Final Notice
FINAL NOTICE
To:
Mr David Grant Sinclair (“Mr Sinclair”)
9PT.
TAKE NOTICE: The Financial Services Authority of 25 The North Colonnade,
Canary Wharf, London E14 5HS ("the FSA") gives you final notice about a
requirement to pay a financial penalty and an order prohibiting you from
performing any significant influence function in relation to any regulated activity
carried on by any authorised person, exempt person or exempt professional firm.
This Partial Prohibition Order does not prohibit you from performing functions
falling within the definition in the FSA’s handbook of customer functions.
1.
ACTION
1.1.
The FSA gave you a Decision Notice on 20 December 2010 which notified you that
the FSA has decided to take the following action against you, David Grant Sinclair:
(1)
pursuant to section 66 of the Financial Services and Markets Act 2000 ("the
Act"), to impose a financial penalty of £68,000 on you in respect of a breach
of Principle 6 of the FSA’s Statements of Principle and Code of Practice for
Approved Persons (“APER”); and
(2)
pursuant to section 56 of the Act, to make an order prohibiting you from
performing any functions within the definition of the FSA’s Handbook of
significant influence functions in relation to any regulated activity carried on
by an authorised person, exempt person or exempt professional firm (“the
Partial Prohibition Order”) but so as to not prohibit you from performing
functions falling within the definition in the FSA’s handbook of customer
functions.
1.2.
You confirmed on 20 December 2010 that you will not be referring the matter to the
Financial Services and Markets Tribunal.
1.3.
Accordingly for the reasons set out below, and having agreed with you the facts and
matters relied on, the FSA has imposed the Partial Prohibition Order and imposes a
financial penalty on you in the amount of £68,000.
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1.4.
The prohibition order takes effect from 23 December 2010. The Partial Prohibition
Order does not prohibit you from performing functions falling within the definition in
the FSA’s Handbook of customer functions.
1.5.
The financial penalty imposed is discounted by 20% pursuant to the stage 2 early
settlement discount scheme. Were it not for this discount, the FSA would have
imposed on you a financial penalty of £85,000.
2.
REASONS FOR THE ACTION
2.1.
On the basis of the facts and matters described below, the FSA considers that your
conduct, while a director and controlled function holder at Axiom Capital Limited
(“Axiom”), fell short of the standards required by APER Principle 6.
2.2.
Specifically, when holding controlled functions in connection with Axiom’s regulated
business in the period from 1 October 2008 to 5 November 2009 (“the relevant
period”), you breached Principle 6 of APER as you failed as an approved person
performing a significant influence function to exercise due skill, care and diligence in
managing the business of the firm for which you were responsible in your controlled
functions for the following reasons:
(a) you failed to carry out adequate due diligence, failed to heed warnings from
investors and a colleague about the legitimacy of Eduvest Plc’s (“Eduvest”)
activities and failed to notify the FSA of your concerns;
(b) you failed to take reasonable action to prevent activities carried on by
Eduvest in breach of the general prohibition; and
(c)
you failed to adequately respond to consumer complaints and recognise the
warning signs that unauthorised overseas entities were involved in the sale
of Eduvest shares.
2.3.
The FSA has concluded that the nature and seriousness of the failures listed above
warrants the imposition of a financial penalty. Accordingly, the FSA has imposed a
financial penalty on you of £68,000.
2.4.
The FSA has also concluded that you are not fit and proper to carry out any
significant influence functions in relation to any regulated activity carried on by any
authorised person, exempt person or exempt professional firm. Accordingly, the FSA
makes the Partial Prohibition Order against you, in respect of any significant
influence functions, because of the nature of your failings and the potential impact on
consumers.
2.5.
This action supports the FSA’s regulatory objectives of maintaining confidence in the
financial system, the protection of consumers and the reduction of financial crime.
3.
STATUTORY PROVISIONS, REGULATORY GUIDANCE AND POLICY
3.1.
Relevant statutory provisions, regulatory guidance and policy are set out in Annex
“A” to this Notice.
4.
FACTS AND MATTERS RELIED ON
4.1.
You were approved by the FSA to hold the following controlled functions:
(1)
CF1 (Director), CF3 (Chief Executive) and CF11 (Money Laundering
Reporting) from 1 December 2001 to 24 December 2009;
(2)
CF23 (Corporate Finance Adviser) from 1 December 2001 to 31 October
2007;
(3)
CF8 (Apportionment and Oversight) from 1 December 2001 to 31 March
2009;
(4)
CF10 (Compliance Oversight) from 8 May 2006 to 24 December 2009; and
(5)
CF30 (Customer) from 1 November 2007 to present date.
4.2.
Axiom is a corporate advisory business, which operates from offices in London. With
effect from 1 December 2001, Axiom became authorised by the FSA to carry on the
following regulated activities in relation to Designated Investment Business:
(1)
Advising (ex Pension Transfers / Opt outs);
(2)
Agreeing to carry on a regulated activity;
(3)
Arranging deals in investments;
(4)
Arranging safeguarding and administration of assets;
(5)
Causing dematerialised instructions to be sent;
(6)
Dealing in investments as agent;
(7)
Dealing in investments as principal;
(8)
Establishing/operating/winding up an un-regulated Collective Investment
Scheme;
(9)
Making arrangements;
(10)
Managing Investments;
(11)
Safeguarding and administration of assets; and
(12)
Sending dematerialised instructions.
4.3.
In addition to your role at Axiom you are a director of an accountancy firm, SA, and
prior to setting up that company, you were a partner in an accountancy firm called SS.
SS held its client bank account with private bank “C” and during the relevant period
maintained a client account used for its clients and those of SA.
4.4.
In November 2008, you were approached in your capacity as director of Axiom by an
individual, David Mason, about buying a shell company listed on the PLUS market
which he intended to utilise as an investment vehicle. Axiom specialised in advising
companies that wished to list on PLUS and was paid £17,500 (plus VAT) by David
Mason for Axiom's services.
4.5.
You advised David Mason that it would be simpler to set up a new company rather
than buy a shell company and you therefore assisted David Mason in incorporating
for him a new company called Eduvest PLC, using an incorporation agent, which was
jointly owned by you and another individual.
4.6.
Immediately on incorporation David Mason became a director of Eduvest although
the company secretary appointed by him failed to file the appointment at Companies
House. David Mason asked you to open a bank account for Eduvest as he was
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expecting payments from investors and needed an account opened immediately. You
therefore opened a sub-account for Eduvest under the main SS client account with
private bank C. You were aware that Axiom was not authorised to hold client money
and would not be able to carry out the activities that you carried out in relation to
Eduvest through the sub-account to the SS account. You therefore gave instructions
for the sub-account of your SS account to hold monies for Eduvest from Eduvest
investors. You communicated to David Mason that this was to be on a temporary
basis.
4.7.
Contrary to the representations made by David Mason, the FSA investigation has
established that shares in Eduvest were sold to at least 32 consumers in the United
Kingdom and Republic of Ireland, by salesmen making unsolicited, high pressure
telephone calls to these individuals. The salesmen were employed by entities
including Rothman Capital, Investor Relations Corp, Bernam and Shore and Bishop
Capital, colloquially known as “boiler rooms.”
4.8.
Payment for the shares was made by the investors into the Eduvest bank account held
with private bank C, and controlled by you. Money was then distributed out of the
Eduvest account into other accounts including to bank accounts in the name of, or
controlled by, David Mason; to the Axiom Capital bank account in respect of the
aforementioned fee and to an account in Switzerland in the name of a third party
whose identity was not verified. On the specific instructions of David Mason, you in
turn gave instructions that the money transfers from the Eduvest sub-account be made
to these other accounts.
4.9.
Investors have not received any return on their investment, no share certificates have
been issued and no refund of sums invested has been made by Eduvest. Axiom has
however fully compensated such investors. Eduvest was never listed on PLUS
because David Mason failed to honour his stated business plan and instead
misappropriated the monies. The main beneficiary of the funds paid by investors was
Company T, an entity owned and controlled by David Mason.
4.10. David Mason’s / Eduvest’s activities in selling these shares amounted to breaches of
the general prohibition, because they carried out regulated activities in the UK
without being authorised or exempt (in breach of Section 19 of the Act) and
communicated an invitation or inducement to engage in investment activity without
being an authorised person or without having the content of the communication
approved by an authorised person (in breach of Section 21 of the Act).
Breach of Statement of Principle 6 of APER/ Conduct as Director of Axiom
4.11. David Mason approached Axiom to obtain advice from you on a PLUS listing. Such
work should have been preceded by adequate due diligence checks by you into David
Mason and Eduvest. The importance of such checks was highlighted to you in a letter
from PLUS on 21 October 2008 following a visit to your offices. Despite this, you did
not undertake satisfactory due diligence checks into David Mason which ultimately
allowed David Mason to mislead investors.
4.12. During the relevant period, investors contacted you in your capacity as a director of
Axiom, and corporate advisor to Eduvest, to raise concerns about the sale of Eduvest
shares and yet you took inadequate action to question or halt David Mason’s
activities. For example, you were put on actual notice of the legitimacy of Eduvest’s
“introducers” when you received a call from an investor, Mr “B”, who advised that he
had been cold-called by a firm called Hunter Rowe (a boiler room entity) attempting
to sell him shares in Eduvest. Despite this warning sign you did not adequately pursue
the matter or take adequate steps to consider whether Axiom should discontinue
advising / acting on the instructions of David Mason.
4.13. Other investors contacted Axiom, as the FSA authorised entity involved in the
scheme, to make enquiries about their investment. For example, Mr “O” (who
purchased £2,000 worth of Eduvest shares) made several unsuccessful attempts to
contact Eduvest using the contact details on their website. He then wrote to you at
Axiom by e-mail on 29 April 2009 asking when he might receive his share certificate
or, failing this, a refund for his investment. He also asked when Eduvest would be
listed. You responded to this e-mail informing Mr O that Axiom had instructions to
list the company on the PLUS market and that you anticipated that this would be done
by the end of June 2009. You also informed Mr O that, on that basis, share certificates
for the Eduvest shares would be made available in June 2009 or earlier. Although you
continued to press David Mason for more information so that the listing could
progress, you did not update Mr O of the further delays.
4.14. In another instance you received an e-mail from Ms “S” on 29 July 2009 stating: “I
contacted you last week regarding shares which I have purchased in Eduvest Plc and
you had kindly agreed to find out more information on these shares for me. Have you
been able to establish the current situation with them? I still cannot get in contact
with David Mason from Eduvest and I have been trying to contact him on a daily
basis for 2 weeks.” You responded the same day from your Axiom email address
saying “I have heard no more and will chase up”. Ms S recognised your efforts in her
email of 30 July 2009 to you: “Thank you again for helping me with this – you are the
only person who seems interested in doing this!” However, you did not update her
following this email, although, having emailed David Mason on 23 July 2009, you
emailed him again on 4 August, when you were on holiday. You did not hear back.
Even though you were still away, you emailed David Mason a month later, on 24
August 2009, to express your ongoing concerns about the Eduvest situation. David
Mason did not respond. Whilst the FSA acknowledges that you were on holiday
during this time, you did not pass the matter to any other employee of Axiom who
could have helped Ms S in your absence. You failed to deal with the situation
effectively either by delegating the matter to a colleague or by taking sufficient follow
up action yourself.
4.15. A colleague at Axiom, Mr “H”, also alerted you (in your capacity as director of
Axiom) to calls that had been received from investors.
4.16. In October 2009, Mr H sent an e-mail to you, forwarding information supplied by a
consumer who had purchased shares in Eduvest, and queried whether this matter
should be raised with the FSA. You simply replied “Let’s discuss”. Again, you did not
contact the FSA, despite the prompt from your colleague although you agreed that
you would contact the FSA after your return from your business trip abroad. Given
your roles as holder of several key controlled functions (including compliance
oversight) and your approved person status at Axiom, the FSA is of the view that your
conduct fell substantially below the standards expected of someone in such a position.
4.17. All of these incidents show a lack of due skill, care and diligence in managing the
business of Axiom for which you were responsible in performing the significant
influence functions for which you were approved.
4.18. In return for a fee you were responsible for advising David Mason on the proposed
PLUS listing for Eduvest. You were aware that the purported forthcoming PLUS
listing was the basis on which most investors had invested in Eduvest and yet,
although you chased David Mason for information to enable you to proceed with the
listing, you did not pursue this information sufficiently vigorously despite the warning
signs described above.
Lack of Fitness and Propriety / Conduct Outside Role as Director of Axiom
4.19. You controlled the Eduvest sub-account with private bank C and were responsible for
carrying out money laundering and other compliance checks. The FSA considers that
your use of the SS client account and the Eduvest sub-account was in a personal
capacity rather than as an officer of Axiom and it is this conduct that also causes the
FSA to have concerns about your fitness and propriety, as explained further below.
4.20. Prior to opening the Eduvest sub-account you did not carry out sufficient checks on
David Mason’s identity in accordance with anti-money laundering procedures. You
confirmed in your interview with the FSA on 17 November 2009 that you opened the
account for David Mason without seeing documentation or confirming his identity,
although you did request such identity information and expected to receive this.
However, you had not confirmed his identity even after the account received its first
funds on 3 December 2008.
4.21. You continued to facilitate payments into, and the transfer of monies out of, the sub-
account even after David Mason had opened an account in the name of Company T in
January 2009. You should have insisted on David Mason opening a separate bank
account for Eduvest.
4.22. On 16 December 2008 you received a letter from private bank C requesting the return
of £20,000 to a consumer, Ms B, for allegedly mis-sold shares. David Mason emailed
your secretary on 18 December 2008 to say that Ms B "has been spokened to and is
apparently reversing the instruction today" (sic). A handwritten note was made on a
copy of that email by either you or your secretary indicating that the money would
remain in the account. There is no evidence that you took sufficient action to verify
whether the shares had in fact been mis-sold, although when Ms B telephoned you on
8 January 2009 for a progress update she expressed no further concern about mis-
selling.
4.23. You continued to operate the Eduvest sub-account and your secretary actively
pursued banks, on the instructions of David Mason, to ensure that payments had been
received into this account. You did not question the purpose of the payments that, on
behalf of David Mason, you instructed to be made out of this account and you signed
them off. For example, payments were paid out of the Eduvest sub-account to account
R. Even though you believed the payments to be proper business expenditure for
Eduvest, you did not have documentation, other than instructions from David Mason,
to know the reason for, or purpose of these transactions. Neither did you know in
whose name the recipient account was held, the beneficial owner of the recipient
account, nor the person authorised to give instructions regarding funds held in the
recipient account. A total of £75,000 was paid to R.
5.
ANALYSIS OF THE MISCONDUCT AND PROPOSED SANCTIONS
5.1.
The FSA has also considered whether you are a fit and proper person to perform any
significant influence functions in relation to regulated activities. In doing so, the FSA
has considered its regulatory objectives, the regulatory guidance and policy referred to
in the Annex. The FSA considers that your misconduct demonstrates that you acted
without sufficient due skill, care and diligence in breach of Principle 6 of APER.
5.2.
In assessing your fitness and propriety for the purpose of determining whether you are
a fit and proper person, the FSA has had regard to the following:
(1)
By failing to act, in your capacity as a significant influence function holder at
Axiom, on information from investors and a colleague that raised concerns
about the conduct of David Mason and others regarding the sale of Eduvest
shares, and in failing to carry out adequate due diligence checks on David
Mason / Eduvest, your conduct demonstrates that you acted without due skill,
care and diligence in breach of Principle 6 of APER; and
(2)
Your actions in setting up a sub-account to your SS account, failing to undertake
appropriate money laundering checks, transferring monies from this account on
the instructions of David Mason, and the fact that you continued to carry out
these actions indicate that you failed to take reasonable steps to prevent these
activities which were in breach of the general prohibition. This raises additional
concerns about your fitness and propriety in terms of your competence and
capability to perform significant influence functions.
5.3.
The FSA has concluded that your conduct fell short of the minimum regulatory
standards in respect of the skill, care and diligence to be exercised by someone in your
position, and that you are not a fit and proper person to carry out any significant
influence functions in relation to any regulated activity carried on by any authorised
person, exempt person or exempt professional firm. This is due to the lack of skill,
care and diligence you displayed whilst performing significant influence functions at
Axiom during the relevant period.
6.
ANALYSIS OF THE SANCTIONS
Imposition of a financial penalty
6.1.
The FSA's policy in relation to the imposition of financial penalties is set out in
Chapter 6 of the Decision Procedure and Penalties Manual (DEPP) which forms part
of the FSA Handbook. The relevant provisions of EG and DEPP are set out in Annex
A of this notice.
DEPP sets out the factors that may be of particular relevance in determining the
appropriate level of financial penalty for a firm or approved person. The criteria are not
exhaustive and all relevant circumstances of the case will be taken into consideration.
6.2.
The principal purpose of the imposition of a financial penalty is to promote high
standards of regulatory conduct by deterring approved persons who have committed
breaches from committing further breaches, helping to deter other approved persons
from committing similar breaches, and demonstrating generally the benefits of
compliant behaviour.
6.3.
In determining the appropriate level of financial penalty, the FSA has regard to the
need to ensure that those who are approved persons exercising management functions
act with the appropriate levels of competence and capability and manage their
businesses in accordance with regulatory requirements and standards. The FSA
considers that a penalty should be imposed to demonstrate to you and others the
seriousness with which the FSA regards such behaviour.
The nature, seriousness and impact of the breach in question
6.4.
The FSA has concluded that your involvement in / failure to prevent David Mason’s
activities represents a serious failure to meet the minimum standards of due skill, care
and diligence expected of approved persons. Your actions directly and indirectly
affected at least 32 consumers who invested a total of £269,000 and suffered financial
loss and stress.
6.5.
The FSA recognises that the financial penalty imposed on you is likely to have an
impact on you as an individual but it is considered to be proportionate in relation to
the seriousness of the misconduct.
Whether the person on whom the penalty is to be imposed is an individual
6.6.
When determining the appropriate level of financial penalty, the FSA has taken into
account that individuals will not always have the same resources as 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 a body corporate.
The size, financial resources and other circumstances of the person on whom the
penalty is to be imposed
6.7.
The FSA considers that a financial penalty of the level proposed is appropriate,
having taken into account all of the relevant factors. The FSA has taken into account
the fact that the purpose of a financial penalty is not to render a person insolvent or
threaten a person’s solvency.
Conduct following the breach
6.8.
You have cooperated fully with the FSA’s investigation from the beginning. Axiom
has also paid for all known investor losses and interest (as well as a contribution
towards the FSA’s costs in respect of the civil action against Axiom) in the total sum
of £280,426.14, which has all been financed by you.
Disciplinary record and compliance history
6.9.
The FSA has not previously taken any disciplinary action against you.
Previous action taken by the FSA
6.10. In determining the appropriate sanction, the FSA has taken into account sanctions
imposed by the FSA on other approved persons for similar behaviour. These were
considered alongside the deterrent purpose for which the FSA imposes sanctions.
Having regard to the seriousness of your breach and risk posed to the FSA’s statutory
objectives of reducing financial crime and protecting consumers, the FSA has
imposed a penalty of £68,000 on you.
6.11. It is necessary and proportionate, in order to enable the FSA to achieve its regulatory
objectives, for the FSA to exercise its powers to make a Partial Prohibition Order
against you, prohibiting you from performing any significant influence functions, in
relation to any regulated activity carried on by any authorised person, exempt person
or exempt professional firm. This Partial Prohibition Order does not prohibit you from
performing functions falling within the definition in the FSA’s handbook of customer
functions.
7.
DECISION MAKERS
7.1.
The decision which gave rise to the obligation to give this Final Notice was made by
the Executive Settlement Decision Makers on behalf of the FSA.
8.
IMPORTANT
8.1.
This Final Notice is given to you in accordance with section 390 of the Act.
Manner of and time for Payment
8.2.
The financial penalty of £68,000 must be paid in full within 14 working days of the
date of the Final Notice as agreed with the FSA. Payment in full is to be received by
17 January 2011.
If the financial penalty is not paid
8.3.
If all or any of the financial penalty is outstanding on the due dates, the FSA may
recover the outstanding amount as a debt owed by you and due to the FSA.
8.4.
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 the Notice relates 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.
8.5.
The FSA intends to publish such information about the matter to which this Final
Notice relates as it considers appropriate.
FSA Contacts
8.6.
For more information concerning the matter generally, you should contact Andrea
Bowe on 020 7066 5886 of the Enforcement and Financial Crime Division of the
FSA.
ANNEX A
STATUTORY PROVISIONS, REGULATORY GUIDANCE AND POLICY
1.
Statutory provisions
1.1.
The FSA’s regulatory objectives are set out in section 2(2) of the Act and include
maintaining confidence in the financial system, the protection of consumers and the
reduction of financial crime.
1.2.
Section 56 of the Act provides 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. Such an order may
relate to a specific regulated activity, an activity falling within a specified description
or all regulated activities.
1.3.
Section 66 of the Act provides 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 make a prohibition order and in determining the level of the
financial penalty, the FSA has had regard to relevant regulatory guidance and policy
published in the FSA’s Handbook.
2.2.
The FSA’s Enforcement Guide (“EG”) and Decision Procedure and Penalties Manual
(“DEPP”) came into effect on 28 August 2007. Although the references in this
Warning Notice are to DEPP and EG, the FSA has also had regard to the appropriate
provisions of the FSA’s Enforcement Manual, which preceded DEPP and EG and
applied during part of the relevant period.
2.3.
The guidance and policy that the FSA considers relevant to this case is set out below.
Statements of Principle and the Code of Practice for Approved Persons (“APER”)
2.4.
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.
2.5.
APER 3.1.3G states that when establishing compliance with or a breach of a
Statement of Principle, account will be taken of the context in which a course of
conduct was undertaken, including the precise circumstances of the individual case,
the characteristics of the particular controlled function and the behaviour to be
expected in that function.
2.6.
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.
2.7.
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.
2.8.
The Statements of Principle relevant to this matter are:
(1)
Statement of Principle 6 (“An approved person performing a significant
influence function must exercise due skill, care and diligence in carrying out his
controlled function”).
2.9.
APER 3.2.1E states that in determining whether or not the particular conduct of an
approved person within his controlled function complies with the Statements of
Principle, the FSA into account the following factors:
(1) whether that conduct relates to activities that are subject to other provisions of the
Handbook;
(2) whether that conduct is consistent with the requirements and standards of the
regulatory system relevant to this firm.
2.10. APER 4.2 lists types of conduct which, in the opinion of the FSA, do not comply with
Statement of Principle 2.
Fit and Proper Test for Approved Persons (“FIT”)
2.11. 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.
2.12. FIT 1.3.1G provides that the FSA will have regard to a number of factors when
assessing a person’s fitness and propriety. One of the most important considerations
will be a person’s competence and capability.
2.13. 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.
2.14. 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.
2.15. FIT 2.2.1G provides that in determining a person’s competence and capability, the
FSA will have regard to all relevant matters including, but not limited to, those set out
in FIT 2.2.1G which may have arisen either in the United Kingdom or elsewhere.
Supervision (“SUP)
General Notification Requirements
2.16. SUP15.3.1 provides that a firm must notify the FSA immediately it becomes aware, or
has information which reasonably suggests, that any of the following, inter alia, has
occurred or may occur in the foreseeable future:
(1) the firm is failing to satisfy one or more of the threshold conditions; or
(2) any matter which could have a significant adverse impact on the firm's
reputation
Decision Procedure and Penalties Manual (“DEPP”)
2.17. Guidance on the imposition and amount of penalties is set out in Chapter 6 of DEPP.
2.18. 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.
2.19. 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.
2.20. DEPP 6.5.2 sets out a non-exhaustive list of factors that may be relevant to
determining the appropriate level of financial penalty to be imposed on a person under
the Act. The following factors are relevant to this case:
Deterrence: DEPP 6.5.2G(1)
2.21. 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)
2.22. The FSA will consider the seriousness of the breach in relation to the nature of the
rule, requirement or provision breached, which can include considerations such as the
duration and frequency of the breach, whether the breach revealed serious or systemic
weaknesses in the person’s procedures or of the management systems or internal
controls relating to all or part of a person’s business, the nature and extent of any
financial crime facilitated, occasioned or otherwise attributable to the breach and the
loss or risk of loss caused to consumers, investors or other market users.
The extent to which the breach was deliberate or reckless: DEPP 6.5.2G(3)
2.23. 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)
2.24. 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)
2.25. The FSA may take into account whether there is verifiable evidence of serious
financial hardship or financial difficulties if the person were to pay the level of
penalty appropriate for the particular breach. The FSA regards these factors as matters
to be taken into account in determining the level of a penalty, but not to the extent that
there is a direct correlation between those factors and the level of penalty. 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.
Conduct following the breach: DEPP 6.5.2G(8)
2.26. 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)
2.27. 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”)
2.28. The FSA’s approach to exercising its power to withdraw approval and to make a
prohibition order under sections 56 and 63 of the Act is set out in Chapter 9 of EG.
2.29. EG 9.1 states 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.
2.30. EG 9.2 states that the FSA’s effective use of the power under section 63 of the Act to
withdraw approval from an approved person will also help to ensure high standards of
regulatory conduct by preventing an approved person from continuing to perform the
controlled function to which the approval relates if he is not a fit and proper person to
perform that function. Where it considers this is appropriate, the FSA may prohibit an
approved person, in addition to withdrawing their approval.
2.31. EG 9.4 sets out the general scope of the FSA’s power in this respect. 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.
2.32. 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.
2.33. EG 9.9 provides that when deciding whether to make a prohibition order against an
approved person and/or withdraw its approval, 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)).
2.34. EG 9.12 provides a number of examples of types of behaviour which have previously
resulted in the FSA deciding to issue a prohibition order or withdraw the approval of
an approved person. The examples include:
(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)).
2.35. EG 9.23 provides that in appropriate cases the FSA may take other action against an
individual in addition to making a prohibition order and/or withdrawing its approval,
including the use of its power to impose a financial penalty.