit fees), Mr Reynolds dishonestly told customers that no exit

fee would apply to their investments or that the exit fee would not apply as long as

they remained customers of Active Wealth. Given that Mr Reynolds dishonestly

misled customers who asked him about exit fees, the Authority concludes that his

failure to inform other customers of the fees was deliberate and dishonest. In doing

so, Mr Reynolds deprived customers of the opportunity to consider whether the exit

fee was contrary to any plans to access the invested funds within the first five

years, or whether they could bear the risk of incurring the exit fee if their

circumstances changed and they could no longer follow Active Wealth’s investment

strategy.

4.90. The Authority concludes that Mr Reynolds’ motive in misleading customers about

the existence of the exit fees was to ensure that they invested in the UCITS sub-

funds in order that Mr Reynolds and Active Wealth’s other advisers would earn

commission from them doing so. Mr Reynolds and Active Wealth’s other advisers

received prohibited commission payments that were directly linked to the

investments.

4.91. It was therefore in Mr Reynolds’ personal financial interests to ensure the highest

possible percentage of a customer’s pension be invested in the funds, because not

only would that maximise his commission, but it would also create a substantial

disincentive for the customer to take their money out because of the level of the

exit fee. This showed a clear disregard for customers’ interests over Mr Reynolds’

personal financial gain.

Individuals provided advice without approval

4.92. Mr Reynolds was required, as Director and Compliance Officer of Active Wealth, to

take reasonable care to ensure that no person provided advice to Active Wealth’s

customers unless they had been approved by the Authority to do so. This

requirement is in place in order to protect the interests of customers, by ensuring

that only suitably qualified and regulated persons are able to give advice.

4.93. Mr Reynolds knew that two individuals, Adviser A and Adviser B, were not approved

persons at Active Wealth at any time during the Relevant Period and so were not

permitted to provide advice to customers on behalf of Active Wealth.

Adviser A

4.94. Adviser A operated a mortgage and general insurance brokerage firm that was

authorised by the Authority during the Relevant Period. Adviser A’s firm did not

have permissions to provide pension transfer advice. Adviser A’s firm was an

introducer to Active Wealth.

4.95. During the Relevant Period, Adviser A held himself out as an Active Wealth financial

adviser and provided pensions and investment advice to Active Wealth’s customers.

Mr Reynolds knew that Adviser A was providing advice and allowed him to do so

even though he knew that Adviser A was not approved by the Authority to provide

the advice and did not have the qualifications required by the Authority to provide

pensions advice (see below at paragraph 4.98). Further, Mr Reynolds signed

declarations falsely stating that he himself had provided advice to the customers.

The Authority considers that Mr Reynolds did so because he knew that Adviser A

ought not to be providing regulated pensions advice.

Adviser B

4.96. Adviser B operated an IFA firm which, for part of the Relevant Period, was

authorised to provide pensions and investment advice. Adviser B was approved to

provide advice through and on behalf of Adviser B’s firm. However, Adviser B was

never approved to provide advice through or on behalf of Active Wealth. During the

Relevant Period, both while Adviser B’s firm was authorised and after it ceased to

be authorised, Adviser B purported to hold the roles of “office manager” or

“operations consultant” at Active Wealth.

4.97. During the Relevant Period while representing Active Wealth, Adviser B provided

pensions and investment advice to Active Wealth’s customers. Mr Reynolds knew

that Adviser B was providing advice on behalf of Active Wealth and that Adviser B

was not approved by the Authority to do so. Mr Reynolds told the Authority that

these were former customers of Adviser B’s IFA firm with whom Adviser B had

retained relationships. Mr Reynolds admitted to the Authority that he did not apply

for Adviser B to be approved because he thought that his involvement with another

entity would mean that the Authority would not approve him.

Misleading the Authority and the Insolvency Service

Communications with the Authority about advisers

4.98. In March 2016, following a consumer query regarding the role of Adviser A at Active

Wealth, the Authority contacted Mr Reynolds to enquire as to what capacity Adviser

A was acting in relation to Active Wealth, as Adviser A appeared to be advising on

investments without approval. In response, Mr Reynolds assured the Authority that

Adviser A was solely acting as a paraplanner and that Active Wealth was taking

steps to obtain the relevant approvals for Adviser A before allowing them to provide

advice for Active Wealth. These false and misleading assurances prevented the

Authority from discovering Mr Reynolds’ and Active Wealth’s misconduct (allowing

Adviser A to advise without approval) for more than a year.

Communications with the Authority about prohibited commission payments

4.99. During 2017 and 2018 (as set out below), Mr Reynolds repeatedly and deliberately

provided false and misleading information to the Authority to conceal that he, the

other advisers and the introducers received prohibited commission payments and

to diminish the extent of the commission he received. Mr Reynolds also provided

false and misleading information to the Insolvency Service during the course of an

investigation into the Second Company’s affairs.

19 January 2017 email

4.100. On 5 January 2017, the Authority emailed Mr Reynolds requesting details of any

interests held by the firm in other businesses and its conflicts of interest register.

From this time, Mr Reynolds knew that the Authority wanted to know about any

conflicts of interest Active Wealth had and any interests it had in other businesses.

4.101. On 19 January 2017, Mr Reynolds responded to the Authority by email providing a

copy of Active Wealth’s conflicts register. The conflicts register recorded that on 1

December 2016 Active Wealth had identified a potential conflict of interest, namely

that the activities of the First Company “are confined to the administration of SSAS

schemes and D Reynolds was periodically to provide regulated advice in his capacity

of a director this [sic] company, which he could not do.” Active Wealth recorded

that it would mitigate the risk by Mr Reynolds’ resignation as director of the First

Company.

4.102. However, the information recorded in the conflicts register that the First Company’s

activities were “confined to the administration of SSAS schemes” was false because

its primary activities were the receipt and distribution of prohibited commission

payments including to Mr Reynolds and the other advisers.

4.103. Moreover, the information in the conflicts register that Mr Reynolds would resign

as director of the First Company was also false because he had no intention to

resign as director at that time. Although Mr Reynolds purported to resign as director

of the First Company in December 2016, he took no steps to formally effect his

resignation until 30 July 2017 and the Authority considers that he remained in de

facto control of the First Company throughout the Relevant Period.

4.104. The conflicts register was also misleading because it omitted the serious conflict of

interest, which Mr Reynolds had dishonestly created, that the First Company paid

prohibited commission payments to Mr Reynolds and the other advisers as a result

of advice provided by Active Wealth.

4.105. Mr Reynolds deliberately gave the false and misleading information to the Authority

because he wanted to conceal the fact that the First Company had received and

distributed prohibited commission payments and he wanted to create the false

impression that he was no longer in control of the First Company’s activities.

17 and 18 July 2017 supervisory visit

4.106. On 17 and 18 July 2017, during a supervisory visit, the Authority asked Mr Reynolds

whether he or Active Wealth had received marketing fees and he answered that

they had not. This statement that he had not received marketing fees was

deliberately misleading because he knew that he and other advisers at Active

Wealth received prohibited commission payments from the First Company and the

Second Company, and that the sources of those payments were the “marketing

fees” paid to those companies.

6 November 2017 letter

4.107. A letter dated 6 November 2017 from Active Wealth’s solicitors to the Authority

stated that “[t]he remuneration of our client’s introducers is not in any way

dependent on the investments recommended to its clients.” Mr Reynolds was

aware that Active Wealth’s introducers received prohibited commission payments

and so he approved the statement made by the solicitors on Active Wealth’s behalf

knowing that it was false.

20 March 2018 letter

4.108. On 6 March 2018 (after the Relevant Period), the Authority sent a letter to Mr

Reynolds requiring him to provide certain information and documents.

4.109. The reply from Mr Reynolds stated that all investment advice was provided by

qualified financial advisers who were approved to perform the CF30 (Customer)

function. This statement was deliberately false because, as Mr Reynolds knew,

Adviser A and Adviser B provided investment advice to Active Wealth’s customers

without being approved to do so.

Interview on 28 March 2018

4.110 On 28 March 2018, the Authority interviewed Mr Reynolds. During the course of

the interview Mr Reynolds made a number of deliberately false and misleading

statements to the Authority, including that Mr Reynolds and Active Wealth did not

receive prohibited commission payments from investments made by Active

Wealth’s customers.

Interview on 27 February 2019

4.111 On 27 February 2019, the Authority interviewed Mr Reynolds for a second time.

During the interview, the Authority again asked Mr Reynolds several questions

about whether he, Mr Deeney or Active Wealth received prohibited commission

payments or other financial incentives in relation to investments that Active Wealth

recommended to its customers. On each occasion, he denied that he, Mr Deeney

or Active Wealth received any such commission or incentives. Mr Reynolds’

responses to the Authority’s questions were deliberately false and misleading.

4.112 After the Authority presented evidence to Mr Reynolds showing that the First

Company and the Second Company received commission from issuers, and that Mr

Reynolds and the other advisers had received payments from the First and Second

Companies, Mr Reynolds continued deliberately to provide false and misleading

information to the Authority. This included statements that:

Mr Deeney did not receive prohibited commission from the First Company

for advice Mr Deeney provided to Active Wealth’s customers; but rather the

payments made by the First Company to Mr Deeney related to the marketing

of investments to introducers. This was false because Mr Reynolds was

aware that the payments related to the advice given by Mr Deeney on behalf

of Active Wealth to customers to invest in the investments;

Mr Reynolds did not receive prohibited commission payments from the

Second Company but rather the payments he received from the Second

Company were loan advances that he had to repay. This was false because

the payments were in reality prohibited commission payments as a result of

investments recommended to Active Wealth’s customers and not loan

advances made under a valid loan agreement; and

the Second Company’s payments to Adviser B did not relate to Active

Wealth’s customers, but rather related to administrative services that

Adviser B provided to the Second Company. Mr Reynolds also denied that

the payments related to advice provided by Adviser B to Active Wealth’s

customers. This information was false because, although Adviser B did

provide administration services to the Second Company, Mr Reynolds knew

that the Second Company also paid prohibited commission payments to

Adviser B that were derived from investments made by Active Wealth’s

customers on Active Wealth’s personal recommendation.

Communications with the Insolvency Service

4.113 The Insolvency Service interviewed Mr Reynolds in July 2018 during its

investigation into the Second Company’s affairs. Mr Reynolds told the Insolvency

Service during that interview that the payments he had received from the Second

Company were advances under the Loan Agreement. In December 2018, when the

Insolvency Service asked Mr Reynolds whether he had informed Active Wealth’s

liquidator about the Loan Agreement, he responded that he did not inform the

liquidator about the Loan Agreement and that he was discussing the repayment of

the loan with the Second Company. As set out at paragraph 4.38 above, this

information was false and misleading because despite the existence of the Loan

Agreement between Mr Reynolds/Active Wealth and the Second Company, in

reality, the payments he received were commission rather than drawdowns on a

loan facility which he was required to repay. The liquidators of the Second

Company have subsequently confirmed that they consider that these payments

were not made to Mr Reynolds pursuant to a valid loan agreement and should be

repaid. The liquidators stated that they consider that the payments to Mr Reynolds

were made for no consideration and therefore constituted transactions at an

undervalue for the purposes of the Insolvency Act 1986.

Destruction of evidence

4.114 On 4 January 2018, the Authority informed Mr Reynolds that investigators had been

appointed to investigate his and Active Wealth’s conduct of its pensions business.

Individuals under investigation must act with integrity and cooperate with the

Authority, and Mr Reynolds was specifically warned not to destroy evidence that

may be relevant to the investigation.

4.115 Shortly afterwards, Mr Reynolds contacted Adviser B, who owned Active Wealth’s

email accounts and domain name. Mr Reynolds told Adviser B that he no longer

needed the email account as he was placing the firm into liquidation. On or around

23 February 2018, Adviser B logged into the customer control panel of the provider

hosting Active Wealth’s email accounts and domain name and cancelled Mr

Reynolds’ mailbox, causing it to be permanently deleted.

4.116 Mr Reynolds was aware that he was under investigation and had been specifically

notified of his legal obligation to preserve evidence that was likely to be relevant to

the investigation. Mr Reynolds must have been aware of the risk that his

instructions to Adviser B might result in the deletion of evidence likely to be relevant

to the investigation. The Authority therefore concludes that in making this request

Mr Reynolds acted recklessly. As a result of his actions, emails potentially relevant

to the investigation were in fact irrecoverably deleted.

Additional matters

Property transfers

4.117 On 14 June 2017, Mr Reynolds transferred ownership of a property that he owned,

and which was his family home, to the first close family member for no monetary

consideration (the First Transfer).

4.118 At the time of the First Transfer, Mr Reynolds was aware that the Authority intended

to conduct a supervisory visit to Active Wealth’s offices. As set out at paragraphs

4.101 to 4.105, he had already provided the Authority with false and misleading

information about the First Company’s activities. The First Transfer also took place

around the time he took several steps to distance himself from the First Company’s

activities. This included removing himself as a signatory of the First Company’s

bank account and as a director on Companies House records.

4.119 The first close family member subsequently set up a trust, of which Mr Reynolds

was one of the trustees. That trust was created on 2 December 2017, eight days

after Active Wealth agreed to the imposition of the requirements set out at

paragraph 4.6. The Authority considers that, on 2 December 2017, Mr Reynolds

believed it was likely that the Authority would open an enforcement investigation

into his and Active Wealth’s conduct.

4.120 On 4 January 2018, the Authority informed Mr Reynolds that it had opened an

investigation into his and Active Wealth’s conduct. On 30 January 2018, the first

close family member transferred the property to the trust for no monetary

consideration (the Second Transfer). At the time of the Second Transfer, the

property’s value was stated to be £142,000. This was the second transfer of this

property, for no monetary consideration, in seven months.

4.121 The Authority considers that Mr Reynolds deliberately effected the First Transfer in

order to avoid the Authority or customers or other creditors of Active Wealth having

recourse to the property in order to meet his and/or Active Wealth’s liabilities. The

Authority considers he was concerned that the Authority may discover that he was

receiving commission from the First Company. The Authority further considers that

Mr Reynolds instigated and facilitated the Second Transfer having previously

become a trustee of a trust for that purpose. He took these steps because he knew

that the outcome of the Authority’s investigation may result in the imposition of a

financial penalty or a requirement to pay restitution. He therefore sought to make

his family home unavailable to meet the enforcement of any financial penalty or

any other claims by creditors.

5.
FAILINGS

5.1.
The regulatory provisions relevant to this Notice are referred to in Annex A.

5.2.
Statement of Principle 1 required Mr Reynolds to act with integrity in carrying out

his controlled functions. A person may lack integrity where he acts dishonestly or

recklessly.

5.3.
During the Relevant Period, Mr Reynolds failed to act with integrity in breach of

Statement of Principle 1 as set out in paragraphs 5.4 to 5.11 below.

5.4.
As set out above in paragraphs 4.19 to 4.44, Mr Reynolds acted dishonestly and

without integrity when he:

(1) knowingly created, maintained and concealed a conflict of interest at the heart

of Active Wealth’s business model so that he and the other financial advisers

at Active Wealth could receive prohibited commission payments. He exploited

this conflict of interest to the detriment of Active Wealth’s customers;

(2) received prohibited commission payments;

(3) used the First and Second Companies as mechanisms to disguise the

prohibited commission payments and conceal the true nature of the

payments; and

(4) arranged for the other advisers at Active Wealth to receive prohibited

commission payments.

5.5.
As set out above in paragraphs 4.45 to 4.65, Mr Reynolds dishonestly arranged for

Active Wealth’s customers to invest in P6 in the knowledge it was not suitable for

them. He acted dishonestly when he misled them about the suitability of P6 and

its liquidity and falsified the P6 Application Forms in order to create the false

impression that P6 was suitable for Active Wealth’s customers when it was not. P6

was a high-risk illiquid investment and Mr Reynolds knew this. Notwithstanding this

knowledge, Mr Reynolds told Active Wealth's customers and the Authority that it

was a suitable investment for Active Wealth's customers, when there was clear

evidence to the contrary.

5.6.
As set out above in paragraphs 4.66 to 4.86, Mr Reynolds dishonestly advised and

persuaded customers to transfer out of the British Steel Pension Scheme when he

knew it was not likely to be in their best interests to do so and had no regard to

whether his advice was suitable. He deliberately drafted suitability reports that

gave the false impression that he and Active Wealth had provided suitable advice

to customers. The Authority considers that this was dishonest and intended to

create the false impression that Mr Reynolds had acted in the best interests of his

customers, when in fact he had not. The Authority also considers that Mr Reynolds

was dishonestly intent on persuading as many people as possible to transfer out of

a Defined Benefit Scheme even though this was likely to be the wrong choice for

them.

5.7
The Authority concludes that Mr Reynolds’ motivation for acting dishonestly and

contrary to his customers’ interests was personal financial gain because, as set out

in paragraphs 4.19 to 4.44 above, he received prohibited commissions from the

issuers of the investments into which those customers’ pension monies were

invested.

5.8
As set out above in paragraphs 4.87 to 4.91, Mr Reynolds acted dishonestly when

he failed to disclose adequately or at all the existence of the UCITS sub-funds exit

fee to his customers, and knowingly misled some customers about the existence of

the fee. This disregard for customers’ interests in favour of Mr Reynolds’ personal

financial gain is further evidence that Mr Reynolds lacks integrity.

5.9
As set out above in paragraphs 4.92 to 4.97, Mr Reynolds knowingly allowed

Adviser A and Adviser B to provide pensions advice to Active Wealth’s customers

without being approved persons at Active Wealth, recklessly disregarding the risk

to the interests of those customers. Moreover, not only was Adviser A not approved

to provide pensions advice, he was not even qualified to do so, creating a real risk

to the interests of Active Wealth’s customers. Although Adviser B held the

necessary qualifications, Mr Reynolds knew that the Authority would likely consider

him otherwise unsuitable to be an approved person owing to his association with

another firm. As with Adviser A, this created a real risk of detriment to the interests

of Active Wealth’s customers.

5.10
As set out above in paragraph 4.98, in March 2016 the Authority enquired whether

Adviser A may have been providing pensions advice on behalf of Active Wealth. Mr

Reynolds knew that Adviser A had provided advice and was neither approved nor

qualified to do so but he deliberately provided false and misleading information to

the Authority as to the nature of Adviser A’s role at Active Wealth.

5.11
As set out above in paragraphs 4.99 to 4.107, Mr Reynolds repeatedly and

deliberately provided false and misleading information to the Authority to conceal

that he, the other advisers and the introducers, received prohibited commission

payments and to conceal the amount of those prohibited commission payments.

Lack of fitness and propriety

5.12
In addition to Mr Reynolds’ breach of Statement of Principle 1 set out in paragraphs

5.4 to 5.11 above, the Authority has concluded that Mr Reynolds also acted

dishonestly and without integrity after the Relevant Period (between 6 February

2018 and 27 February 2019), in that:

as set out above in paragraphs 4.108 to 4.113, during the course of their

respective investigations, Mr Reynolds dishonestly misled the Authority and

the Insolvency Service about the existence and nature of the prohibited

commission payments, the Second Company’s business activities and his

relationship to that company, and the conflict of interest at the heart of

Active Wealth’s business model; and

as set out above in paragraphs 4.114 to 4.116, Mr Reynolds was reckless as

to whether evidence likely to be relevant to the investigation was

permanently deleted.

5.13
The Authority has concluded based on the matters set out at paragraphs 5.4 to

5.12 above that Mr Reynolds lacks honesty and integrity and is not fit and proper.

6.
SANCTION

Financial penalty

6.1
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 6.5B sets out the details of the five-step framework that applies in

respect of financial penalties imposed on individuals in non-market abuse cases.

Step 1: disgorgement

6.2
Pursuant to DEPP 6.5B.1G, at Step 1 the Authority seeks to deprive an individual of

the financial benefit derived directly from the breach where it is practicable to

quantify this.

6.3
Mr Reynolds derived direct financial benefits from his breach of Statement of

Principle 1.

6.4
Mr Reynolds received a direct financial benefit from the prohibited commission

payments in the amount of £1,014,976, comprised of:

£232,000 (net) from the First Company;

£579,002 (net) from the Second Company;

£149,900 from Active PMC;

the First Company’s purchase of a vehicle costing £41,475 for Mr

Reynolds; and

the Second Company’s payment of his legal fees of £12,599.

6.5
Mr Reynolds derived direct financial benefit from the advice fees generated from

customers who:

switched or transferred out of their existing pension arrangements to SIPPs

investing in P6 as a result of Active Wealth’s unsuitable advice to invest in

P6 and/or invested in P6 as a result of Mr Reynolds’ false and misleading

statements in the P6 Application Forms;

transferred out of the British Steel Pension Scheme as a result of Mr

Reynolds’ unsuitable advice;

switched or transferred out of their existing pension arrangements into

SIPPs investing in the UCITS sub-funds as a result of Mr Reynolds’ disclosure

failings; and

followed the recommendations of Adviser A or Adviser B who were not

approved to provide advice.

6.6
Mr Reynolds’ breach tainted the vast majority of the regulated activity conducted

by Active Wealth during the Relevant Period, however, the precise extent to which

it did so is not accurately quantifiable due to the false and misleading information

provided by Active Wealth and Mr Reynolds to the Authority. It is therefore

appropriate that Mr Reynolds should not benefit from this ambiguity and for the

Authority to consider that 100% of the total advice fees generated by Active Wealth

stemmed directly from his breach, pursuant to DEPP 6.5B.1G.

6.7
Therefore, the Authority considers that 100% of Mr Reynolds’ salary during the

Relevant Period (£12,425) directly stemmed from Mr Reynolds’ breach.

6.8
DEPP 6.5A.1G(1) states that the Authority will ordinarily charge interest on the

financial benefit. Interest is charged at the rate of 8% simple per year, consistent

with the amount of interest typically awarded by the Financial Ombudsman Service,

and amounts to £363,015.

6.9
Step 1 is therefore £1,390,416 comprising £1,014,976 in prohibited commissions,

£12,425 in the salary earned from Active Wealth during this time (which directly

stems from the breach) and £363,015 in interest.

Step 2: the seriousness of the breach

6.10
Pursuant to DEPP 6.5B.2G, at Step 2 the Authority determines a figure that reflects

the seriousness of the breach. That figure is based on a percentage of the

individual’s relevant income. The individual’s relevant income is the gross amount

of all benefits received by the individual from the employment in connection with

which the breach occurred, and for the period of the breach.

6.11
The period of Mr Reynolds’ breach was from 12 March 2015 to 5 February 2018.

The Authority considers his relevant income for this period to be £1,027,401

comprised of:

£1,014,976 derived from prohibited commission payments as set out at

paragraph 6.4; and

£12,425 in salary from Active Wealth.

6.12
In deciding on the percentage of the relevant income that forms the basis of the

Step 2 figure, the Authority considers the seriousness of the breach and chooses a

percentage between 0% and 40%. 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 individuals in non-market

abuse cases there are the following five levels:

Level 1 – 0%

Level 2 – 10%

Level 3 – 20%

Level 4 – 30%

Level 5 – 40%

6.13
In assessing the seriousness level, the Authority considers various factors which

reflect the impact and nature of the breach, and whether it was committed

deliberately or recklessly.

Impact of the breach

6.14
Mr Reynolds’ financial gain stemming from his breach was substantial (DEPP

6.5B.2G(8)(a)).

6.15
Mr Reynolds’ breach caused Active Wealth’s customers to transfer out of the British

Steel Pension Scheme when it was not in their best interests and caused customers

to invest in investments that were not suitable for them. He also allowed individuals

who were not approved persons to provide advice to customers. This exposed a

large number of customers to a risk of a substantial loss (DEPP 6.5B.2G(8)(b) and

(c)). British Steel Pension Scheme members were in a particularly vulnerable

position due to the uncertainty surrounding the future of the scheme (DEPP

6.5B.2G(8)(d)).

6.16
Mr Reynolds’ breach caused considerable distress and inconvenience to customers.

Active Wealth’s customers should not have been in the position where it was

necessary for them to make FSCS claims to recover their losses (DEPP

6.5B.2G(8)(e)).

6.17
As at 15 August 2022, the FSCS had paid compensation of over £17.6 million to

over 470 former customers of Active Wealth. This represented more than 70% of

Active Wealth’s customers. Almost half of these customers – at least 231 - suffered

losses that exceeded the FSCS compensation cap of £50,000 and were significantly

harmed as a result of Mr Reynolds’ misconduct. As set out in paragraphs 4.117 to

4.121, Mr Reynolds deprived customers or other creditors of Active Wealth of

recourse to his property which otherwise may have been used to meet his and/or

Active Wealth’s liabilities.

Nature of the breach

6.18
Mr Reynolds’ breach stemmed from multiple areas of misconduct (DEPP

6.5B.2G(9)(a)). His actions were continual and spanned the entire period during

which Active Wealth conducted business, being almost three years (DEPP

6.5B.2G(9)(b)).

6.19
Mr Reynolds failed to act with integrity because he acted dishonestly and recklessly

(DEPP 6.5B.2G(9)(e)).

6.20
Mr Reynolds caused and encouraged Active Wealth’s advisers to commit breaches

because he established and maintained the system of prohibited commission

payments that they each benefited from contrary to the best interests of Active

Wealth’s customers. He also allowed Adviser A and Adviser B to provide advice to

Active Wealth’s customers when they were not approved to do so (DEPP

6.5B.2G(9)(h)).

Level of seriousness

6.21
DEPP 6.5B.2G(12) lists factors likely to be considered ‘level 4 or 5 factors’. Of

these, the Authority considers the following factors to be relevant:

The breach caused a significant loss and risk of loss to a large number of

customers (DEPP 6.5B.2G(12)(a));

Mr Reynolds failed to act with integrity (DEPP 6.5B.2G(12)(d)); and

The breach was committed deliberately and recklessly (DEPP

6.5B.2G(12)(g)).

6.22
DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 or 3 factors’. The

Authority considers that none of these factors apply.

6.23
Taking all of these factors into account, the Authority considers the seriousness of

the breach to be level 5 and so the Step 2 figure is 40% of £1,027,401.

6.24
Step 2 is therefore £410,960.

Step 3: mitigating and aggravating factors

6.25
Pursuant to DEPP 6.5B.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.

6.26
The Authority considers that the following factors aggravate the breach:

Mr Reynolds failed to cooperate with the Authority by misleading the

Authority during his two interviews and by being reckless as to the

destruction of evidence (DEPP 6.5B.3G(2)(b));

as set out in paragraphs 4.117 to 4.121, Mr Reynolds took steps in respect

of the First and Second Property Transfers because he believed that the

outcome of the Authority’s enquiries and investigation may result in the

imposition of a financial penalty or a requirement to pay restitution. He

therefore sought to make his family home unavailable to meet the

enforcement of any financial penalty and/or any liabilities to Active Wealth’s

customers or other creditors (DEPP 6.5B.3G(2)(e));

as set out at paragraph 4.98, Mr Reynolds allowed Adviser A to continue

providing advice to Active Wealth’s customers after the Authority made

enquiries as to what capacity Adviser A was acting in relation to Active

Wealth (DEPP 6.5B.3G(2)(f));

as set out at paragraph 4.113, Mr Reynolds was dishonest with the

Insolvency Service during the course of its investigation into the Second

Company’s affairs (DEPP 6.5B.3G(2)(b); and

the Authority previously published alerts in 2013 and 2014 relating to the

provision of advice on pension transfers or switches to SIPPs with a view to

investing in unregulated, high-risk investments. Mr Reynolds’ conduct took

place after the publication of the alerts (DEPP 6.5B.3G(2)(k) and (l)).

6.27
The Authority considers that there are no factors that mitigate the breach.

6.28
The Authority considers several of the aggravating factors to be very serious

warranting a substantial uplift to the Step 2 figure. Having considered these

aggravating factors, the Authority considers that the Step 2 figure should be

increased by 100%.

6.29
Step 3 is therefore £821,920.

Step 4: adjustment for deterrence

6.30
Pursuant to DEPP 6.5B.4G, if the Authority considers the figure arrived at after Step

3 is insufficient to deter the individual who committed the breach, or others, from

committing further or similar breaches, then the Authority may increase the

penalty.

6.31
The Authority considers that the Step 3 figure of £821,120 represents a sufficient

deterrent to Mr Reynolds and others, and so has not increased the penalty at Step

4.

6.32
Step 4 is therefore £821,920.

Step 5: settlement discount

6.33
Pursuant to DEPP 6.5B.5G, if the Authority and the individual on whom 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 individual

reached agreement. The settlement discount does not apply to the disgorgement

of any benefit calculated at Step 1.

6.34
Step 5 is therefore £821,920.

Serious financial hardship

6.35
Pursuant to DEPP 6.5D.1G, the Authority will consider reducing the amount of a

financial penalty to be imposed on an individual if the individual provides verifiable

evidence that payment of the penalty will cause them serious financial hardship.

The onus is on the individual to satisfy the Authority that the payment of the penalty

will cause them serious financial hardship.

6.36
Mr Reynolds has asserted that the payment of the financial penalty would cause

him serious financial hardship. However, although Mr Reynolds provided the

Authority with some documents and information in support of his assertion, the

Authority does not consider that this is sufficient to amount to verifiable evidence

that payment of the penalty will cause him serious financial hardship.

6.37
In any event, it is the view of the Authority that even if Mr Reynolds had provided

verifiable evidence that payment of the financial penalty would cause him serious

financial hardship, in all of the circumstances of this case it would not be

appropriate to reduce the financial penalty due to the seriousness of Mr Reynolds’

breach. In particular, the Authority considers that the reduction of the financial

penalty would be inappropriate because:

(1) Mr Reynolds directly derived a substantial financial benefit from the breach

(DEPP 6.5D.2G(7)(a));

(2) Mr Reynolds acted dishonestly with a view to personal gain (DEPP

6.5D.2G(7(b)); and

(3) Mr Reynolds dissipated assets (his family home) in anticipation of the

Authority’s enforcement action with a view to frustrating or limiting the

impact of action taken by the Authority (DEPP 6.5D.2G(7)(d)).

6.38
The Authority therefore has decided to impose a total financial penalty of

£2,212,316 on Mr Reynolds for breaching Statement of Principle 1. This figure is

comprised of the Step 1 figure of £1,390,416 and the Step 5 figure of £821,900

(rounded down to the nearest £100 in accordance with the Authority’s usual

practice).

6.39
The Authority has had regard to the guidance in Chapter 9 of EG in deciding to

impose a prohibition order on Mr Reynolds. The Authority has the power to prohibit

individuals under section 56 of the Act.

6.40
The Authority considers that Mr Reynolds is not a fit and proper person to perform

any function in relation to any regulated activity carried on by any authorised

person, exempt person or exempt professional firm. The Authority has decided that

it is therefore appropriate and proportionate in all the circumstances to impose a

prohibition order on him under section 56 of the Act in those terms. The prohibition

is based on the Authority’s conclusion that Mr Reynolds lacks fitness and propriety

because he:

acted dishonestly and recklessly and in breach of Statement of Principle 1

during the Relevant Period; and

acted dishonestly after the Relevant Period by misleading the Authority

and the Insolvency Service about his receipt of the prohibited commission

payments and with a lack of integrity by recklessly allowing the destruction

of evidence likely to be relevant to the Authority’s investigation.

7.
REPRESENTATIONS

7.1
Annex B contains a brief summary of the key representations made by Mr Reynolds

in response to the Warning Notice and how they have been dealt with. In making

the decision which gave rise to the obligation to give this Notice, the Authority has

taken into account all of the representations made by Mr Reynolds, whether or not

set out in Annex B.

8.
PROCEDURAL MATTERS

8.1.
This Notice is given to Mr Reynolds under sections 57(3) and 67(4) of the Act and

in accordance with section 388 of the Act.

8.2.
The following statutory rights are important.

Decision Maker

8.3.
The decision which gave rise to the obligation to give this Notice was made by the

RDC. The RDC is a committee of the Authority which takes certain decisions on

behalf of the Authority. The members of the RDC are separate to the Authority staff

involved in conducting investigations and recommending action against firms and

individuals. Further information about the RDC can be found on the Authority’s

website:

committee

The Tribunal

8.4.
Mr Reynolds has the right to refer the matter to which this Notice relates to the

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

Tribunal) Rules 2008, Mr Reynolds has 28 days from the date on which this Notice

is given to him to refer the matter to the Tribunal. A reference to the Tribunal is

made by way of a signed reference notice (Form FTC3) filed with a copy of this

Notice. The Tribunal’s contact details are: The Upper Tribunal, Tax and Chancery

9730; email fs@hmcts.gsi.gov.uk). Further information on the Tribunal, including

guidance and the relevant forms to complete, can be found on the HM Courts and

Tribunal Service website:

8.5.
A copy of the reference notice (Form FTC3) must also be sent to the Authority at

the same time as filing a reference with the Tribunal. A copy of the reference notice

should be sent to Rachael Agnew at the Financial Conduct Authority, 12 Endeavour

Square, London, E20 1JN.

8.6.
Once any such referral is determined by the Tribunal and subject to that

determination, or if the matter has not been referred to the Tribunal, the Authority

will issue a Final Notice about the implementation of that decision.

8.7.
A copy of this Notice is being given to Greyfriars Asset Management LLP as a third

party identified in the reasons above and to whom in the opinion of the Authority

the matter to which those reasons relate is prejudicial. That party has similar rights

of representation and access to material in relation to the matter which identifies

them.

Access to evidence

8.8.
Section 394 of the Act applies to this Notice.

8.9.
The person to whom this Notice is given has the right to access:

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

Notice; and

the secondary material which, in the opinion of the Authority, might

undermine that decision.

Confidentiality and publicity

8.10. This Notice may contain confidential information and should not be disclosed to a

third party (except for the purpose of obtaining advice on its contents). In

accordance with section 391 of the Act, a person to whom this Notice is given or

copied may not publish the Notice or any details concerning it unless the Authority

has published the Notice or those details.

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

Decision Notice or Final Notice relates as it considers appropriate. A Decision Notice

or Final Notice may contain reference to the facts and matters contained in this

Notice.

Authority contacts

8.12. For more information concerning this matter generally, contact Roshani Pulle at the

Authority (direct line: 020 7066 6241/email: roshani.pulle3@fca.org.uk).

John A. Hull
Deputy Chair, Regulatory Decisions Committee

ANNEX A

RELEVANT STATUTORY AND REGULATORY PROVISIONS

RELEVANT STATUTORY PROVISIONS

The Authority’s statutory objectives, set out in section 1B(3) of the Act, include the

consumer protection objective. The consumer protection objective is defined at

section 1C of the Act as securing an appropriate degree of protection for consumers.

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

if it appears to the Authority that he is guilty of misconduct and the Authority is

satisfied that it is appropriate in all the circumstances to take action against him.

A person is guilty of misconduct if, while an approved person, he has failed to

comply with a statement of principle issued under section 64A of the Act, or has

been knowingly concerned in a contravention by a relevant authorised person of a

relevant requirement imposed on that authorised person.

Section 56 of the Act provides that the Authority may make an order prohibiting an

individual from performing a specified function, any function falling within a

specified description or any function, if it appears to the Authority that that

individual is not a fit and proper person to perform functions in relation to a

regulated activity carried on by an authorised person, exempt person or a person

to whom, as a result of Part 20, the general prohibition does not apply in relation

to that activity. Such an order may relate to a specified regulated activity, any

regulated activity falling within a specified description, or all regulated actives.

RELEVANT REGULATORY PROVISIONS

Statements of Principle for Approval Persons

The Authority’s Statements of Principle and Code of Practice for Approved Persons

(“APER”) have been issued under section 64 of the Act.

Statement of Principle 1 states:

“An approved person must act with integrity in carrying out his accountable

functions”

SUP 10A and SUP 10C.3 provide that accountable functions also include controlled

functions.

The Fit and Proper Test for Approved Persons

The part of the Authority’s Handbook entitled “The Fit and Proper Test for Approved

Persons” (“FIT”) sets out the criteria that the Authority will consider when assessing

the fitness and propriety of a candidate for a controlled function. FIT is also

relevant in assessing the continuing fitness and propriety of an approved person.

FIT 1.3.1G states that the Authority will have regard to a number of factors when

assessing the fitness and propriety of a person. The most important considerations

will be the person’s honesty, integrity and reputation, competence and capability

and financial soundness.

The Authority’s Conduct of Business Sourcebook (COBS)

COBS 6.1A.4R states that a firm must:

“(1) only be remunerated for the personal recommendation (and any other related

services provided by the firm) by adviser charges; and

(2) not solicit or accept (and ensure that none of its associates solicits or accepts)

any other commissions, remuneration or benefit of any kind in connection with a

firm’s business of advising or any other related services, regardless of whether it

intends to refund the payments or pass the benefits on to the retail client; and

(3) not solicit or accept (and ensure that none of its associates solicits or accepts)

adviser charges in relation to the retail client's retail investment product or P2P

agreement which are paid out or advanced by another party over a materially

different time period, or on a materially different basis, from that in or on which

the adviser charges are recovered from the retail client.”

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

The Authority’s policy in relation to prohibition orders is set out in Chapter 9 of

the Enforcement Guide (“EG”).

EG 9.1 states that the Authority may exercise this power where it considers that,

to achieve any of its regulatory objectives, it is appropriate either to prevent an

individual from performing any functions in relation to regulated activities or to

restrict the functions which he may perform.

DEPP

Chapter 6 of DEPP sets out the Authority’s statement of policy with respect to the

imposition and amount of financial penalties under the Act.

ANNEX B

REPRESENTATIONS

1.
A summary of the key representations made by Mr Reynolds, and the Authority’s
conclusions in respect of them (in bold), is set out below.

Facilitation and receipt of prohibited commission payments

2.
Mr Reynolds does not accept that he acted dishonestly, or that he created and
maintained and exploited any conflict of interest. Mr Reynolds regrets that he failed
to understand properly the prevailing COBS regime during the Relevant Period. He
also admits that he received remuneration by way of marketing fees contrary to the
requirements of the Authority’s Handbook and regrets this. Mr Reynolds now
recognises that the “commission” payments received were not permitted under
COBS 6.1A.4R. However, he was not aware of this at the time.

3.
The commission payments were not made at his instigation. The proposal that
commission payments would be paid to introducers was not devised by him, but
rather, was part of a pre-existing and established business structure operated by
Greyfriars which marketed P6.

4.
Mr Reynolds accepted the payments based on the pre-existing business structure as
explained by Greyfriars. It was his understanding that he could receive these
payments as marketing fees as they are not defined as income. The documentation
from Greyfriars stated that they do not pay commission to advisers. Mr Reynolds
trusted Greyfriars as it was a regulated firm, and he also relied on advice from a
separate consultant who advised that the structure was permissible. Mr Reynolds
also took comfort from the fact that there were regular payments being made from
Greyfriars to the issuers of the investments, and that Greyfriars was willing to
structure the payments in this way. This was the case until the Authority highlighted
the fact that this payment structure was not permitted.

5.
Mr Reynolds kept the payments separate from the rest of Active Wealth’s business,
because Greyfriars told him Active Wealth could not accept marketing fees as it is
an IFA, but the other companies (the First Company and the Second Company) could
accept marketing fees.

6.
Mr Reynolds accepts that the commission payments ought to have been disclosed to
Active Wealth’s customers. However, he denies the allegation that he sought to hide
the existence of the commission payments because he was under the
misapprehension that the COBS requirement did not prohibit individuals receiving
indirect remuneration from third parties.

7.
This misapprehension was (mistakenly) confirmed in his mind by the fact that the
commission payments were an integral and established component of the Greyfriars
business model. At all material times he understood that the Authority was aware
that the commission payments were being made by reason of its investigation into
Greyfriars and affiliated entities, which investigation continued throughout the
Relevant Period.

8.
Mr Reynolds denies that the receipt of the commission payments resulted in either
Mr Reynolds or Active Wealth materially altering the advice they gave to customers
or that it produced a disadvantageous result for those customers. The introduction
of the commission payment structure resulted in Active Wealth lowering the level of

advice fees that would have otherwise been charged to the customer by 2-3%, and
so reduced the cost to the customer by approximately 50%.

9.
Mr Reynolds admits that certain of the contractual agreements with the issuers of
investments theoretically provided for commission payments of up to 17%, but such
levels of commission were never paid.

10.
Mr Reynolds admits that the commission payments were paid to individuals via the
First Company and the Second Company, but he denies that those entities were
created for that purpose.

11.
The First Company was established to provide (and in fact did provide) administration
services for small, self-administered pension schemes (SSASs), albeit in limited
terms. Over time, it came to be used for the purpose of receiving commission
payments because:

i)
Mr Reynolds’ understanding of the ban on firms charging commission
was that Active Wealth could not receive the commission payments, but
that payments made to a third party, and which were consistent with
the Greyfriars model as set out above, were legitimate;

ii)
it was administratively practical to arrange for commission payments to
be distributed via a distinct corporate vehicle;

iii)
it was convenient to distribute the payments through a pre-existing
entity rather than incorporate a new one; and

iv)
the Second Company was established, in conjunction with the third close
family member, to provide (and in fact did so provide) administration
services, albeit in limited terms. Upon the Authority contacting the First
Company in connection with P6 as part of its investigation into Greyfriars
it became administratively and practically expedient to transfer the
commission payments through a pre-existing entity, being the Second
Company.

12.
Mr Reynolds does not accept that he was not expected to repay the sums received
under the loan extended by the Second Company. As explained by both he and the
third close family member, it was intended that sums advanced pursuant to that loan
arrangement would be repaid upon Mr Reynolds successfully selling Active Wealth.
The failure to record the loan within the records of the Second Company (whilst
regrettable) is no basis for suggesting that the loan was not repayable.

13.
Mr Reynolds denies that the apparent conflict of interest created by the commission
payments resulted in the £14 million losses to Active Wealth customers because:

i)
at all material times, he understood P6 to be a suitable investment for
retail customers which was capable of reasonably constituting a lower
risk investment with a targeted return;

ii)
while the existence of commission payments may have affected certain
customers’ choices on whether to transfer out of a pension scheme or
their choice of investment, the overwhelming majority of customers
were likely to have been predominantly influenced by other factors (for
example, (i) the potential returns available; and/or (ii) the uncertain
status of the British Steel Pension Scheme); and

iii)
not all of Active Wealth’s customers transferred out to investments to
which commission payments were received.

14. COBS 6.1A.4R clearly states that a firm must only be remunerated by

adviser charges and not solicit or accept any commissions, remuneration or
benefit of any kind in connection with a firm’s business or advising or any
other related services. The Authority does not accept that Mr Reynolds’
stated belief that the commission payments were permitted was his true
belief. It is the Authority’s view that Mr Reynolds knew that all commission
payments were prohibited by COBS 6.1.A.4R.

15. There is nothing in COBS 6.1A.4R which suggests that payments which

would be prohibited if made directly to an IFA, would be permitted if
received indirectly from third parties. This is not a conclusion that an
experienced IFA, like Mr Reynolds, could have reached honestly on a
reading of COBS 6.1A.4R. The prohibition on commission payments is
broadly drafted and is focused on the substance of the prohibited payments,
not the mechanism by which they are made. From Mr Reynolds’ stated
belief that indirect commission payments were permissible, it is implicit
that he always understood that payments direct to Active Wealth would
have been prohibited. The Authority considers this is an attempt to present
the mechanism by which Mr Reynolds sought to conceal the prohibited
payments as the reason why he believed they were permitted.

16. If Mr Reynolds believed there was nothing wrong in receiving commission

payments via the First and Second Companies, Mr Reynolds would have
disclosed them to the Authority at the earliest opportunity. Instead, he
concealed them because he knew them to be prohibited.

17. The Authority notes Mr Reynolds’ denial that he instigated the commission

payments by Greyfriars in respect of investments in P6. However, whether
or not that is the case, it is clear from COBS 6.1A.4R that acceptance of
commissions is prohibited and that Mr Reynolds recommended that Active
Wealth customers invest in P6 because this would earn him commission.

18. Mr Reynolds has not explained satisfactorily why it was “expedient” to

switch the commission payments from the First Company to the Second
Company. In fact, his assertion is misleading and wrong in the following
respects:

i)
the Authority did not contact the First Company in connection
with its investigation of Greyfriars. The Authority only became
aware of the payment of commission to the First and Second
Companies in the summer of 2018, after it had opened its
investigation into Mr Reynolds and Active Wealth and had
conducted a banking analysis of the First and Second
Companies as part of that investigation;

ii)
this was after payments to the First Company had ceased and
receipt
of
prohibited
commission
payments
had
been

transferred to the Second Company. The First Company
received commission payments in the period from 12 March
2015 to 22 October 2018 and the Second Company received
commission payments in the period from 14 July 2016 to 23
October 2018. Commission payments to the First Company
ceased in the same month as the Authority’s visit to Active

Wealth in July 2017. The First Company entered compulsory
liquidation on 8 August 2018; and

iii)
the Authority concludes that the reason it was “expedient” for
commission payments to be switched from the First Company
to the Second Company, was that Mr Reynolds hoped that
commission payments to the Second Company would not be
discovered by the Authority.

19. The Authority considers that Mr Reynolds characterised the commission

payments he received from the Second Company as loans because he
believed this would assist his attempt to conceal them from the Authority
(there may have been income tax benefits also). His continued assertion
that these payments were loans is inconsistent with the accounts of the
Second Company, Mr Reynolds’ acceptance that they were prohibited
commission payments and the view of the liquidators of the Second
Company that these payments were not made to Mr Reynolds pursuant to a
valid loan agreement.

20. The Authority does not accept the assumption claimed by Mr Reynolds, that

the Authority was aware that P6 paid commissions and so he took comfort
from this. For the reasons given above, the Authority considers that Mr
Reynolds cannot reasonably have thought that the commission payments
were legitimate. There is no evidence that the Authority was aware,
through its investigation of Greyfriars, of the commission payments to
advisers of Active Wealth via those companies. In addition, Greyfriars
expressly denied to the Authority that it paid commission to IFAs. Even if
Mr Reynolds did take comfort from this, it does not explain why he
attempted to conceal the payments from the Authority.

21. The Authority did not publicly announce its investigation into Greyfriars or

make any other public statement about that investigation. Any comfort
which Mr Reynolds took from his knowledge of that investigation can only
have been on the basis of information (if any) provided to him by Greyfriars
itself. Mr Reynolds has not set out or otherwise disclosed any such
communications from Greyfriars.

22. Despite expressing regret that he received commission, Mr Reynolds’

representations consistently seek to downplay the significance of his
conduct. For example:

i)
he contends that his receipt of commission enabled him to
reduce adviser fees charged to customers by “approximately
50%”. Thus, he seeks to suggest that his receipt of
commission actually benefitted Active Wealth customers;

ii)
Mr Reynolds denies that the commission payments altered the
advice given to Active Wealth clients. The Authority does not
accept this. Active Wealth advised at least 658 customers
during the Relevant Period. Of those, 580 customers (just over
88%) invested in investments for which commission payments
were made. It is highly improbable – particularly for pension
investments or pension holders with a low risk profile - that
such a high proportion of customers would have been advised
to invest in such a narrow range of investments – or
investments of these kinds – were it not for the fact that Mr

Reynolds and/or other Active Wealth advisers would earn
commission if they did so;

iii)
Mr Reynolds denies that commission of 17% of the amount
invested was ever in fact paid but this is not something the
Authority is able to verify. Nor does Mr Reynolds deny that
when he advised customers to invest in the investment in
question, he anticipated receiving commission of 17% such
that there was a significant incentive for him to advise
customers to choose that investment; and

iv)
Mr Reynolds concedes that if certain customers had known of
the commission payments, they may have made different
investment decisions. However, it is the view of the Authority
that Mr Reynolds would not have advised his customers in the
same way had he not been receiving commission.

23. In the view of the Authority, the commission payments created an obvious

conflict of interest between the interests of Mr Reynolds in receiving
commission, and those of his clients in receiving impartial advice as to what
was in their best interests.

Advice to invest in P6

24.
Active Wealth started advising customers in respect of investing in P6 in 2015, the
product having been in operation since April 2014. At that time, Mr Reynolds’
understanding as to the composition and operation of P6 was derived from Greyfriars’
explanation of the underlying products and the associated marketing materials. As
to which:

i)
P6 was not presented by Greyfriars as being unduly high-risk, illiquid
or unlikely to be suitable for retail customers. Rather, consistent with
Mr Reynolds’ own analysis of the investment opportunity, Greyfriars
represented that while the mini-bonds could be illiquid up to maturity,
P6 would offer good returns (estimated at 5.19% per annum) and
there was a 10% capital risk exposure with the remaining 90% secured
on assets; and

ii)
while P6 marketing materials did carry certain risk warnings, they also
characterised P6 in terms that would suggest the investment products
within the portfolio were more appropriate than the Notice suggests.

25.
Mr Reynolds’ assessment was supported by P6’s initial performance in which it
offered average effective returns of approximately 8.4% between April 2014 and
May 2015. That strong performance was supported by Mr Reynolds’ understanding
that the investments carried a level of oversight, in that, for example, the
investments were held on a regulated investment management platform.

26.
In the circumstances, and in reliance on the information provided by Greyfriars,
notwithstanding its higher liquidity risk, Mr Reynolds considered P6 was a sound
investment proposition (for appropriate customers) when taken as part of a holistic
investment approach. Mr Reynolds only ceased to recommend P6 to customers when
he observed that the underlying investment was not as described by P6, and that
the majority of customers’ investments “just went into corporate bonds”.

27.
Mr Reynolds did not tell the Authority that he believed that P6 was suitable for
customers that were high net worth investors who owned more than one property.
Rather, he acknowledged that certain of his clients were high net worth who would
have owned more than one property and were likely to better understand the
liquidity risks posed by P6.

28.
Mr Reynolds denies that P6 was the default investment portfolio for all Active Wealth
customers. While a higher proportion of customers were invested in P6 by reason of
the responses to Active Wealth’s risk questionnaire, a significant proportion of
customers were either never invested into P6 or were only invested into P6 at
significantly reduced levels.

29.
Mr Reynolds accepts that a recommendation of a high-risk investment to customers
identified as having a very cautious or cautious attitude to risk profile would not be
appropriate, however, he denies that he made such recommendations. First, Mr
Reynolds did not regard the investments in the P6 portfolio as particularly high-risk;
and secondly, Mr Reynolds engaged with customers to ascertain whether they would
accept a higher risk for a higher return - this was necessary if they were to achieve
their targeted income.

30.
Mr Reynolds admits that he permitted customers’ levels of investment in P6 to
exceed 25% of their investable wealth. However, this step was taken having regard
to (if it was a pension transfer) the customers’ targeted returns and critical yields
given in their transfer value analysis reports and in circumstances where: (i) Mr
Reynolds considered the P6 investments were not high-risk; (ii) the perception was
that illiquidity (as opposed to default) was the greater risk posed by P6; and (iii) the
calculation was done holistically (not just on this investment alone) and so with the
awareness that customers’ investments were also diversified.

31.
During the period in which Mr Reynolds advised customers to invest in the P6
portfolio, he did not regard it as a portfolio representing a high-risk of default but
rather a potentially illiquid investment portfolio that, by reason of its strong returns,
was capable of assisting customers in realising their targeted returns. In his view,
the performance of P6 suffered significant adverse change after the Authority stated
its concerns in relation to the portfolio.

32.
Mr Reynolds admits that he signed P6 Application Forms in the manner described in
the Notice. However, these forms were countersigned by another investment
platform operator, whilst the fact-finding component of the documents were signed
by the customer in each instance. Mr Reynolds’ assessment of knowledge and
experience determined the proportion that each customer invested in P6 in the
manner set out above.

33.
In respect of Mr Reynolds’ interactions with Customers A, B and C, he denies that he
gave advice to the effect that investments in unregulated investments were suitable
because these customers had a high-risk profile and capacity for loss. Neither does
Mr Reynolds consider the investment to have been unsuitable for Customers A, B or
C in the circumstances, notwithstanding their characterisation as cautious investors.

34. On the basis of the available evidence the Authority does not believe Mr

Reynolds’ account that he considered the P6 investment portfolio to be “a
sound investment proposition (for appropriate customers) when taken as
part of a holistic investment approach”. It also rejects his contention that
P6 was not the default investment for Active Wealth customers. Of the 315
Active Wealth clients in the period up to and including September 2016, 255
customers (just over 80%) invested monies in P6. Nor does the Authority
accept Mr Reynolds’ assertion that he only ceased to recommend P6 to

customers when he observed that the underlying investment was not as
described by P6, and that the majority of customers’ investments “just went
into corporate bonds”.

35. The Authority disagrees with Mr Reynolds’ assessment of the risk levels of

the investments in P6, and his view that P6 was capable of assisting
customers in realising their targeted returns. Mr Reynolds is recorded in
the minutes of the Authority’s visit to Active Wealth on 17 and 18 July 2017
as stating that he believed that P6 was suitable for customers that were
high net worth investors who owned more than one property. Mr Reynolds
also repeated this statement in his first interview with the Authority’s
Enforcement division. The Authority considers that he did so because he
knew that it was obvious that P6 investments were too high-risk to be
appropriate for customers of more modest means, who would be less able
to afford to lose their investment.

36. The high-risk nature of P6 was summarised in statements within the P6

documentation and would also have been apparent to any competent
financial adviser. Despite Mr Reynolds’ assertions to the contrary, the high-
risk nature of P6 was clear from when the first investments were made by
Active Wealth customers.

37. Contrary to what was stated in some of the P6 documentation, P6 was not

comprised of up to 40% in equities, up to 40% in fixed interest securities
and up to 20% in property with the balance in cash (the “40/40/20
composition”). Mr Reynolds was aware of this at the time that he was
recommending that Active Wealth customers invest in P6. Active Wealth’s
own suitability reports for investments in P6 sometimes stated both that
the assets were comprised of the 40/40/20 composition, and that “the
assets within the portfolio are made up of specific corporate bonds with
varying levels of security via a charge against property.” When the
Authority asked Mr Reynolds about this inconsistency in a letter dated 29
September 2017, Mr Reynolds responded that Active Wealth was “fully
aware of the composition of P6” and the reference to the 40/40/20
composition in the suitability reports instead related to “portfolios that sat
alongside P6 within the overall recommendation”.

38. Greyfriars sent monthly emails to Active Wealth setting out the bonds in

which P6 customers were invested. This information made it clear that they
were investments in mini-bonds. Mr Reynolds examined this information in
detail, as is evidenced by the fact that he informed the Authority that Active
Wealth prepared spreadsheets for “nearly every [customer]” setting out the
bonds they owned and when coupon payments were due. At least from the
time this information was provided in respect of the first Active Wealth
customers’ investments in P6, Mr Reynolds was aware that customers’
monies were being invested solely in mini-bonds.

39. So far as the Authority has been able to ascertain, Active Wealth customers

only ceased investing in P6 in the autumn of 2016. The probable reason is
that from 7 October 2016 Greyfriars was prohibited by a voluntary
requirement, imposed at the request of the Authority on Greyfriars’
application, from accepting new money into P6. The Authority, therefore,
rejects Mr Reynolds’ assertion that he stopped advising Active Wealth
customers to invest in P6 as soon as he realised the true nature of the
underlying investments. He only did so when further investments were no
longer possible.

40. Further, Mr Reynolds ignored Greyfriars’ own limits for investments into P6.

Mr Reynolds knew that Greyfriars would not normally accept an investment
into P6 where it represented more than 25% of a customer’s “total
investable wealth”. The Greyfriars P6 documentation also stated that P6
was appropriate only for a “small proportion” of an investor’s funds.
Nevertheless, Mr Reynolds and others at Active Wealth often advised
customers to invest more than 25%, and on occasion up to 62%, of their
“investable assets” in P6.

41. The Authority does not accept that Mr Reynolds advised customers to invest

in P6 because he considered this to be in their best interests. Mr Reynolds
knew that investing in P6 was high-risk and unsuitable for most Active
Wealth customers. He nevertheless advised them to do so because if they
did, he would earn commission.

42. Mr Reynolds does not deny that he stated on P6 Application Forms that

Active Wealth customers, who he had assessed as having “very cautious”,
“cautious” and “balanced” risk profiles, had a high-risk profile and capacity
for loss. Mr Reynolds has not given any reasonable explanation for this
misrepresentation of customer risk profiles. Even if Mr Reynolds did not
believe P6 to be a high-risk investment, and considered it to be appropriate
for Active Wealth customers with low-risk profiles, this would not justify
him misrepresenting their appetite for risk in order to induce Greyfriars to
accept their investments.

43. Mr Reynolds does not deny that he knowingly made false and misleading

statements to Greyfriars about Customer A and Customer B in their
respective P6 Application Forms, in respect of: (i) them being high-net
worth investors; (ii) the percentage of their portfolio the investment in P6
would represent; and (iii) them being experienced investors. Mr Reynolds
also does not deny that he knowingly made false and misleading statements
about Customer C’s investment experience and the percentage of investable
assets in his P6 Application Form.

44. Even if Mr Reynolds did not appreciate that the investments in the P6

portfolio were high-risk, this would not explain his making the false and
misleading statements to Greyfriars.

45. The fact that Mr Reynolds made such false and misleading statements on

the P6 Application Forms is evidence that he knew they were not
appropriate for these customers. The Authority has seen no evidence to
support Mr Reynolds’ contention that the customers and Active Wealth’s
SIPP provider were content for him to make the false statements. However,
even if this contention were true, no honest financial adviser would have
colluded with customers – or a SIPP provider - to mislead Greyfriars in this
way.

46. It appears to the Authority that the SIPP provider was not given the

customer questionnaires which contradicted the information in the P6
Application forms. When it countersigned the application forms therefore,
the SIPP provider cannot have known that they were not accurate. The
Authority concludes that Mr Reynolds’ representations that they did so is
false.

47. The Authority concludes that Mr Reynolds knew that investing in P6 was not

in the best interests of Active Wealth customers, that he deliberately and
dishonestly gave them the wrong advice, and misled Greyfriars as to their

circumstances in order to have the customers invest in P6. He took such
actions dishonestly in order to maximise the commission paid to himself and
other Active Wealth advisers.

48.
There was a great deal of uncertainty and customer vulnerability which surrounded
the British Steel Pension Scheme during the Relevant Period and customers were
considering their options for future pensionable provision in that context. During the
Relevant Period, there was also a good deal of change and alteration to transfers out
of Defined Benefit Pension schemes, both in terms of laws and guidance.

49.
Mr Reynolds did not consider that a transfer out of a Defined Benefit Pension Scheme
was a step to be taken lightly, and the suitability reports make it perfectly plain that
he understood (and advised) that to be the case. Neither is it the case that a transfer
out of a highly vulnerable (and under-funded) scheme such as the British Steel
Pension Scheme, and the taking of a transfer value so as to invest through a SIPP,
can be reasonably portrayed as inevitably the wrong course of action. Each transfer
must be assessed on its own merits. The Authority has not demonstrated a) the
unsuitability of any transfer upon which it relies, or b) why, in any event, the
Authority alleges that the suitability reports provided in this case (which
recommended not transferring out) did not mean what they said.

50.
The initial skilled person review of the suitability reports in this case concluded that
the advice given was not to transfer and that the customers were insistent
customers. Furthermore, the majority of the customers whom Mr Reynolds / Active
Wealth advised had already obtained discharge forms prior to Mr Reynolds / Active
Wealth first meeting them, had often spoken to other advisers, and often had pre-
determined views as to the inadequacy of the proposed British Steel Pension Scheme
pension provision and their wish to make alternative pension provision.

51.
The Authority has produced no evidence to support its assertion that Mr Reynolds
never spoke with Customer C about Customer C’s level of risk, and that Customer C
never agreed to accept a higher level of risk.

52.
Further, the Authority has produced no evidence in support of its assertion that Mr
Reynolds was aware that a transfer from the British Steel Pension Scheme to a SIPP
was unlikely to be suitable.

53.
Mr Reynolds denies that he used the term “no brainer” when providing advice to
Active Wealth customers to transfer out of the British Steel Pension Scheme. Each
customer was advised in the context of the suitability of their options and in the
context of what they were seeking to achieve. Mr Reynolds and Active Wealth
complied with the obligation under, inter alia, COBS 9.4.1.1R(4) when preparing
suitability reports for each of its customers.

54.
The Authority has no basis on which to make the assertion that the suitability reports
failed to reflect the oral advice given by Mr Reynolds and Active Wealth, beyond the
questionnaires returned to the Authority by the customers during its investigation.
These are not contemporaneous documents but are the customers’ recollections of
past events. The Authority appears to criticise Mr Reynolds because the wording of
the suitability reports contained “identical or similar wording.” This criticism is
unfounded in that:

i)
the templates used to prepare these suitability reports (including
their stock wording) were not prepared by Active Wealth or Mr

Reynolds but by a third-party compliance consultant. In the
circumstances Mr Reynolds had understood that Active Wealth’s
reliance on these documents and their format was appropriate;

ii)
it is a hardly surprising feature of documents that were prepared on
a routine basis that they would rely on template wording; and

iii)
in any event, the wording of these reports was routinely adjusted,
for example, to ensure that they reflected customer particularities.

55.
Mr Reynolds considers that the Authority’s conclusion that Active Wealth’s suitability
reports were drafted in such a way as to suggest that the customers had been
advised to remain in the British Steel Pension Scheme mischaracterises the tone of
the suitability reports. Rather:

i)
it is plain that Active Wealth started from a proposition whereby
benefits under the British Steel Pension Scheme were likely to
represent the preferable starting position;

ii)
in the circumstances, it was the honestly held view of Mr Reynolds
and other members of the Active Wealth team, that many of Active
Wealth’s customers were unable to achieve specific performance
goals were they to remain in the Scheme and / or join BSPS 2; and

iii)
all Active Wealth customers would have been provided with suitability
reports during the advisory process on the terms outlined above.

56. The Authority has reviewed the files of 23 British Steel Pension Scheme

members who were customers of Active Wealth. It found that, with the
exception of two, the suitability reports post-dated the signature and
submission of the forms for the transfer of the customer’s British Steel
pension to a SIPP. The Authority therefore concludes that Mr Reynolds
produced the suitability reports after customers had already instructed the
transfer out of the British Steel Pension Scheme (as the dates on the reports
show).

57. Mr Reynolds provided the suitability reports after the transfer forms had

been signed and submitted because he knew that they did not reflect the
advice he had given orally, and to avoid the possibility of Active Wealth
customers changing their minds about whether to transfer their pension
(which would have resulted in him receiving less commission). The
Authority has concluded that the suitability reports purported to record that
Mr Reynolds had advised Active Wealth customers not to transfer their
British Steel pensions to a SIPP, in an attempt to conceal the advice he had
given to customers orally.

58. The Authority sent questionnaires to the 23 Active Wealth customers whose

files it reviewed. Of the 15 responses received, 13 stated that Mr Reynolds
orally encouraged them to transfer out of the British Steel Pension Scheme.
The remaining two did not consider Mr Reynolds to have advised them
against transferring; rather, they thought he agreed with their own view
that it was necessary to transfer. None of the respondents stated therefore,
that Mr Reynolds had advised them against transferring out of the British
Steel Pension Scheme, despite this having been the advice recorded in their
suitability reports. The Authority therefore considers that Mr Reynolds
account that he did not advise the customers to transfer to be, on the
balance of probabilities, untrue.

59. The skilled person that originally conducted the paper review of the 23

Active Wealth customer files referred to above concluded, on the basis of
the suitability reports taken at their face value, that Active Wealth advised
customers not to transfer, but that the customers insisted on doing so. The
Authority does not consider that this conclusion can be given any weight
however, as the skilled person did not have any evidence from the
customers themselves. Nor was the skilled person aware of the commission
payments received by Mr Reynolds and others at Active Wealth in respect
of the transfers to SIPPs.

60. The Authority also notes that it is unable to verify whether any Active

Wealth customers had obtained and signed discharge forms confirming
their intention to transfer their Defined Benefit Pension to a SIPP before
they were advised by Active Wealth. Of the 23 files which it has analysed in
detail however, discharge forms appear to have been signed on the same
date as advice was given by Active Wealth, or the transfer application made.
These Active Wealth customers therefore only signed their discharge forms
(and therefore began the process of transferring their pension) after
receiving advice from Active Wealth.

61. Even if, as Mr Reynolds contends, some customers had obtained discharge

forms prior to being advised by Active Wealth, had they been properly
advised by Mr Reynolds, it is likely that they (or at least the majority of
them) would have accepted his advice to remain in the British Steel Pension
Scheme / transfer to the BSPS 2, and would therefore not have signed the
discharge forms or otherwise taken steps for the transfer of their British
Steel pension to a SIPP.

62. In respect of Mr Reynolds’ claim that he advised members of the British

Steel Pension Scheme to remain in the scheme, but they were determined
to transfer out, the Authority concludes on the evidence that Mr Reynolds
advised them to transfer their pensions out of the British Steel Pension
Scheme.

63. The Authority’s guidance at the time regarding DB schemes was clear: from

the time of its introduction in November 2007, COBS 19.1.6G has provided
that, when advising a retail client who is, or is eligible to be, a member of a
defined benefits occupational pension scheme whether to transfer or opt-
out, a firm should start by assuming that a transfer or opt-out will not be
suitable and that a firm should only then consider a transfer or opt-out to
be suitable if it can clearly demonstrate, on contemporary evidence, that
the transfer or opt-out is in the client's best interests. Moreover, the
Authority published alerts in 2013 and 2014 in relation to the provision of
advice on pension transfers or switches to SIPPs with a view to investing in
unregulated, high-risk investments.

64. The typical wording used in the suitability reports did not contain any

analysis of the PPF or the BSPS2. Nor did it address the uncertainty in
relation to the future of the British Steel Pension Scheme before the RAA
was approved on 11 August 2017. The Authority concludes that, in truth,
Mr Reynolds understood at the time that remaining in the British Steel
Pension Scheme (including either being automatically transferred to the
PPF or electing to transfer to the BSPS2) would most likely have been better
for Active Wealth customers than transferring to a SIPP, particularly if
invested in higher risk assets.

65. The Authority has concluded that Mr Reynolds identified the British Steel

Pension Scheme membership as a fertile source of potential customers and,
therefore, commission payments. He exploited the vulnerability of these
customers at a time of uncertainty and recommended that they transfer
their pensions to a SIPP because he would earn commission from the SIPP
providers which he recommended.

66.
A UCITS sub-fund prospectus, dated 24 December 2013, disclosed the existence of
exit fees for the first five years of the investment. This prospectus was not intended
for customers, however in most instances Mr Reynolds provided it to customers.

67.
While there was a potential for exit fees to be charged such fees were discretionary
and were not initially charged. It became necessary to charge such fees upon third
parties advising customers to withdraw funds.

68.
The existence of these discretionary fees was unlikely to be a key consideration
having regard to the intended long-term nature of the investments and the
understood intention that exit fees were discretionary and unlikely to be charged.

69. The exit fees were actually set out in a supplement to the prospectus for

one of the UCITS sub-funds (“the Supplement”). However, this was a long,
technical and detailed document. The exit fees (titled “Contingent Deferred
Sales Charge”) were set out on page 18 of this document. The Authority is
unable to verify whether the Supplement was provided to Active Wealth
customers as Mr Reynolds now contends. In Mr Reynolds’ second interview
he denied having received the Supplement at the time he was advising
Active Wealth customers. Even if the Supplement had been provided to
Active Wealth customers the Authority does not consider that this would
have constituted adequate disclosure of the exit fees.

70. Thirteen Active Wealth customers have told the Authority that Mr Reynolds

did not inform them of the exit fees, a further seven customers have told
the Authority that Mr Reynolds positively told them that there were no
charges or penalties payable on exit. Based on this evidence, the Authority
concludes that Mr Reynolds told customers that there were no such exit fees
and that, in the cases where the existence or otherwise of exit fees was
raised by the customer as part of the process of deciding whether to invest,
Mr Reynolds misled them by denying that exit fees were payable. Had Mr
Reynolds considered such fees to be of minor importance, the Authority
considers that he would not have concealed them from customers in this
way.

71. There is nothing in the Supplement which suggests the exit fees were

discretionary. Mr Reynolds has not referred to any evidence in support of
this contention. The Authority therefore rejects Mr Reynolds’ assertion in
this regard. Mr Reynolds must have always known that if Active Wealth
customers withdrew from the UCITS sub-funds early, the exit fees would be
payable.

72.
Mr Reynolds denies that Adviser A and Adviser B provided advice to customers on
behalf of Active Wealth during the Relevant Period. Rather, they each helped to

complete fact finds, and Mr Reynolds himself saw every client that either adviser
brought in.

73.
Adviser A acted as an introducer to Active Wealth and would receive information and
pass it to Active Wealth but could not (and did not) give advice. They additionally
had responsibilities other than providing advice to customers, such as acting as office
manager (from at least May 2015 to May 2016) and as operations consultant (from
at least August 2016 to September 2017) and preparing certain compliance reports.
Mr Reynolds intended that Active Wealth would apply for Adviser A to become an
approved person once they held the necessary qualifications.

74.
Adviser B’s main role and responsibility at Active Wealth was assisting with the
drafting of suitability reports from March or April 2017. The only customers whom
Adviser B visited were friends or longstanding, pre-existing customers of theirs (as
opposed to clients of Active Wealth), and as stated above, such individuals were also
seen by Mr Reynolds.

75. The Authority considers that the documentary evidence and Active Wealth

customers’ accounts demonstrate that Adviser A and Adviser B advised
numerous customers, none of whom were advised by Mr Reynolds (or
indeed ever met, or spoke, with him).

76. Mr Reynolds’ account of events is also contradicted by the fact that Adviser

A and Adviser B received commission payments via the First Company and
the Second Company. It follows that the forms and other documentation
which Mr Reynolds prepared and signed, which purported to record advice
which he had provided to these customers, was also false and misleading.

Misleading the Authority and the Insolvency Service

77.
Mr Reynolds honestly believes that he did not mislead the Authority and that he was
fully transparent with the Authority during its queries to him about Adviser A and
Adviser B. Mr Reynolds honestly believed that he was not giving false information as
to the capacity that Adviser A was acting in relation to Active Wealth at this time, as
Adviser A did in fact do paraplanning. As regards the criticism that Adviser A
appeared to be advising on investments without approval, all customers were
brought to Mr Reynolds for advice (although Mr Deeney may have seen some of
them).

78.
It was the honest belief of Mr Reynolds that the introducer fees did not constitute a
conflict of interest as: (i) he understood that they had been paid before; (ii) he
believed that the Authority knew about them; and (iii) he believed that they were
permitted in order to promote the business.

79.
It is incorrect for the Authority to allege that Mr Reynolds remained in control of the
First Company throughout the Relevant Period. The first close family member was
appointed as director of the First Company, and it was them - not Mr Reynolds - who
ran the First Company on a day-to-day basis. Whilst Mr Reynolds spoke to the first
close family member, he did not have day-to-day control over the First Company
and (as per his statements during the 27 February 2019 interview) Mr Reynolds had
resigned because he “[hadn’t] physically got the time to do it all”.

80.
The circumstances of Mr Reynolds’ first interview on 28 March 2018 were extremely
stressful. Television journalists had very recently turned up at Mr Reynolds’ home
and (as per his statement during the 27 February 2019 interview) he was receiving
“phone calls every other day from newspapers”. He had received solicitors’ letters

concerning former clients, and Active Wealth had been put into liquidation. Mr
Reynolds cannot recall exactly what he said, but if he denied receiving commission,
this was due to his understanding of the word ‘commission’ and his genuinely held
view that it did not include the introducer fees, rather than any intention to mislead.

81.
During the 27 February 2019 interview by the Authority, Mr Reynolds again
understood that he was being asked about prohibited payments, as opposed to
marketing fees being paid to introducers (which he thought were legitimate).

82.
The statements by Mr Reynolds during the 27 February 2019 interview, that the
payments he received from the Second Company were loan advances that he had to
repay, were not deliberately false statements, as he and the third close family
member did in fact regard the payment(s) as a loan which was to be repaid on the
sale of Active Wealth, and he had also obtained confirmation from his accountant
that this could be done.

83. In relation to Mr Reynolds’ assertion that he did not mislead the Authority

when he told the Authority’s supervision team that Adviser A was not
advising Active Wealth customers, there is clear evidence in the information
supplied from Active Wealth customers that Adviser A advised them and Mr
Reynolds did not.

84. None of the three reasons given by Mr Reynolds for omitting to include the

commission payments in the Active Wealth conflict register, which he
provided to the Authority on 19 January 2017, are relevant to that question.
Mr Reynolds’ inability to recognise the conflict of interest created by the
commission payments itself demonstrates his lack of integrity. The
Authority does not accept the explanations given by Mr Reynolds as to what
he said was the basis for his belief that there was no conflict of interest.

85. Mr Reynolds’ denials regarding the control of the First Company do not

address the fundamental allegation that Mr Reynolds received the
commission payments via the First Company in order to conceal those
payments from the Authority. Mr Reynolds’ statements to the Authority in
his interview of 28 March 2018 were clearly false and misleading. Even if
Mr Reynolds believed that the commission payments were permitted, it does
not explain why he did not mention them in his answers to direct questions
about them. Further, the repetition of the contention that the payments
from the Second Company were loans does not assist Mr Reynolds’ position
(nor does his assertion that he obtained advice from his accountant that
“this” could be done, and the Authority has seen no evidence that such
advice was provided).

86. Mr Reynolds’ efforts to explain his many false and misleading statements to

the Authority do not fully address a number of the examples of him
misleading the Authority. It is therefore the view of the Authority that he
has deliberately and consistently misled the Authority over many years.

Destruction of Evidence

87.
Shortly after Active Wealth entered into liquidation on 5 February 2018, Mr Reynolds
contacted Adviser B (who owned the Active Wealth website/domain) to explain that
he no longer required his Active Wealth email account and could no longer pay for
website hosting. He therefore asked for the website to be deleted. Although Mr
Reynolds had not asked Adviser B to delete the mailbox, Adviser B subsequently
deleted Mr Reynolds’ mailbox on 23 February 2018.

88.
Mr Reynolds was unaware that his instruction to delete the website would have the
effect of destroying his Active Wealth email account and did not do so deliberately,
as indeed, many of the emails in the mailbox would have been useful to him. On two
occasions during the first interview of Mr Reynolds on 28 March 2018, he referred to
his needing to locate relevant emails. In his second interview on 27 February 2019,
Mr Reynolds stated that the deletion of his emails was unintentional and that he was
of the belief that the emails would be maintained somewhere and recoverable from
a server.

89.
Mr Reynolds, in any event, considered that the deletion of such emails would not
negatively impact or hinder the Authority’s investigation as: (i) any relevant client
emails would have been saved to the relevant client file on Active Wealth’s client
relationship management (CRM) system; and (ii) he believed that even if an email
address was closed down, the data would remain available via the domain host.

90.
Although Active Wealth’s computers were sold after it entered into liquidation, Mr
Reynolds does not believe any documents relating to Active Wealth’s policies and
procedures and due diligence on investments (including analysis by Active Wealth
on the suitability of investments) have been lost as: (i) Mr Reynolds used to
download “everything that was off my computer” onto a hard drive regularly; (ii) Mr
Reynolds believed that everything (37 or 40 boxes worth of documents) was passed
onto the liquidator; and (iii) there were some paper files remaining.

91.
Mr Reynolds was therefore not aware of any risk of deletion of the email accounts
and the emails, and so he did not act recklessly.

92. Mr Reynolds accepts that in February 2018 he told Adviser B that he no

longer required his Active Wealth email account. Mr Reynolds’ recklessness
in relation to the deletion of his email account is demonstrated by the fact
that:

i) as Mr Reynolds accepts, he told Adviser B that he no longer needed

his Active Wealth email account, when this was not true: on 4 January
2018 the Authority had informed Mr Reynolds that investigators had
been appointed to investigate him and Active Wealth, and he had
been specifically warned not to destroy evidence;

ii) when telling Adviser B that he no longer needed his email account,

he did not tell him that he was obliged to preserve it for the purposes
of the Authority’s investigation; and

iii) whilst Mr Reynolds states that he told Adviser B to delete the Active

Wealth website at the same time as telling him he no longer needed
his email account (the implication being that only the former was to
be deleted), Adviser B has told the Authority that Mr Reynolds told
them he did not need his email account anymore. There is no
evidence, other than what Mr Reynolds says himself, that Mr
Reynolds said anything about deleting the website.

93. The Authority therefore considers that Mr Reynolds was aware of his legal

obligation to preserve evidence that was likely to be relevant to the
investigation, that he must have been aware that his instructions to Adviser
B might result in the deletion of evidence likely to be relevant to the
investigations, and that he nevertheless unreasonably told Adviser B that
he no longer needed the email account.

94.
While the First and Second Property Transfers are admitted, it is denied that these
arrangements were in any way calculated to avoid the Authority or customers or
other creditors of Active Wealth having recourse to the property in order to meet his
and/or Active Wealth’s liabilities. These arrangements were set up for tax and family
reasons and Mr Reynolds was not motivated by an intention to place assets out of
reach of any subsequent obligation or liability.

95. Although Mr Reynolds asserts that these arrangements were set up for “tax

and family reasons”, he has not provided satisfactory further evidence or
details regarding these reasons. His representations do not provide any
meaningful evidence or information about the transfer of his family home
into a trust – in respect of which he is named as a trustee. The clear
inference from the timing of the First and Second Transfers of his family
home, is that they were intended to put his assets beyond the reach of the
Authority. If Mr Reynolds wished to rebut that inference, it was incumbent
on him to set out that information in his submissions and provide the
Authority with relevant supporting evidence. Despite providing copies of
the trust documents, and a small number of other documents, to the
Authority at a late point in these proceedings, he has failed to provide
satisfactory evidence, reasons or explanations that rebut this inference.

96.
On account of the Authority’s investigation of Greyfriars and its consequent
knowledge and understanding that Active Wealth was advising customers to invest
in Greyfriars investments (and specifically P6), the Authority is time-barred from
imposing a financial penalty on him, as the Warning Notice was issued more than six
years after the Authority could have reasonably inferred that Active Wealth was
advising customers to invest in P6.

97.
The Authority agrees that it was information provided to the Authority by
Greyfriars that led it to have concerns about the advice being given to Active
Wealth clients, but does not agree that this gives Mr Reynolds a limitation
defence. The Authority considers that the earliest date on which it might
have reasonably been able to infer any aspect of Mr Reynolds’ misconduct
was 17 August 2016 – this being the date on which the Authority received
customer files from Active Wealth which contained information from which
Mr Reynolds’ misconduct could reasonably be inferred (as required by
section 66 of the Act). As the Warning Notice was issued within six years
of that date, the Authority is not time-barred from imposing a financial
penalty on Mr Reynolds.

Step 1 Disgorgement

98.
Mr Reynolds accepts that he derived direct financial benefits by way of the conduct
detailed in the Notice. His income, however, from Active Wealth in the Relevant
Period was very modest - he received a salary of only £12,599 in the Relevant Period.
While he now admits that his arrangements for remuneration were not permitted
under the Authority’s rules at the time, it would still have been reasonable to draw
some income and expenses from the business. It is wrong, therefore, to start on the

basis that all sums received by him should be liable for disgorgement. They should
be subject to a reasonable allowance for living expenses.

99.
Mr Reynolds is being pursued to repay the sum of £248,002 by the liquidator of the
Second Company and is also in discussions with HMRC as to income tax alleged to
be due in respect of payments by the Second Company. It is wrong in principle that
he should be subject to repay or disgorge the same amount twice and so these
figures (when ascertained) should not be included in the disgorgement figure in any
event.

100. It is not appropriate for the Authority to assert, as it does in the Notice, without

adducing any supporting evidence, that Mr Reynolds’ breach tainted the “vast
majority” of the regulated activity conducted by Active Wealth during the Relevant
Period. The Authority should quantify the amounts which it alleges derive from Mr
Reynolds’ alleged breach and this cannot be assumed.

101. While Mr Reynolds accepts that the appropriate rate of interest is 8% simple per

annum, the figure on which the interest calculation is not accepted. It is not in fact
clear in any event what the basis is for the Authority’s calculation (i.e., for which
period interest is being calculated or the precise basis on which it is calculated).

102. Mr Reynolds, therefore, does not accept the Step 1 figure in the Notice. If a financial

penalty is appropriate at all, the Step 1 figure should be significantly lower.

103. DEPP 6.5B.1G states “Where the success of a firm’s entire business model

is dependent on breaching FCA rules or other requirements of the regulatory
system and the individual’s breach is at the core of the firm’s regulated
activities, the FCA will seek to deprive the individual of all the financial
benefit he has derived from such activities.” The Authority concluded from
Active Wealth’s new business register and the financial benefit gained by
Mr Reynolds from Active Wealth’s revenue generated by its regulated
activities, that almost 100% (i.e. the vast majority) of the success of its
business model was dependent on breaching the Authority’s rules. The Step
1 figure therefore appropriately reflects this.

104. DEPP 6.5B.1G also provides that the Authority “will seek to deprive an

individual of the financial benefit derived directly from the breach…”. Mr
Reynolds expressly accepts he has received benefits in the amount
calculated by the Authority. Therefore, there is no basis on which Mr
Reynolds can be permitted to retain any of the sums to be disgorged. In
addition, the interest has been calculated at 8% simple per annum from the
date the benefit was received up to the date of this Notice. Further, the
Authority does not consider that, as a matter of principle, the disgorgement
element of an individual’s financial penalty should be reduced to account
for an unpaid tax liability incurred as a consequence of receiving the benefit
of their misconduct.

Step 2 The seriousness of the breach

105. Mr Reynolds does not accept the relevant income figure of £1,027,401 for the

reasons given above in relation to the Step 1 figure. Nor does Mr Reynolds accept
the points made by the Authority in relation to the alleged impact of the breach and
nature of the breach. Regarding the level of seriousness of the alleged breach, Mr
Reynolds admits he made mistakes in certain respects but does not accept that he
acted dishonestly and/or recklessly.

106. Mr Reynolds does not accept that the Step 2 calculation should be based on the

seriousness of the breach being determined as level 5, and thus applying a 40%
uplift.

107. Mr Reynolds, therefore, does not accept that £410,960 is an appropriate figure for

the Step 2 calculation.

108. For the reasons set out in detail in the Notice at paragraphs 6.18 to 6.24,

the Authority has assessed the seriousness of Mr Reynolds’ breaches to be
at the highest level (5), thus justifying the Step 2 calculation. The Authority
also considers that the income figure on which this figure is based is
appropriate because, as set out above at paragraph 103, the vast majority
of Mr Reynolds’ salary and financial benefit earned from Active Wealth
during the Relevant Period was earned through these activities.

Step 3 Mitigating and Aggravating Factors

109. Mr Reynolds does not accept that certain factors aggravate the breaches. He denies

that he acted dishonestly and/or recklessly. Moreover, Mr Reynolds has been a
financial adviser for 28 years and has had an unblemished disciplinary record, which
affords substantial mitigation. Guidance as to Pension Transfers and Opt-outs in the
Relevant Period was limited. Therefore, the aggravating features set out in the
Notice are not accepted and there are significant mitigating features. Consequently,
Mr Reynolds considers that the Step 3 figure of £821,920 (entailing an increase of
100%) is not justified and is manifestly excessive.

110. Mr Reynolds’ submissions on the matters constituting aggravating factors

have been addressed above. The Authority considers that he has failed to
show that any of the matters relied on by the Authority as aggravating
factors in this Notice should be discounted. The 100% uplift in the Step 2
figure is therefore appropriate. This is due to the seriousness of Mr
Reynolds’ misconduct which demonstrates a serious lack of honesty and
integrity, and the harm that his misconduct caused to customers – many of
whom were vulnerable.

Proposed penalty

111. For the reasons outlined above, Mr Reynolds disputes the amount of the proposed

financial penalty. The five-step test should reasonably lead to a lesser sum.

112. The Authority considers that it has correctly and appropriately applied its

penalty policy having taken into account all the relevant aspects of Mr
Reynolds’ misconduct and the evidence. Therefore, the Authority considers
it is appropriate to impose a financial penalty of £2,212,316.

113. Mr Reynolds has provided details of his financial position which show that the

payment of the financial penalty would cause him serious financial hardship. There
is also limited prospect of him being able to pay any financial penalty within a period
of three years.

114. As set out in paragraphs 6.36 to 6.38 of the Notice, the Authority considers

it is not appropriate to reduce the penalty on the ground that payment
would cause him serious financial hardship. As well as it being
inappropriate to do so due to the seriousness of his misconduct, despite

having had multiple opportunities to provide such evidence, Mr Reynolds
has not provided full, frank and timely disclosure of any such evidence, nor
has he co-operated fully in answering questions from the Authority about
his financial position.

115. Mr Reynolds considers that the evidence fails to show that he is not a fit and proper

person to perform functions in relation to any regulated activity carried on by an
authorised person, exempt person or exempt professional firm. While Mr Reynolds
does accept fault, any breaches were not deliberate, dishonest or reckless and
consequently he does not lack integrity.

116. Mr Reynolds admits to having made mistakes in difficult circumstances. He does not

admit to dishonesty or recklessness. He has been a financial adviser for 28 years
and has had a previously unblemished disciplinary record. A prohibition order is not
necessary for the protection of the public.

117. If, contrary to this, the Authority is minded to impose a prohibition order, Mr

Reynolds considers that the Authority should only impose an order which is limited
as to scope or function and/or limited as to time. A prohibition order which is limited
as to function could be limited to any senior management function in relation to any
regulated activity carried on by an authorised person, exempt person or exempt
professional firm and any function in relation to the regulated activity of advising on
pension transfers and pension opt-outs carried on by an authorised person, exempt
person or exempt professional firm.

118. Additionally, Mr Reynolds urges the Authority to consider whether any prohibition

order should indicate that the Authority is minded to revoke or vary such an order
after a period of five years or less (EG 9.6.2).

119. The Authority considers that the evidence, and its conclusions in respect of

the same, demonstrates that Mr Reynolds lacks honesty and integrity.
Therefore, he is not a fit and proper person to perform functions in relation
to any regulated activity carried on or by any authorised or exempt person
or exempt professional firm. The Authority also considers that Mr Reynolds
poses a risk to consumers and to the integrity of the financial system.

120. Mr Reynolds’ misconduct is so serious that the Authority does not consider

it appropriate to indicate in the Notice that the Authority is minded to revoke
or vary the prohibition order on application after a certain number of years
(EG 9.6.2). Pursuant to section 56(7) of the Act, Mr Reynolds may apply
for the revocation of the prohibition order. Should he do so, the Authority
will consider all the relevant circumstances, including those set out in EG
9.6.1 and EG 9.6.4, in deciding whether to grant or refuse the application.