FINAL NOTICE

Individual




Bearsden, Glasgow. G61 3SS

Hamilton ML3 9DH.

ACTION

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

(a) withdraw, pursuant to section 63 of the Act, the approval

granted to Mr Jones under section 59 of the Act to perform

controlled functions in relation to Which Mortgage; and

(b) make an order, pursuant to section 56 of the Act, prohibiting Mr

Jones from performing any functions within the definition of the

Authority’s Handbook of significant influence functions in

relation to any regulated activities carried on by an authorised

or exempt person, or exempt professional firm on the basis that

he is not a fit and proper person because he lacks competence

and capability. This order takes effect from 29 April 2013.

2.
The Authority had sought to impose on Mr Jones a financial penalty

of £11,200 pursuant to section 66 of the Act, for breaches of

Statement of Principle 6. Mr Jones has provided verifiable evidence

that imposing a financial penalty would cause him serious financial

hardship. The Authority therefore has not imposed a financial penalty

on Mr Jones.

SUMMARY OF REASONS

3.
During the relevant period Mr Jones was a CF1 director and a

mortgage adviser at Which Mortgage.

4.
Mr Jones breached Statement of Principle 6 by failing to act with due

skill, care and diligence by failing to ensure that the Firm had

appropriate controls to verify information submitted by clients to

support mortgage applications which led to the Firm being used to

facilitate financial crime, through the submission of false payslips to

high street lenders.

5.
Mr Jones’s conduct was particularly serious because his failings:

(a) allowed the Firm to be used for purposes connected with

financial crime, specifically mortgage fraud; and

(b) led high street lenders to offer mortgages to customers on the

basis of false and misleading information.

6.
As a result of the nature and seriousness of these matters, Mr Jones

has failed to meet the minimum regulatory standards in terms of

competence and capability and is not a fit and proper person to

perform any functions within the definition of the Authority’s

Handbook of significant influence functions in relation to any

regulated activities carried on by an authorised person. The Authority

considers that the sanction is necessary and proportionate, and it

supports the Authority’s regulatory objectives of:

(a) reducing the extent to which it is possible for a regulated

business to be used for a purpose connected with financial

crime; and

(b) ensuring greater confidence in the mortgage market.

DEFINITIONS

7.
The definitions below are used in this Final Notice.

(a) the “Act” means the Financial Services and Markets Act 2000;

(b) the "Authority" means "the body corporate previously known as

the Financial Services Authority and renamed on 1 April 2013 as

the Financial Conduct Authority";

(c)
the “client files” means the sample of 38 mortgage application

client files submitted to high street lenders reviewed by the

Authority;

(d) “DEPP” means the Decision Procedure and Penalties Manual;

(e) The “directors” means Mr Derek Jones and Mr Douglas Jones;

(f)
“EG” means the Enforcement Guide, applying with effect from

28 August 2007;

(g) “FIT” means Fit and Proper test for Approved Persons;

(h) the “Handbook” means the Authority’s Handbook of Rules and

Guidance;

(i)
“HMRC” means Her Majesty's Revenue and Customs;

(j)
“Mr Jones” means Derek Jones;

(k) the “relevant period” means 26 March 2010 to 14 October

2011;

(l)
the “Settlement Decision Makers” means two members of the

Authority’s senior management who have jointly made the

decisions which gave rise to the obligation to give this notice;

(m) the “Statements of Principle” means the Authority’s Statements

of Principle and Code of Practice for Approved Persons;

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

Chamber); and

(o) “Which Mortgage/the Firm” means Which Mortgage Limited.

FACTS AND MATTERS

Background

8.
Which Mortgage is a mortgage and insurance intermediary firm

based in Glasgow. It was incorporated on 7 September 1995 and

became authorised on 31 October 2004 to undertake regulated

activities. The Firm's businesses comprised residential mortgage

contracts, buy-to-lets, commercial loans and general insurance.

Approximately a third of its businesses consisted of residential

mortgage contracts.

9.
During the relevant period the Firm consisted of two directors,

namely, Mr Jones and his father, Douglas Jones, and two self-

employed mortgage advisers, neither of whom were approved

persons. Mr Jones was approved to perform the controlled function of

CF1 (Director) and was responsible for insurance mediation. He also

provided mortgage advice to clients. Mr Jones resigned as a director

of Which Mortgage in May 2012. He subsequently left the financial

services industry.

The Firm’s failure to identify false and misleading information on

payslips

10. A high street lender raised concerns with the Firm about the

submission of a payslip in support of a mortgage application made by

Client A in September 2011. It appeared to the high street lender

that the single payslip accompanying the application contained false

and misleading information. The high street lender rejected the

application and removed Which Mortgage from their panel of

mortgage intermediaries. The high street lender reported the Firm to

the Authority and informed the Authority of its findings and its

decision to remove the Firm from its panel.

11. The Authority subsequently obtained and reviewed 38 client files,

which contained payslips which had been used in support of the

client's application.

12. The Authority found that 11 of the client files contained payslips in a

single standard format even though each client worked for different

employers. The Authority subsequently obtained information from

HMRC in relation to these applications, which showed that each

payslip from these 11 files contained false and misleading

information about both the clients’ income and employment. Only

applications submitted by the directors were found to contain false

and misleading information. Applications submitted by the Firm’s

advisers were not found to be defective.

13.
Mr Jones carried out no checks to verify the information set out in

the payslips he received from clients and Mr Jones accepted that the

Firm had deficiencies and had no effective systems and controls in

place to counter financial crime. As a result of these failings, he did

not detect the pattern of false payslips, financial information and

employment details being submitted by a number of his clients and

had thereby allowed fraudulent information to be submitted to high

street lenders.

14. Paragraphs 15 to 24 below set out the Authority’s findings in relation

to three example cases where Mr Jones failed to carry out basic

verification checks on the information contained in identically

formatted payslips and thereby failed to recognise a pattern of false

and misleading information. Similar failings occurred in relation to

each of the 11 client files reviewed by the Authority.

Client A

15. In September 2011, Client A applied for a mortgage with a high

street lender through Which Mortgage. The client intended to borrow

£121,000 for purchasing a property valued at £142,500.

16. The mortgage application contained, in support of the client’s income

information, a single payslip which purported to evidence that Client

A’s income was £33,000 per annum. The format of this payslip was

identical to the format of 10 other payslips contained in different

client files. HMRC records showed that Client A’s actual income for

the relevant year was, in fact, £12,532.

Client B

17. In March 2011, Client B applied for a mortgage from a high street

lender through Which Mortgage. The client intended to borrow

£135,000 in order to purchase a property valued at £160,000.

18. The mortgage application and the payslip stated that Client B was

employed as an accountant at a firm with an income of £34,348 per

annum. The format of Client B’s payslip was identical to the format of

10 other payslips contained in different client files. HMRC records

showed that Client B worked as a self-employed driving instructor on

a part-time basis with an annual income of £12,000-£13,000 for the

same financial year.

19. In May 2011, Client C applied for a joint mortgage from a high street

lender through Which Mortgage. The client intended to borrow

£168,700 in order to purchase a property valued at £198,500.

20. The mortgage application and the payslip stated that Client C was

employed as an area manager at a company with an annual income

of £43,158 during the financial year 2011-2012. The format of Client

C’s payslip was identical to the format of 10 other payslips contained

in different client files. HMRC records showed that Client C worked on

a self-employed basis for a company with an annual income of

£7,280 during the same financial year.

21. Mr Jones took no steps to verify the information contained in any of

the payslips provided by Clients A, B or C in support of their

mortgage applications and all of which were found to be false. He did

not seek to obtain any other information to support income or

employment details nor did he verify the information provided. He

failed to take any steps to alert himself to a pattern of false payslips

and false financial information being submitted through the Firm by

its clients.

22. The failure to have appropriate controls allowed false payslips

containing misleading information to be submitted through the Firm

to high street lenders.

23. Mr Jones admitted that the systems and controls of the Firm were

deficient and that at no stage did he seek to verify the information

contained in any payslip submitted by any client in support of an

application for a mortgage.

24. Mr Jones acted without due skill, care and diligence in failing to

ensure that there were appropriate controls in place to check the

source or veracity of the information being submitted to the Firm by

its clients in support of their mortgage applications and thereby did

not alert himself to a pattern of false payslips. He was not dishonest,

or knowingly concerned, in the clients’ submission of false and

misleading information.

FAILINGS

25. The regulatory provisions relevant to this Final Notice are referred to

in Annex A.

Mr Jones’s failure to identify false and misleading information on

26. By reason of the facts and matters referred to in paragraphs 10-24

above, Mr Jones acted without due skill, care and diligence and

therefore lacked competence and capability, in carrying out his

controlled functions. In particular, Mr Jones failed to ensure that the

Firm had appropriate controls to verify information submitted by

clients to support mortgage applications. This led to the Firm being

used to facilitate financial crime, through the submission of false

payslips to lenders, who offered mortgages to clients on the basis of

false information.

Fitness and Propriety

27. The facts and matters identified above led the Authority to the

conclusion that Mr Jones fell seriously short of the minimum

regulatory standards required for approved persons performing

controlled functions. Mr Jones has failed to act with competence and

capability and is not a fit and proper person to perform any functions

within the definition of the Authority’s Handbook of significant

influence functions in relation to any regulated activities carried on

by any authorised person, exempt person or exempt professional

firm.

SANCTION

Financial penalty

28. The Authority has imposed a financial penalty on Mr Jones for

breaching Statement of Principle 6. As the misconduct took place

after 6 March 2010, the Authority’s new penalty regime applies.

29. The principal purpose of 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.

30. In determining whether a financial penalty is appropriate, the

Authority is required to consider all the relevant circumstances of a

case. A financial penalty is an appropriate sanction in this case, given

the serious nature of the breaches and the need to send out a strong

message of deterrence to others.

Calculation of financial penalty under DEPP

31. 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

32. 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.

33. The Authority has not identified any financial benefit that Mr Jones

derived directly from his breaches.

34. Step 1 is therefore £0.

Step 2 – the seriousness of the breach

35. 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.

36. Mr Jones’s misconduct took place between March 2010 and

September 2011, during which Mr Jones’s relevant income was

£18,753.96.

37. In deciding on the percentage of 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.

38. 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%

39. In assessing the seriousness level, the Authority takes into account

various factors which reflect the impact and nature of the breach,

and whether it was committed deliberately or recklessly.

40. Factors relating to the nature of a breach by an individual include,

amongst others:

(a) the nature of the rules, requirements or provisions breached;

and

(b) the nature and extent of any financial crime facilitated,

occasioned or otherwise attributable to the breach.

41. Mr Jones is guilty of a Level 3 breach for the purposes of Step 2

(a) he acted without due skill, care and diligence in failing to detect

patterns of suspicious payslips being submitted to the Firm; and

(b) he allowed mortgage applications to be submitted to lenders

through the Firm without applying his mind to the possibility

that they contained false and misleading information.

42. A Level 3 breach equates to 20% of Mr Jones’s relevant income. The

penalty figure for this breach after Step 2 is therefore £3,750.80.

Step 3 – mitigating and aggravating factors

43. 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 in accordance with

Step 1) to take into account factors which aggravate or mitigate the

breach.

44. The Authority has not identified any aggravating or mitigating factors

in this case.

45. Step 3 is therefore £0.

Step 4 – adjustment for deterrence

46. 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.

47. In the interests of credible deterrence it is appropriate to increase

the penalty because:

(a) Mr Jones failed to appreciate the possibility that the Firm was

being used to facilitate financial crime;

(b) he failed to take any steps to help prevent the Firm from being

used to commit mortgage fraud; and

(c)
his conduct led high street lenders to offer mortgages to

customers on the basis of false and misleading information.

48. The Authority has applied a multiplier of 3 to the figure reached at

Step 2 and set the total penalty figure at Step 4 at £11,252.38,

which we have rounded down to £11,200.

Step 5 – settlement discount

49. 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.

50. The Authority is proposing not to impose any financial penalty on Mr

Jones. Therefore Step 5 is not applicable.

51. Under normal circumstances and considering the seriousness of Mr

Jones’s conduct in this case, the Authority would have sought to

impose a financial penalty of £11,200 upon him in addition to a

prohibition order. However, the Authority has taken into account the

fact that imposing a financial penalty would cause Mr Jones serious

financial hardship (having regard to the evidence that he has

provided in relation to his current financial position). It is for this

reason only that the Authority has decided not to impose any

financial penalty upon Mr Jones in this case.

52. It is appropriate and proportionate in all the circumstances to make

an order prohibiting Mr Jones from performing any functions within

the definition of the Authority’s Handbook of significant influence

functions in relation to any regulated activities carried on by an

authorised or exempt person, or exempt professional firm because

he is not a fit and proper person in terms of competence and

capability.

53. Mr Jones has demonstrated a lack of competence and capability. In

the interests of consumer protection it is appropriate to impose a

prohibition order on Mr Jones in the terms set out above.

PROCEDURAL MATTERS

Decision maker

54. The decision which gave rise to the obligation to give this Notice was

made by the Settlement Decision Makers.

55. This Final Notice is given under, and in accordance with, section 390

of the Act.

56. Sections 391(4), 391(6) and 391(7) of the Act apply to the

publication of information about the matter to which this notice

relates. Under those provisions, the Authority must publish such

information about the matter to which this notice relates as the

Authority considers appropriate. The information may be published

in such manner as the Authority considers appropriate. However,

the Authority may not publish information if such publication would,

in the opinion of the Authority, be unfair to you or prejudicial to the

interests of consumers or detrimental to the stability of the UK

financial system.

57. The Authority intends to publish such information about the matter to

which this Final Notice relates as it considers appropriate.

Authority contacts

58. For more information concerning this matter generally, Mr Jones

should contact Paul Howick (direct line: 020 7066 7954 or email

paul.howick@fca.org.uk) at the Enforcement and Financial Crime

Division of the Authority.

……………………………………………..

Enforcement and Financial Crime Division

ANNEX

STATUTORY PROVISIONS, REGULATORY GUIDANCE AND POLICY

Statutory provisions

1.
Section 1A(1) of the Act states that the body corporate previously

known as the Financial Services Authority is re-named as the

Financial Conduct Authority.

2.
The Authority’s operational objectives established in section 1(B) of

the Act include protecting and enhancing the integrity of the UK

financial system and the protection of consumers.

3.
Section 56 of the Act provides that the Authority may make a

prohibition order prohibiting an individual from performing a specified

function.

4.
Section 66 of the Act provides that the Authority may take action to

impose a penalty on an individual of such amount as it considers

appropriate where it appears to the Authority 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.

Handbook provisions

5.
In exercising its power to impose a financial penalty, the Authority

must have regard to relevant provisions in the Authority Handbook of

rules and guidance. The main provisions relevant to the action

specified above are set out below.

Statements of Principle and the Code of Practice for Approved

Persons

6.
The Statements of Principle set out the Statements of Principle as

they relate to approved persons and descriptions of conduct which, in

the opinion of the Authority, do not comply with a Statement of

Principle. It further describes factors which, in the opinion of the

Authority, are to be taken into account in determining whether or not

an approved person’s conduct complies with a Statement of Principle.

7.
Statement of Principle 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.

8.
Statement of Principle 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.

9.
Statement of Principle 3.1.6G provides that Statement of Principle

(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

10. The Statement of Principle relevant to this matter is Statement of

Principle 6, which provides that an approved person performing a

significant influence function must exercise due skill, care and

diligence in managing the business of the firm for which he is

responsible in his controlled function.

The Fit and Proper Test for Approved Persons

Rules and guidance effective until 31 March 2013

11. FIT sets out and describes the criteria that are relevant in assessing

the continuing fitness and propriety of approved persons.

12. 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 to

perform a particular controlled function. The most important

considerations will be the person’s:

(a) honesty, integrity and reputation;

(b) competence and capability; and

(c)
financial soundness.

13. FIT 2.2.1G states that in determining a person's competence and

capability, the Authority will have regard to all relevant matters

including but not limited to:

(a) whether the person satisfies the relevant Authority training and

competence requirements in relation to the controlled function

the person performs or is intended to perform;

(b) whether the person has demonstrated by experience and

training that the person is suitable, or will be suitable if

approved, to perform the controlled function; and

(c)
whether the person has adequate time to perform the controlled

function and meet the responsibilities associated with that

function.

Rules and guidance effective from 1 April 2013

14. FIT sets out and describes the criteria that are relevant in assessing

the continuing fitness and propriety of approved persons.

15. FIT sets out and describes the criteria that are relevant in assessing

the continuing fitness and propriety of approved persons.

16. 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 to

perform a particular controlled function. The most important

considerations will be the person's:

(a) honesty, integrity and reputation;

(b) competence and capability; and

(c)
financial soundness.

17. FIT 1.3.2G states that in assessing fitness and propriety, the

Authority will also take account of the activities of the firm for which

the controlled function is or is to be performed, the permission held

by that firm and the markets within which it operates.

18. FIT 2.2.1G states that in determining a person's competence and

capability, the Authority will have regard to all relevant matters

including but not limited to:

(a) whether the person satisfies the relevant Authority training and

competence requirements in relation to the controlled function

the person performs or is intended to perform;

(b) whether the person has demonstrated by experience and

training that the person is suitable, or will be suitable if

approved, to perform the controlled function;

(c)
whether the person has adequate time to perform the controlled

function and meet the responsibilities associated with that

function.

19. FIT 2.1.1G states that in determining a person's honesty, integrity

and reputation, the Authority will have regard to all relevant matters

including, but not limited to, those set out in FIT 2.1.3 G which may

have arisen either in the United Kingdom or elsewhere. The Authority

should be informed of these matters but will consider the

circumstances only where relevant to the requirements and

standards of the regulatory system. This guidance includes:

(a) whether the person has contravened any of the requirements

and standards of the regulatory system (FIT 2.1.3G(5)); and ;

(b) whether, in the past, the person has been candid and truthful in

all his dealings with any regulatory body and whether the

person demonstrates a readiness and willingness to comply with

the requirements and standards of the regulatory system and

with other legal, regulatory and professional requirements and

standards (FIT 2.1.3G(13)).

DEPP guidance since 6 March 2010

20. The Authority has had regard to the guidance on the imposition and

amount of penalties set out in Chapter 6 of the current version of

DEPP. All references to DEPP in this subsection of the Notice refer to

the current DEPP guidance.

21. DEPP 5.1.1G provides that a person subject to enforcement action

may agree to a financial penalty or other outcome rather than

contest formal action by the Authority. The fact that he does so will

not usually obviate the need for a statutory notice recording the

Authority’s decision to take that action. Where, however, the person

subject to enforcement action agrees not to contest the content of a

proposed statutory notice, the decision to give that statutory notice

will be taken by senior Authority staff. The decision will be taken

jointly by two members of the Authority’s senior management, one

of whom will be of at least director of division level (which may

include an acting director) and the other of whom will be of at least

head of department level. At least one of the Settlement Decision

Makers will not be from the Enforcement and Financial Crime

Division. The other settlement decision maker will usually be, but

need not be, from the Enforcement and Financial Crime Division.

Consistent with section 395(2) of the Act, a Settlement Decision

Maker will not have been directly involved in establishing the

evidence on which the decision is based.

22. DEPP 6.4.1G provides that the Authority will consider all the relevant

circumstances of the case when deciding whether to impose a

financial penalty.

23. DEPP 6.5B.1G sets out the five steps for calculating financial

penalties for individuals in non-market abuse cases.

Step 1 - disgorgement

24. The Authority will seek to deprive an individual of the financial

benefit derived directly from the breach (which may include the profit

made or loss avoided) where it is practicable to quantify this.

Step 2 – the seriousness of the breach

25. The Authority will determine a figure which will be based on a

percentage of an individual's "relevant income". "Relevant income"

will be the gross amount of all benefits received by the individual

from the employment in connection with which the breach occurred

(the "relevant employment"), and for the period of the breach.

26. This approach reflects the Authority's view that an individual receives

remuneration commensurate with his responsibilities, and so it is

reasonable to base the amount of penalty for failure to discharge his

duties properly on his remuneration. The Authority also believes that

the extent of the financial benefit earned by an individual is relevant

in terms of the size of the financial penalty necessary to act as a

credible deterrent. The Authority recognises that in some cases an

individual may be approved for only a small part of the work he

carries out on a day-to-day basis. However, in these circumstances

the Authority still considers it appropriate to base the relevant

income figure on all of the benefit that an individual gains from the

relevant employment, even if his employment is not totally related to

a controlled function.

27. Having determined the relevant income the Authority will then decide

on the percentage of that income which will form the basis of the

penalty. In making this determination the Authority will consider the

seriousness of the breach and choose a percentage between 0% and

28. In deciding which level is most appropriate to a case against an

individual, the Authority will take into account various factors which

will usually fall into the following four categories:

(a) factors relating to the impact of the breach;

(b) factors relating to the nature of the breach;

(c)
factors tending to show whether the breach was deliberate; and

(d) factors tending to show whether the breach was reckless.

29. Factors relating to the impact of a breach committed by an individual

include whether the breach had an adverse effect on markets and, if

so, how serious that effect was. This may include having regard to

whether the orderliness of, or confidence in, the markets in question

has been damaged or put at risk.

30. Factors relating to the nature of a breach by an individual include:

(a) the nature of the rules, requirements or provisions breached;

(b) the nature and extent of any financial crime facilitated,

occasioned or otherwise attributable to the breach;

(c)
the scope for any potential financial crime to be facilitated,

occasioned or otherwise occur as a result of the breach;

(d) whether the individual failed to act with integrity;

(e) whether the individual is an experienced industry professional;

(f)
whether the individual held a senior position with the firm; and

(g) whether the individual took any steps to comply with the

Authority’s rules, and the adequacy of those steps.

Step 3 – mitigating and aggravating factors

31. 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. Any such adjustments will be

made by way of a percentage adjustment to the figure determined at

Step 2.

Step 4 – adjustment for deterrence

32. 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. Circumstances where the

Authority may do this include:

(a) where the Authority considers the absolute value of the penalty

too small in relation to the breach to meet its objective of

credible deterrence;

(b) where previous Authority action in respect of similar breaches

has failed to improve industry standards;

(c)
where the Authority considers it is likely that similar breaches

will be committed by the individual or by other individuals in the

future; and

(d) where a penalty based on an individual's income may not act as

a deterrent, for example, if an individual has a small or zero

income but owns assets of high value.

Step 5 – settlement discount

33. The Authority and the individual on whom a penalty is to be imposed

may seek to agree the amount of any financial penalty and other

terms. In recognition of the benefits of such agreements, 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 concerned reached an

agreement.

34. DEPP 6.5D sets out the Authority’s approach to imposing a penalty

where that penalty would subject an individual to serious financial

hardship.

35. DEPP 6.5D.1G states that the Authority’s approach to determining

penalties is intended to ensure that financial penalties are

proportionate to the breach. The Authority recognises that penalties

may affect persons differently, and that the Authority should consider

whether a reduction in the proposed penalty is appropriate if the

penalty would cause the subject of enforcement action serious

financial hardship.

36. DEPP 5.5D.2G states that there may be cases where, even though

the individual has satisfied the Authority that payment of the

financial penalty would cause him serious financial hardship, the

Authority considers the breach to be so serious that it is not

appropriate to reduce the penalty. The Authority will consider all the

circumstances of the case in determining whether this course of

action is appropriate, including whether:

(a) the individual directly derived a financial benefit from the

breach and, if so, the extent of that financial benefit;

(b) the individual acted fraudulently or dishonestly with a view to

personal gain;

(c)
previous Authority action in respect of similar breaches has

failed to improve industry standards; or

(d) the individual has spent money or dissipated assets in

anticipation of Authority or other enforcement action with a

view to frustrating or limiting the impact of action taken by the

Authority or other authorities.

37. The Authority’s policy on exercising its enforcement power is set out

in EG, which came into effect on 28 August 2007.

38. The Authority’s approach to financial penalties and public censures is

set out in Chapter 7 of EG.

39. EG 7.3 states that the Authority has measures available to it where it

considers it is appropriate to take protective or remedial action.

40. EG 7.6 states that the Authority’s policy in relation to reducing a

penalty because its payment may cause a person serious financial

hardship is set out in DEPP 6.5D.

41. The Authority’s approach to exercising its powers to make prohibition

orders is set out at Chapter 9 of EG.

42. EG 9.1 states that the Authority’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

Authority to work towards achieving its statutory objectives. The

Authority 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.

43. EG 9.3 states that in deciding whether to make a prohibition order

the Authority will consider all the relevant circumstances.

44. EG 9.4 sets out the general scope of the Authority’s power in this

respect. The Authority 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.

45. EG 9.9 provides that when deciding whether to make a prohibition

order against an approved person, the Authority will consider all the

relevant circumstances of the case. These may include, but are not

limited to, whether, and to what extent, the approved person has

failed to comply with the Statement of Principle issued by the

Authority with respect to the conduct of approved persons.

46. EG 9.12 provides a number of examples of types of behaviour which

have previously resulted in the Authority deciding to issue a

prohibition order. The examples include providing false or misleading

information to the Authority (EG 9.12(1)).

47. EG 9.23 provides that in appropriate cases the Authority 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.