FINAL NOTICE

Individual
Reference
Number:
DGT00008

Address: 4th Floor
42 Moorgate
London
EC2R 6EL

ACTION

1. For the reasons given in this notice, the FSA hereby:

i. imposes on David Thornberry (“Mr Thornberry”) a financial penalty of £11,550
under section 66 of the Financial Services and Markets Act 2000 (the “Act”), for
failing to comply with the Statements of Principle 5 and 7 of the Statements of
Principle for Approved Persons;

ii. makes an order, pursuant to section 63 of the Act, to withdraw the approval
given to Mr Thornberry under section 59 of the Act to perform the compliance
oversight function CF10. This order takes effect from 29 March 2012; and

iii. makes an order, pursuant to section 56 of the Act, prohibiting Mr Thornberry
from performing the compliance oversight functions (CF10 or CF10a) in
relation to any regulated activities carried on by any authorised, exempt persons,
or exempt professional firm (the “Prohibition Order”). This order takes effect
from 29 March 2012;.

2. Mr Thornberry agreed to settle at an early stage of the FSA’s investigation and
qualified for a 30% (Stage 1) discount under the FSA’s executive settlement
procedures. Were it not for this discount, the FSA would have imposed a financial
penalty of £16,500.

SUMMARY OF REASONS

3. During the period between 1 November 2007 and 2 March 2011 (the “Relevant
Period”) Mr Thornberry was approved as the person to perform the compliance
oversight controlled function, CF10, with specific responsibility for client money at
Christchurch Investment Management Limited (“Christchurch”). On the basis of the
facts and matters set out below, the FSA considers that Mr Thornberry failed to
comply with Statements of Principle 5 and 7 during the Relevant Period until May
2010, when the FSA visited the Firm. After the FSA visit, and with the assistance of
the skilled persons report, Mr Thornberry worked positively and co-operatively to
improve compliance in the Firm and implement remedial steps.

4. When carrying out compliance oversight functions for Christchurch’s regulated
business before the FSA visit in May 2010, Mr Thornberry failed to take reasonable
steps to ensure that Christchurch complied with the relevant requirements of the
regulatory system (as required under Statement of Principle 7). In particular, Mr
Thornberry failed to:

i. ensure client assets were managed appropriately given that he was responsible
for the generation of client money internal reconciliation;

ii. demonstrate an appropriate knowledge of the CASS Rules to enable him to
adequately perform his compliance oversight controlled function;

iii. ensure the Firm applied the correct standard method of daily client money
internal reconciliations;

iv. ensure the Firm conducted sufficiently frequent client money reconciliations
with external records; and

v. have adequate client trust status letters for the Firm’s client bank accounts for
which compliance was responsible.

5. Prior to the FSA visit, while acting as compliance officer Mr Thornberry failed to take
reasonable steps to organise Christchurch so that it could be controlled effectively (as
required by Statement of Principle 5). He delegated much of the responsibility for

compliance oversight to a compliance manager, without having or putting in place
adequate or appropriate systems and controls, and then he had very little input into or
supervision over the compliance manager’s work in respect of client money, and
failed to take reasonable steps to monitor compliance. In particular, Mr Thornberry
failed to:

i. ensure adequate division of duties concerning the handling of client money to
prevent the risk of fraud;

ii. implement sufficient internal or external checks on the compliance manager’s
handling of client money; and

iii. oversee appropriate systems and controls in relation to client money
arrangements.

6. The FSA views Mr Thornberry’s failings as serious because:

i. the FSA places great importance on the responsibilities of compliance officers
to ensure the business overseen complies with regulatory requirements and
standards;

ii. the failings placed Christchurch’s client money at risk, although no clients
suffered any losses as a result;

iii. Christchurch’s client money deficiencies were not identified through its own
compliance monitoring but by the FSA;

iv. Mr Thornberry’s conduct fell far below the standard which would have been
reasonable in all the circumstances; and

v. the requirements of CASS have been the subject of various publications from
the FSA setting out the practical measures a firm should take to safeguard client
assets.

7. The FSA has taken into account the following factors which have served to mitigate
the seriousness of Mr Thornberry’s failings:

i. there was no actual client loss;

ii. he accepted at an early stage that he had not discharged his responsibilities for
client money to an appropriate standard;

iii. he has co-operated fully with the FSA’s investigation; and

iv. he has implemented changes to the Firm’s handling of client money.

DEFINITIONS

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

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

“CASS Rules” means the Client Assets sourcebook;

“Christchurch” or “the Firm” means Christchurch Investment Management Limited;

“Dear CEO letter” means a letter issued by the FSA to the Chief Executive Officers of
authorised firms holding client money in January 2010;

“Dear CO letter” means a letter issued by the FSA to the Compliance Officers of
authorised firms holding client money in March 2009;

“DEPP” Decision Making Procedures and Penalties Manual;

“the FSA” means the Financial Services Authority;

“Mr Thornberry” means Mr David Thornberry;

the “Relevant Period” means the period between 1 November 2007 until 2 March
2011; and

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

FACTS AND MATTERS

9. Mr Thornberry was approved by the FSA to perform the following controlled
functions at Christchurch during the Relevant Period:

i. CF1 (Director) from 26 August 2004;

ii. CF10 (Compliance Oversight) from 17 September 2007;

iii. CF11 (Money Laundering Reporting) from 17 September 2007; and

iv. CF30 (Customer) from 1 November 2007.

10. Christchurch has been an authorised firm since 1 December 2001. Christchurch
specialises in financial planning and portfolio management. In the course of its
business, Christchurch received money on behalf of clients for investment.
Christchurch calculated that between 30 November 2007 and 28 February 2011 it
held an average of £1,242,466 of client money. The Firm’s handling of client money
was subject to the relevant requirement and standards set out in the CASS Rules.

11. During the Relevant Period Christchurch had 8 investment advisers (CF30), three of
whom were directors (CF1), including Mr Thornberry.

Client money thematic project

12. In March 2009, the FSA issued a “Dear CO” letter to all large firms and posted a
copy for all firms on its website. The Dear CO letter reminded firms that they should
make adequate arrangements to protect client money. The letter highlighted issues
for firms to consider and warned firms that visits focusing on client money controls
would follow during 2009.

13. In January 2010, the FSA issued a Dear CEO letter and published a Client Money
and Asset Report notifying firms of failings identified during work conducted by the
FSA in 2009. The letter warned firms that client money visits would continue
through 2010. Small firms, including Christchurch, were notified of the Dear CEO
letter and the report in a monthly update sent to firms by email in February 2010.

14. In addition to enhanced supervision of client assets, the FSA has conducted a thematic
project into the management of client money held by small firms. The aim of the
project was to:

i. assess whether client money held by firms was safe and would be returned
within a reasonable time in the event that a firm became insolvent; and

ii. ensure that firms take their responsibilities for client money seriously with
regard to client money and had appropriate controls in place to mitigate any
risks.

15. On 25 and 26 May 2010, the FSA visited Christchurch to review its client money
arrangements. During the visit the FSA identified a number of issues, including:

i. an inappropriate division of duties for client money processes at Christchurch
with a high concentration of risk given the range and responsibilities of one
individual, namely the compliance manager;

ii. inappropriate systems and controls to oversee the handling of client money;

iii. failing to perform internal reconciliation of client money in line with the
standard method;

iv. ensuring sufficiently frequent client money reconciliations with external
records; and

v. inadequate client trust status letters for each of the 227 client bank account
opened.

16. As a result the FSA required Christchurch to provide a skilled person’s report,
involving a remedial review of the Firm’s systems and controls and including a report
satisfying the FSA that the Firm was compliant with the FSA’s Principles for
Businesses in respect of the CASS Rules.

17. On 27 November 2010 the skilled person issued a report that focussed on the FSA’s
concerns from the visit about Christchurch’s ability to comply with the CASS Rules
as at October 2010, in particular, the client money internal reconciliation calculation,
reconciliations
with
external
records,
trust
status
letters,
compliance
oversight/segregation of duties/conflicts of interest, and client assets. Its purpose was
to provide assurance that the firm was conducting its business in compliance with
Principle 10 and provide the FSA with assurance that the Firm has taken the
necessary steps to remedy the concerns and mitigate the risks identified as a result of
the May 2010 visit. Since the FSA visit, the skilled person noted that Christchurch
has made “significant progress in improving its controls around client money and
assets”.

18. The principle objective of the CASS Rules is to ensure that client assets are
adequately protected by requiring the firm to take various steps to prevent the
crystallisation of risk to client assets. Failure to comply with the CASS Rules
exposes clients to a significant risk if a firm holding client money becomes insolvent.
A firm holding client money is required by the CASS Rules to obtain
acknowledgements in writing from all its banks that hold money on behalf of its
clients. This is achieved by the firm giving written notice to the bank where the client
money is deposited, requesting the bank acknowledge in writing (through a client
trust status letter) that:

i. All money standing to the credit of the account is held by the firm as trustee and
that the bank is not entitled to combine the account with any other account or to
exercise any right of set-off or counterclaim against money in that account for
any amount owned to it on any other account of the firm;

ii. The title of the account sufficiently distinguishes that account from any other
account containing money that belongs to the firm; and

iii. The bank may not exercise any lien or set off in respect of balances on the client
money account

19. If the bank in the United Kingdom does not provide the required acknowledgement
within 20 business days of the notice, the firm is required to withdraw all the money
standing to the credit of the account and to deposit it elsewhere.

20. By issuing notification and obtaining an acknowledgement of trust in the form of a
trust letter from the bank holding the client money, the firm is taking reasonable steps
to ensure that, in the event of its insolvency, client money is:

i. ring-fenced from the firm’s own assets;

ii. readily identifiable; and

iii. promptly returned to clients without incurring an undue risk of litigation
between competing creditors or claims for rights of set-off and consequential
delay.

Compliance oversight

21. During the period from 1 November 2007 until December 2008, there was an internal
and external element to compliance oversight at Christchurch. However, from
December 2008 the Firm decided to reduce its expenditure on external compliance
consultants. Between 2007 and 2011 there were no external advisers providing
compliance oversight of the Firm’s compliance with the CASS Rules on client
money.

22. During the Relevant Period and before the FSA visit the internal compliance function
was divided between two people: Mr Thornberry and the compliance manager. In Mr
Thornberry’s role as compliance oversight officer and director of Christchurch, he
was responsible for its compliance monitoring duties in handling client money. The

7


evidence gathered during the investigation demonstrated, and Mr Thornberry
accepted during interview, that he:

i. had no formal training for his CF10 role;

ii. was not aware of the CASS Rules relating to trust status letters before the FSA
visit;

iii. failed to review and test the existing system and controls relating to CASS (or
otherwise);

iv. relied on the compliance manager to raise any discrepancies or deficiencies in
client money reconciliations rather than proactively monitoring the compliance
manager’s work;

v. is a director of Christchurch and a member of the Board which, in 2008,
resolved to reduce the services of its external compliance consultants; and

vi. placed unreasonable reliance on external compliance consultants to ensure
compliance, when the decision had been made to reduce services and they had
not visited the Firm to audit CASS compliance since 2007.

23. During the period from 1 November 2007 until July 2010, Mr Thornberry failed to
provide the Board with sufficient information to monitor and assess the adequacy of
its client money systems and controls. He failed to have adequate oversight of the
potential risks posed by the lack of division of duties. During the FSA interview, Mr
Thornberry admitted that the Firm did not fulfil its obligations under the CASS Rules
before the FSA visit.

Lack of division of duties

24. Prior to the FSA visit on 25 May 2010 Mr Thornberry failed to ensure that the
responsibilities for client money were apportioned appropriately, with adequate
oversight, between staff. He delegated all responsibility for client money to a
compliance manager. The roles and responsibilities of the compliance manager for
the handling of client money were extensive. Prior to the FSA’s visit, the extent of
the compliance manager’s role led to an increased concentration of risk, without
adequate checks on the compliance manager’s actions. The compliance manager:

i. provided compliance support to Mr Thornberry and staff;

ii. maintained the internal compliance records and registers;

iii. monitored activities of the staff to ensure the Firm’s procedures were complied
with and staff training was up to date;

iv. conducted a daily review of the clients’ balances on the Firm’s operating
systems and the six- monthly custody reconciliations;

v. was responsible for the day to day management of accounts;

vi. was a signatory for client accounts, which needed two signatories;

vii. as a joint signatory could open client accounts;

viii. received investment cheques;

ix. had verification and update access on the Firm’s system and verification
authorisation for its Bank’s payment system;

x. was also able to authorise online payments;

xi. held the key to the safe which held the Firm’s chequebooks, share certificates
and register of holdings;

xii. received advanced notification of any BACS receipts and payments; and

xiii. covered for the administration manager and paraplanners in their absence.

25. Whilst it is not possible in a small firm to always achieve a full division of duties, in
this case there was a concentration of duties because of the range of responsibilities
of the compliance manager. Mr Thornberry failed to identify the potential risks
posed by the concentration of duties.

26. Mr Thornberry relied on the skills and honesty of the compliance manager in
handling client money compliantly.

27. Where one individual has such an extensive range of responsibilities in relation to
client money, the FSA considers that there is an increased concentration of risk of:

i.
fraud;

ii.
mistake; and consequently

iii.
client loss.

For this reason in the FSA’s view it was unreasonable to rely on one person to
handle so many of the tasks in relation to its client money without sufficient systems
to control or check their activities.

Internal reconciliations and calculations

28. During the period from 1 November 2007 to the FSA visit in May 2010 the Firm did
not conduct a daily internal reconciliation as required by the CASS Rules. The
skilled person’s report found that from the date of the visit until 15 November 2010
the Firm did not apply the standard method as required by the CASS Rules. The Firm
appeared to be using a hybrid of the separate client balance and client bank account
methods described in CASS 7 Annex 1. Therefore, until 15 November 2010, Mr
Thornberry failed to ensure that Christchurch was applying the standard method of
internal client money reconciliation to daily reconciliations as set out in the Annex to
the CASS Rules. The Firm is required to make a record sufficient to show and
explain the method used to perform the internal reconciliation of client balances and

calculate the requirement using either the client balance or the client bank account
method.

Reconciliations with external records

29. During the period from 1 November 2007 until 24 October 2010, Mr Thornberry
failed to ensure the Firm conducted sufficiently frequent client money reconciliations
with external records: the Firm conducted them on a quarterly basis. However, from
24 October 2010 the Firm started to do daily external reconciliations.

30. Mr Thornberry failed to ensure that the Firm’s books and records were up-to-date and
accurate in that the Firm did not record transactional flows on trade dates or recognise
dividend receipts until the Firm received a tax voucher. Mr Thornberry failed to
ensure a sufficiently accurate forward position on client money.

31. The Firm did not have records of client money that it expected to receive on a future
date which would have provided the Firm and its clients with an accurate reflection of
its clients’ forward position. The Firm needed to do so to ensure any client money
that arrives can be immediately and properly identified as client money. During the
period from 1 November 2007 until 25 May 2010 the Firm failed to post transactions
on the day that the transaction occurred and instead delayed in posting transactions
until after receipt of contract notes or tax vouchers. Therefore Mr Thornberry failed
to ensure a sufficiently accurate forward position on client money. The Firm is
required to maintain its records and accounts in a way that ensures their accuracy, and
in particular to ensure they correspond to the client money held for clients, as is
required by CASS 7.6.2. Had the Firm become insolvent it would have been unable
to distinguish client money held for one client from client money held for another.

32. During the Relevant Period the Firm operated a number of client money bank
accounts. For most of the Relevant Period the Firm failed to have any client trust
status letters. It is important that firms put adequate trust acknowledgement
documentation in place for their client money bank accounts to ensure that client
money within the accounts is properly protected in the event of the firm’s insolvency.
The FSA views these failings as serious because they create a risk that, in the event of
insolvency, the client would face difficulties and delay in recovering his money and
would be exposed to the risk of diminution or loss of money.

33. In response to the Dear CEO letter in January 2010, the Firm contacted its bank on
18 March 2010. However, Mr Thornberry failed to ensure adequate trust status
letters for any of the 227 accounts. On 7 and 13 April 2010 the Firm opened two
new client bank accounts. Again the Firm did not obtain a trust letter or withdraw all
money standing to the credit of the accounts within 20 business days (as required by
CASS 7.8.1(2)). The client money held in these accounts was at risk until the Firm
received adequate letters from the Bank on 17 August 2010 in respect of the client
accounts; and on 13 October 2010 in respect of the settlement account (which was
used as a client bank account).

34. During this time the Firm failed to obtain trust status letters and subsequently left the
client money in these Bank accounts despite the requirement under the CASS Rules to
withdraw the money after 20 business days if the firm has not received adequate trust
status letters.

Remedial steps

35. As a result of the FSA communications, FSA visit and the skilled persons’ report, Mr
Thornberry and the Firm have undertaken the following remedial steps:

i. in March 2010 contacted the Bank to request proper trust status letters in
response to the Dear CEO letter;

ii. since July 2010 altered the focus on the CASS Rules and included an individual
section on compliance with the CASS Rules in the monthly Board meetings;

iii. since 17 August 2010 and 13 October 2010 respectively, ensured that there are
appropriate trust status letters in place for each client account and for each
settlement account;

iv. since 24 October 2010, increased external reconciliations with individual bank
accounts to a daily basis;

v. since 15 November 2010, altered the method of daily reconciliation in line with
the standard approach outlined in the CASS Rules;

vi. made changes so that in November 2010 the skilled person concluded they had
seen “sufficient controls in place to prevent any one individual completing the
whole process” and that Christchurch has “made significant progress in
improving its controls around client assets and money”;

vii. since the May 2010 FSA visit, and since the skilled persons report in November
2010, changed the role of the compliance manager so that the compliance
manager no longer provides cover for authorisation of payments and cannot
release payments on the online system; and

viii. since the May 2010 FSA visit, changed the role of the compliance manager so
that there is greater division of duties, sufficient for the skilled person to
conclude that in October 2010 there is “adequate segregation of duties”.

FAILINGS

36. The statutory and regulatory provisions relevant to this Final Notice are referred to in
Annex A.

Breach of Statement of Principle 7

37. Mr Thornberry failed to take reasonable steps to ensure that Christchurch complied
with the relevant requirements of the regulatory system, as required under Statement
of Principle 7. In particular, Mr Thornberry failed to:

i. demonstrate an appropriate knowledge of the CASS Rules to enable him to
adequately perform his compliance oversight controlled function;

ii. ensure the Firm applied the correct standard of daily reconciliations of client
money; and

iii. obtain adequate client trust status letters for the Firm’s client bank accounts.

Breach of Statement of Principle 5

38. Mr Thornberry failed to take reasonable steps to organise Christchurch so that it could
be controlled effectively, as required by Statement of Principle 5, in particular, Mr
Thornberry failed to:

i. ensure adequate division of duties concerning the handling of client money to
prevent the risk of fraud;

ii. implement sufficient internal or external checks on the compliance manager;
and

iii. oversee appropriate systems and controls in relation to client money
arrangements.

39. The FSA’s regulatory objectives to maintain confidence in the financial system and
the protection of consumers, together with the facts and matters described above, lead
the FSA to conclude that Mr Thornberry has failed to satisfy Statement of Principle 5
and Statement of Principle 7. While acting as compliance officer Mr Thornberry
failed to take reasonable steps to organise Christchurch so that it could be controlled
effectively and failed to monitor Christchurch’s client money processes to ensure that
they complied with its regulatory obligations.

40. Having regard to the facts and matters, the FSA considers it appropriate and
proportionate in all circumstances to take disciplinary action against Mr Thornberry
for the breaches.

41. In addition, as a result of the breaches outlined above, the FSA has concluded that Mr
Thornberry’s conduct as compliance oversight officer fell short of the minimum
regulatory standards in terms of his competence and capability. He is not a fit and
proper person to carry out any controlled function involving compliance oversight of
a regulated firm.

42. The FSA considers that Mr Thornberry would pose a serious risk to consumers and to
confidence in the financial system if he were involved in compliance oversight at an
authorised firm in the future. The FSA therefore considers it necessary to prohibit Mr

Thornberry under section 56 of the Act on the grounds that he is not a fit and proper
person to perform the CF10 and CF10a compliance controlled function.

SANCTION

43. The FSA’s policy on the imposition of financial penalties is set out in Chapter 6 of the
Decision Making Procedures and Penalties Manual (“DEPP”) which forms part of the
FSA Handbook. The relevant sections of DEPP are set out in more detail in the
Annex.

44. The majority of Mr Thornberry’s failings occurred before the change in regulatory
provisions governing the determination of financial penalties on 6 March 2010.
Therefore the FSA has applied the penalty regime that was in force before 6 March
2010. All references to DEPP are to the version that was in force up to 5 March 2010.

45. The principal purpose of imposing a financial penalty is to promote high standards of
regulatory conduct by deterring persons who have committed breaches from
committing further breaches, helping to deter other persons from committing similar
breaches and demonstrating generally the benefits of compliant behaviour. A
financial penalty is a tool used by the FSA to help achieve its regulatory objectives.

46. In determining whether a financial penalty is appropriate, and if so its level, the FSA
is required to consider all the relevant circumstances of a case. Applying the criteria
set out in DEPP 6.2.1G (regarding whether or not to take action for a financial penalty
or public censure) and 6.4.2G (regarding whether to impose a financial penalty or a
public censure), the FSA considers that a financial penalty is an appropriate sanction,
given the serious nature of the breaches.

47. DEPP 6.5.2G sets out a non-exhaustive list of factors that may be of relevance in
determining the level of a financial penalty. The FSA considers the following factors
are relevant.

Deterrence (DEPP 6.5.2G(1))

48. Penalties act as a deterrent, and the FSA must ensure that those who are approved
person exercise compliance functions with an appropriate level of competence and
capability and in accordance with regulatory requirements and standards. In this case,
the FSA considers the imposition of a financial penalty is appropriate to demonstrate
to Mr Thornberry and others the seriousness with which the FSA regards such
behaviour.

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

49. The FSA will consider the seriousness of the breaches in relation to the nature of the
requirements breached and the impact.

50. The FSA has concluded that Mr Thornberry exercised inadequate compliance
oversight and control over the conduct of Christchurch’s business, which resulted in

Christchurch failing to comply with the CASS Rules during the Relevant Period.
Christchurch’s breaches were not identified through Mr Thornberry’s own
compliance monitoring, but by the FSA’s visit. The breaches exposed clients to the
potential risk of financial loss in the event of Christchurch’s insolvency.

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

51. In the FSA’s view Mr Thornberry’s breaches were neither deliberate nor reckless.

Whether the person is an individual (DEPP 6.5.2G(4))

52. The FSA recognises that the financial penalty imposed on Mr Thornberry is likely to
have a significant impact on him as an individual. However, it considers a fine is
proportionate given the seriousness of the misconduct and his position as an approved
person.

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

53. The FSA considers the financial penalty of the level proposed is appropriate, having
considered all relevant factors, including the impact such a penalty might have on Mr
Thornberry’s financial resources.

Conduct following the breach (DEPP 6.5.2G(8))

54. Mr Thornberry has co-operated fully with the FSA’s investigation. From the outset
he acknowledged his lack of knowledge and failure to ensure the Firm was compliant
with the CASS Rules.

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

55. In determining the level of the penalty, the FSA has had regard to penalties imposed
by the FSA on other approved persons with similar behaviour. This is considered
alongside the deterrent purpose for which the FSA imposes sanctions.

56. The FSA has had regard to the guidance in Chapter 9 of the Enforcement Guide in
imposing the Prohibition Order on Mr Thornberry. The FSA has power to prohibit
individuals under section 56 of the Act. The Act states that the FSA may make a
prohibition order if it appears to the FSA that an individual is not a fit and proper
person to perform functions in relation to a regulated activity carried on by an
authorised person.

57. Given the nature and serious failures outlined above, the FSA considers that Mr
Thornberry’s conduct demonstrated a lack of competence and capability and he is
therefore not fit and proper to perform the compliance oversight controlled function in
relation to any regulated activity carried on by any authorised person, exempt person
or exempt professional firm. The FSA recommends a Prohibition Order against Mr
Thornberry to stop him carrying on any CF10 or CF10a controlled function in relation

to any regulated activities carried on by any authorised, exempt persons, or exempt
professional firm.

PROCEDURAL MATTERS

Decision maker

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

59. This Final Notice is given to Mr Thornberry under, and in accordance with, section
390 of the Act. The following statutory rights are important.

Manner of and time for Payment

60. The financial penalty must be paid in full by Mr Thornberry to the FSA by no later
than 12 April 2012, 14 days from the date of the Final Notice.

If financial penalty is not paid

61. If all or any of the financial penalty is outstanding on 13 April 2012, the FSA may
recover the outstanding amount as a debt owned by Mr Thornberry and due to the
FSA.

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

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

FSA contacts

64. For more information concerning this matter generally, contact Kate Tuckley of the
Enforcement and Financial Crime Division at the FSA (direct line: 020 7066 7086/
fax: 020 7066 7087).

…………………………………………………………
Tom Spender
Head of Department
FSA Enforcement and Financial Crime Division


ANNEX A

STATUTORY PROVISIONS, REGULATORY GUIDANCE AND POLICY

STATUTORY PROVISIONS

1.1.
The FSA’s statutory objectives are set out in section 2(2) of the Act and include the
protection of consumers.

1.2.
Section 56 of the Act states that the FSA may make a prohibition order if it appears to
the FSA that an individual is not a fit and proper person to perform functions in
relation to a regulated activity carried on by an authorised person. The FSA may make
an order prohibiting the individual from performing a specified function, any function
falling within a specified description or any function.

1.3.
Section 66 of the Act states that the FSA may take action to impose a penalty on an
individual of such amount as it considers appropriate where it appears to the FSA that
the individual is guilty of misconduct and it is satisfied that it is appropriate in all the
circumstances to take action. Misconduct includes failure, while an approved person,
to comply with a statement of principle issued under section 64 of the Act or to have
been knowingly concerned in a contravention by the relevant authorised person of a
requirement imposed on that authorised person by or under the Act.

2.
REGULATORY PROVISIONS

2.1.
In exercising its power to impose a financial penalty, the FSA has had regard to the
relevant regulatory provisions and policy published in the FSA Handbook. The main
provisions that the FSA considers relevant to this case are set out below.

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

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

2.3.
APER 2.1.2P provides that an approved person performing a significant influence
function must take reasonable steps to ensure that the business of the firm for which
he is responsible in his controlled function:

(1)
is organised so that it can be controlled effectively (Statement of Principle 5);
and

(2)
complies with the relevant requirements and standards of the regulatory
system (Statement of Principle 7).

2.4.
APER 3.1.3G provides that when establishing compliance with or a breach of a
Statement of Principle, account will be taken of the context in which a course of
conduct was undertaken, including the precise circumstances of the individual case,
the characteristics of the particular controlled function and the behaviour to be
expected in that function.

2.5.
APER 3.1.4G provides that an approved person will only be in breach of a Statement
of Principle where he is personally culpable, that is in a situation where his conduct
was deliberate or where his standard of conduct was below that which would be
reasonable in all the circumstances.

2.6.
APER 3.1.6G provides that APER (and in particular the specific examples of
behaviour which may be in breach of a generic description of conduct in the code) is
not exhaustive of the kind of conduct that may contravene the Statements of Principle.

2.7.
Statement of Principle 7 which provides that an approved person performing a
significant influence function must take reasonable steps to ensure that the business of
the firm for which he is responsible in his controlled function complies with the
relevant requirements and standards of the regulatory system.

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

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

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

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

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

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

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

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

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

Fit and Proper Test for Approved Persons (“FIT”)

2.12. The FSA has issued specific guidance on the fitness and propriety of individuals in
FIT. The purpose of FIT is to outline the main criteria for assessing the fitness and
propriety of a candidate for a controlled function and FIT is also relevant in assessing
the continuing fitness and propriety of approved persons.

2.13. FIT 1.3.1G provides that the FSA will have regard to a number of factors when
assessing a person’s fitness and propriety. One of the most important considerations
will be a person’s competence and capability.

2.14. FIT 1.3.3G provides that it would be impossible to produce a definitive list of all the
matters which would be relevant to a determination of a particular person’s fitness
and propriety.

2.15. FIT 1.3.4G provides that if a matter comes to the FSA’s attention which suggests that
the person might not be fit and proper, the FSA will take into account how relevant
and how important it is.

2.16. FIT 2.2.1G(2) provides that in determining a person’s competence and capability, the
FSA will have regard to all relevant matters including, but not limited to, whether the
person has demonstrated by experience and training that the person is suitable to
perform the controlled function.

3.
Decision Procedure and Penalties Manual (“DEPP”)

3.1.
The FSA’s policy in relation to the imposition and amount of penalties that applied
during the majority of the Relevant Period was set out in Chapter 6 of DEPP that was
in force prior to 6 March 2010.

3.2.
DEPP 6.1.2G provides that the principal purpose of imposing a financial penalty is to
promote high standards of regulatory and/or market conduct by deterring persons who
have committed breaches from committing further breaches, helping to deter other
persons from committing similar breaches, and demonstrating generally the benefits
of compliant behaviour. Financial penalties are therefore tools that the FSA may
employ to help it to achieve its regulatory objectives.

3.3.
DEPP 6.5.1G(1) provides that the FSA will consider all the relevant circumstances of
a case when it determines the level of financial penalty (if any) that is appropriate and
in proportion to the breach concerned.

3.4.
DEPP 6.5.2G sets out a non-exhaustive list of factors that may be relevant to
determining the appropriate level of financial penalty to be imposed on a person under
the Act. The following factors are relevant to this case:

Deterrence: DEPP 6.5.2G(1)

3.5.
When determining the appropriate level of financial penalty, the FSA will have regard
to the principal purpose for which it imposes sanctions, namely to promote high
standards of regulatory and/or market conduct by deterring persons who have
committed breaches from committing further breaches and helping to deter other
persons from committing similar breaches, as well as demonstrating generally the
benefits of compliant business.

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

3.6.
The FSA will consider the seriousness of the breach in relation to the nature of the
rule, requirement or provision breached, which can include considerations such as:
the duration and frequency of the breach; whether the breach revealed serious or
systemic weaknesses in the person’s procedures or of the management systems or
internal controls relating to all or part of a person’s business; and the loss or risk of
loss caused to consumers, investors or other market users.

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

3.7.
The FSA will regard as more serious a breach which is deliberately or recklessly
committed, giving consideration to factors such as whether the person has given no
apparent consideration to the consequences of the behaviour that constitutes the
breach. If the FSA decides that the breach was deliberate or reckless, it is more likely
to impose a higher penalty on a person than would otherwise be the case.

Whether the person on whom the penalty is to be imposed is an individual: DEPP

6.5.2G(4)

3.8.
When determining the amount of penalty to be imposed on an individual, the FSA
will take into account that individuals will not always have the resources of a body
corporate, that enforcement action may have a greater impact on an individual, and
further, that it may be possible to achieve effective deterrence by imposing a smaller
penalty on an individual than on a body corporate. The FSA will also consider
whether the status, position and/or responsibilities of the individual are such as to
make a breach committed by the individual more serious and whether the penalty
should therefore be set at a higher level.


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

3.9.
The purpose of a penalty is not to render a person insolvent or to threaten a person’s
solvency. Where this would be a material consideration, the FSA will consider,
having regard to all other factors, whether a lower penalty would be appropriate.

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

3.10. The FSA may have regard to the amount of benefit gained or loss avoided as the
result of the breach, for example the FSA will impose a penalty that is consistent with
the principle that a person should not benefit from the breach, and the penalty should
also act as an incentive to the person (and others) to comply with regulatory standards
and required standards of market conduct.

Conduct following the breach: DEPP 6.5.2G(8)

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

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

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

Enforcement Guide (“EG”)

3.13. The FSA’s approach to exercising its power to make a prohibition order under section
56 of the Act is set out in Chapter 9 of the EG.

3.14. EG 9.1 provides that the FSA’s power under section 56 of the Act to prohibit
individuals who are not fit and proper from carrying out controlled functions in
relation to regulated activities helps the FSA to work towards achieving its regulatory
objectives. The FSA may exercise this power to make a prohibition order where it
considers that, to achieve any of those objectives, it is appropriate either to prevent an
individual from performing any functions in relation to regulated activities, or to
restrict the functions which he may perform.

3.15. EG 9.4 sets out the general scope of the FSA’s power. The FSA has the power to
make a range of prohibition orders depending on the circumstances of each case and
the range of regulated activities to which the individual’s lack of fitness and propriety
is relevant.

3.16. EG 9.5 provides that the scope of the prohibition order will depend on the range of
functions which the individual concerned performs in relation to regulated activities,
the reasons why he is not fit and proper and the severity of risk which he poses to
consumers or the market generally.

3.17. EG 9.9 provides that when deciding whether to make a prohibition order against an
approved person, the FSA will consider all the relevant circumstances of the case.
These may include, but are not limited to, the following:

(1)
whether the individual is fit and proper to perform the functions in relation to
regulated activities. The criteria for assessing the fitness and propriety of
approved persons are set out in FIT 2.1 (honesty, integrity and reputation), FIT
2.2 (competence and capability) and FIT 2.3 (financial soundness) (EG
9.9(2));

(2)
whether, and to what extent, the approved person has failed to comply with the
Statements of Principle issued by the FSA with respect to the conduct of
approved persons, or been knowingly involved in a contravention by the
relevant firm of a requirement imposed on the firm by or under the Act
(including the Principles and other rules (EG 9.9(3)(a) and (b));

(3)
the relevance and materiality of any matters indicating unfitness (EG 9.9(5));

(4)
the length of time since the occurrence of any matters indicating unfitness (EG
9.9(6));

(5)
the particular controlled function the approved person is (or was) performing,
the nature and activities of the firm concerned and the markets in which he
operates (EG 9.9(7)); and

(6)
the severity of the risk which the individual poses to consumers and to
confidence in the financial system (EG 9.9(8)).

3.18. EG 9.12 provides a number of examples of types of behaviour which have previously
resulted in the FSA deciding to issue a prohibition order. The examples include:

(1)
serious lack of competence (EG 9.12(4)); and

(2)
serious breaches of the Statements of Principle for approved persons (EG
9.12(5)).

3.19. EG 9.23 provides that in appropriate cases the FSA may take other action against an
individual in addition to making a prohibition order, including the use of its power to
impose a financial penalty.

4.
Senior Management Arrangements, Systems and Controls (“SYSC”)

4.1.
SYSC 3.2.8R(1) states that a firm which carries on designated investment business
with or for retail clients or professional clients must allocate to a director or senior
manager the function of having responsibility for the oversight of the firm’s
compliance and reporting to the governing body in respect of that responsibility.

4.2.
SYSC 3.2.8R(2)(c) states that “compliance” means compliance with the rules in
CASS (Client Assets).

4.3.
SYSC 3.2.9G(2) provides that the rules referred to in SYSC 3.2.8R(2) are the
minimum area of focus of the firm’s compliance oversight function.

5.
Client Assets sourcebook (“CASS”)

5.1.
CASS 7.3.2R states that a firm must introduce adequate organisational arrangements
to minimise the risk of the loss or the diminution of client money, or of rights in
connection with client money, as a result of misuse of client money, fraud, poor
administration, inadequate record keeping or negligence.

5.2.
CASS 7.4.7R states that a firm that does not deposit client money with a central bank
must exercise all due skill, care and diligence in the selection, appointment and
periodic review of the credit institution, bank or qualifying money market fund where
the money is deposited and the arrangements for the holding of this money.

5.3.
CASS 7.4.11R states that a firm must take the necessary steps to ensure that client
money deposited in a central bank, a credit institution, a bank authorised in a third
country or a qualifying money market fund is held in an account or accounts
identified separately from any accounts used to hold money belonging to the firm.

5.4.
CASS 7.6.2R states that a firm must maintain its records and accounts in a way that
ensures their accuracy, and in particular their correspondence to the client money held
for clients.

5.5.
CASS 7.6.7R states that a firm must make records, sufficient to show and explain the
method of internal reconciliation of client money balances under CASS 7.6.2R used,
and if different from the standard method of internal client money reconciliation to
show and explain that the method used affords an equivalent degree of protection to
the firm’s clients to that of the standard method.

5.6.
CASS 7.6.8R states that a firm that does not use the standard method of internal
client money reconciliation must first send a written confirmation to the FSA from the
firm’s auditor that the firm has in place systems and controls which are adequate to
enable it to use another method effectively.

5.7.
CASS 7.6.9R states that a firm must conduct, on a regular basis, reconciliations
between its internal accounts and records and those of any third parties by whom
client money is held.

5.8.
CASS 7.6.14R states when a discrepancy arises as a result of the reconciliation
between a firm’s internal records and those of third parties that hold client money, the
firm must identify the reason for the discrepancy and correct it as soon as possible.

5.9.
CASS 7.8.1R states that when a firm opens a client bank account the firm must give
written notice to the bank requesting the bank to acknowledge to it in writing that all
money is held by the firm as trustee and that the bank is not entitled to combine the
account with any other account or to exercise any right of set-off or counterclaim
against money in that account in respect of any sum owed to it on any other account
of the firm. In addition, the title of the account must sufficiently distinguish that
account from any account containing money that belongs to the firm, and is in the

form requested by the firm. In the case of a client bank account in the United
Kingdom, if the bank does not provide the required acknowledgement within 20
business days the firm must withdraw all money in the account and deposit it with
another bank as soon as possible.