FINAL NOTICE

To:


Mr Ian David Jones

Of:


Arle Court, Hatherley Lane, Cheltenham, GL51 6PN
Individual Ref:
IDJ00004

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

1.
THE ACTION

1.1.
The FSA gave Mr Ian David Jones (“Mr Jones”) a Decision Notice on 21 September
2011 which notified him that the FSA had decided to take the following action against
him:

(1)
pursuant to section 66 of the Financial Services and Markets Act 2000 (“the
Act”), to impose on Mr Jones a financial penalty of £16,000 for breaches of
Statement of Principle 7 of the FSA’s Statements of Principle and Code of
Practice for Approved Persons (“the Statements of Principle”) arising from the
promotion of unregulated collective investment schemes (“UCIS”) between 1
January 2008 and 31 December 2009 (“the relevant period”); and

(2)
pursuant to section 56 of the Act, to make an order prohibiting Mr Jones from
performing any significant influence function at an authorised person, exempt
person or exempt professional firm in relation to the promotion of UCIS, and
performing any customer function in relation to the promotion of UCIS,
because he is not currently a fit and proper person for such a role in terms of
his competence and capability. The FSA would be minded to revoke the
prohibition order, on his application, in the event that Mr Jones is able to
demonstrate to the satisfaction of the FSA that he has taken adequate steps to
remedy his lack of competence and capability.

1.2.
Mr Jones agreed to settle at an early stage of the FSA’s investigation and therefore
qualified for a 20% (stage 2) discount under the FSA’s executive settlement
procedures. The FSA would have otherwise imposed a financial penalty of £20,000
on him.

1.3.
Mr Jones agreed that he would not be referring the matter to the Upper Tribunal (Tax
and Chancery Chamber).

1.4.
Accordingly, and for the reasons set out below, the FSA takes the action set out
above. The prohibition order takes effect from 21 September 2011.

2.
REASONS FOR THE ACTION

Introduction

2.1.
On the basis of the facts and matters described below, the FSA has decided to
sanction Mr Jones for breaches of Statement of Principle 7 within the relevant period.
In summary, the FSA has concluded that, in his role as director and significant
influence function holder at Specialist Solutions Public Limited Company (“Specialist
Solutions”/ “the Firm”) he failed during the relevant period to:

(1)
implement internal compliance procedures which adequately ensured UCIS
were promoted in accordance with the relevant regulations;

(2)
implement an appropriate training and competence programme to ensure that
advisers who promoted UCIS complied with the relevant regulatory
provisions;

(3)
ensure that adequate due diligence was conducted into the UCIS funds
promoted by Specialist Solutions; and

(4)
ensure that customers were given suitable advice to invest in UCIS.

2.2.
Consequently, Specialist Solutions promoted UCIS to 101 retail customers in breach
the restrictions on promotion pursuant to section 238 of the Act during the relevant
period and exposed those customers to the risk of receiving unsuitable advice.

2.3.
The FSA regards these failings as particularly serious because:

(1)
the number of retail customers affected and the amount of money invested by
certain customers in UCIS is significant; and

(2)
in almost 50% of the 20 customer files reviewed by the skilled person for
suitability, the advice given by Specialist Solutions to customers to invest in
UCIS was found to be unsuitable.

2.4.
The FSA considers that the failings identified have been mitigated to a considerable
extent by the significant improvements Mr Jones has have made to Specialist
Solutions’ sales processes and compliance arrangements since the failings were

identified, including the replacement of the external compliance consultants who were
advising Specialist Solutions during the relevant period. In addition, under Mr Jones’
management Specialist Solutions has undertaken a past business review and has
agreed, in principle, to contact customers who may have been missold UCIS with a
view to providing redress to those customers, if any, who have suffered detriment.

2.5.
Furthermore, under Mr Jones’ management Specialist Solutions voluntarily applied to
the FSA for an immediate change to its permissions, as a result of which the Firm has
not promoted or given advice on UCIS since June 2010.

3.
RELEVANT STATUTORY PROVISIONS, REGULATORY REQUIREMENTS
AND FSA GUIDANCE

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

4.
FACTS AND MATTERS RELIED ON

4.1.
Throughout the relevant period, Mr Jones was approved to perform controlled
functions 1 (director), 10 (compliance oversight), 11 (money laundering reporting)
and 30 (customer function) at Specialist Solutions.

4.2.
Specialist Solutions is a firm of independent financial advisors based in Cheltenham
currently retaining the services of eight self-employed customer advisers approved to
carry out controlled function CF30 (customer function).

4.3.
The Firm has been authorised by the FSA since 21 December 2004 to undertake the
following regulated activities: advising on Pension Transfers and Pension Opt Outs;
advising on investments (except on Pension Transfers and Pension Opt Outs);
advising on regulated mortgage contracts; agreeing to carry on a regulated activity;
arranging (bringing about) deals in investments; arranging (bringing about) regulated
mortgage contracts; making arrangements with a view to regulated mortgage
contracts; and, making arrangements with a view to transactions in investments.

4.4.
Potential issues regarding Specialist Solutions’ recommendations to invest in UCIS
came to the FSA’s attention following a visit by the FSA to the Firm on 25 February
2010. The visit was undertaken as part of the FSA’s thematic review into the
promotion of UCIS (the “UCIS Project visit”).

4.5.
Specialist Solutions started promoting and giving advice on UCIS in 2007. During
the relevant period, Specialist Solutions advised approximately 3,000 customers. Of
those customers, Specialist Solutions recommended UCIS to 101 customers who
invested a total of £11,244,923 in one or more of three UCIS and generated
commission of £321,827 by these investments. Approximately 98% of the firm’s
UCIS business was invested through a product wrapper (e.g. SIPP or bond).

4.6.
During the relevant period, the majority of Specialist Solutions’ recommendations to
invest in UCIS were made by two advisers, who have since left the Firm. Of the 101

customers to whom UCIS was recommended, Mr Jones personally advised three
customers to invest in UCIS.

4.7.
The FSA’s visit to Specialist Solutions in February 2010 and its review of nine
customer files in which UCIS were recommended highlighted a number of causes for
concern regarding the Firm’s failure to comply with section 238 of the Act, the
suitability of advice given to customers by the Firm in relation to UCIS, the firm’s
monitoring and compliance functions and the Firm’s training and competence
procedures in relation to UCIS. These concerns were explained to Specialist Solutions
in a post visit letter from the FSA dated 9 June 2010, by which time Specialist
Solutions had already reviewed and amended its internal procedures regarding UCIS,
as communicated to the FSA at the end of April 2010.

4.8.
On 28 October 2010, the FSA required Specialist Solutions to appoint a skilled person
pursuant to section 166 of the Act to review the firm’s promotion of UCIS and advice
given to customers about UCIS. The skilled person reviewed the files for all 101
customers who were recommended UCIS by Specialist Solutions during the relevant
period. The findings of the skilled person are referred to below.

Conduct in issue

Breach of Statement of Principle 7

4.9.
During the relevant period, Mr Jones failed to take reasonable steps to ensure that
Specialist Solutions complied with the relevant requirements and standards of the
regulatory system in relation to the promotion of UCIS and, as such, he breached
Statement of Principle 7. Specifically, Mr Jones was not aware of the regulatory
regime governing the promotion of UCIS and failed to ensure that Specialist
Solutions complied with section 238 of the Act during the relevant period.

4.10. Section 238(1) of the Act generally prohibits the promotion of UCIS by authorised
firms. However, an authorised firm may promote UCIS to customers in certain
circumstances where there is an exemption to section 238(1) provided in the
Promotion of Collective Investment Schemes (Exemptions) Order 2001 (“the PCIS
Order”) and/or the Conduct of Business Sourcebook (“COBS”) 4.12.

4.11. The skilled person reviewed all 101 customer files in which UCIS were promoted by
Specialist Solutions to customers during the relevant period in order to determine
whether the promotions complied with the relevant legislation and regulations. The
skilled person found that Specialist Solutions promoted UCIS to all 101 customers
without first adequately assessing whether the customer was eligible to receive such
promotions pursuant to an exemption contained in the PCIS Order and/or COBS 4.12.
The skilled person found that, for 55 of those 101 customers, a relevant exemption to
section 238 of the Act could have potentially applied (for example, because a
customer was a high net worth individual) but for 46 customers of the 101 there was
no applicable exemption. The Firm failed to demonstrate that the exemptions were
applicable to the respective customers.

4.12. In Mr Jones’ role as director (CF1) and holder of CF 10 (compliance oversight)
during the relevant period, he failed to ensure that:

(1)
Specialist Solutions’ internal compliance procedures addressed the need to
comply with regulations governing the promotion of UCIS. The Firm’s
documented compliance procedures for the relevant period were high level and
did not detail any procedures for the promotion of UCIS;

(2)
Specialist Solutions had sufficient internal compliance checks to identify when
advisers had promoted UCIS to customers without regard to the relevant
legislation and to correct this. Although 10% of Specialist Solutions’ files
were reviewed by external compliance consultants, who also failed to identify
that UCIS were being promoted in breach of section 238 of the Act, this does
not detract from the finding that Specialist Solutions’ internal compliance
checks were inadequate;

(3)
Specialist Solutions’ training and competence scheme included training on the
promotion of UCIS. The Firm’s advisers attended some presentations from
UCIS fund managers about their funds, but advisers were not tested to assess
their understanding of the funds’ status as UCIS or risk profile prior to
promoting those funds. The advisers who sold UCIS were not aware of or did
not understand the regulatory provisions governing the promotion of UCIS;

(4)
Specialist Solutions conducted adequate due diligence on the UCIS funds it
promoted. The promotional literature provided by each of the UCIS promoted
by Specialist Solutions specifically referred to the funds being UCIS and to
there being provisions in the Act which restricted the promotion of UCIS to
certain categories of investors (although in one case these were not correctly
cited). Mr Jones did not take sufficient notice of the content of the funds’
literature to identify that the funds, as UCIS, were subject to a particular
regulatory regime.

4.13. As a result of these failings, UCIS were promoted to 101 customers of Specialist
Solutions who were not eligible to receive such promotions and were exposed to the
risk of receiving unsuitable advice to invest in UCIS.

4.14. The skilled person conducted a more detailed review of 20 customer files in which
Specialist Solutions had recommended to its customers that they invest in UCIS. Of
those 20 customer files, exemptions to the section 238 restriction could have been
applied to 13 customers. The skilled person found that, of those 20 files, only three
files demonstrated suitable advice, nine files demonstrated unsuitable advice and in
the remaining eight files it could not be determined whether the advice was suitable
(i.e. the documentation on the files was not sufficient).

4.15. Because of the above facts, Mr Jones is not currently a fit and proper person in terms
of his competence and capability to carry out significant influence functions or
customer functions with regard to the promotion of UCIS.

5.
ANALYSIS OF BREACHES

5.1.
As a result of the facts and matters set out in paragraphs 4.9 to 4.15 above, the FSA
considers that Mr Jones has breached Statement of Principle 7 by failing to take
reasonable steps to ensure that Specialist Solutions complied with the relevant

requirements and standards of the regulatory system in relation to the promotion of
UCIS, and, as such, he is not a fit and proper person to carry out significant influence
functions or customer functions in relation to the promotion of UCIS.

6.
ANALYSIS OF SANCTION

6.1.
The FSA’s policy on imposing a financial penalty is set out in Chapter 6 of the
Decision Procedures and Penalties Manual (“DEPP”), which is part of the FSA
Handbook. In addition, the FSA has had regard to Chapter 7 of the Enforcement
Guide (“EG”).

Financial penalty

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

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

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

Deterrence (DEPP 6.5.2(1))

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

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

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

(1)
affected a significant number of retail customers who invested significant
sums in UCIS; and

(2)
arise from a fundamental lack of awareness of the regulatory regime governing
the promotion of UCIS.

6.7.
In determining the appropriate sanction, the FSA has had regard to the following
mitigating factors:

7


(1)
UCIS were promoted to a small proportion (approximately 3%) of the Firm’s
customers.

(2)
Mr Jones did not encourage Specialist Solutions’ advisors to promote UCIS to
customers and it was not part of the Firm’s strategy to do so.

(3)
The skilled person found that the UCIS chosen by Specialist Solutions were
relatively “mainstream” rather than “exotic” in terms of the underlying
investment(s).

(4)
Under Mr Jones’ direction, the Firm retained an independent compliance
consultant to conduct quarterly client file reviews. From June 2009, Specialist
Solutions sent 10% of its customer files to the compliance consultant for
review. These included three UCIS files. On reviewing these files, the
compliance consultant did not identify that UCIS had been promoted to retail
customers without consideration of the relevant regulations. (However, the
fact that the consultant failed to identify that UCIS potentially had been
incorrectly recommended does not absolve Mr Jones from failing to make
himself aware of and ensure compliance with the relevant regulation.)

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

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

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

6.9.
The FSA has taken into account that the penalty is to be imposed on an individual and
that the penalty may have a greater impact on the individual than it would do on a
body corporate.

Conduct following the breach (DEPP 6.5.2(8))

6.10. The FSA has taken into account that Mr Jones has cooperated fully with the its
investigation and has implemented changes to Specialist Solutions’ systems and
controls and procedures to ensure that similar issues do not arise in the future,
including the appointment of new compliance consultants. He has conducted a past
business review and made proposals to undertake a customer contact exercise in
relation to those customers who were sold UCIS in breach of the relevant regulations.

6.11. Further, under Mr Jones’ direction the Firm applied to the FSA to vary its permissions
to exclude the promotion of UCIS as soon as he became aware of the regulatory
breaches.

Disciplinary record and compliance history (DEPP 6.5.2(9))

6.12. Mr Jones has not been the subject of any previous FSA investigations.

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

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

6.14. Having regard to all the circumstances, the FSA considers the appropriate level of
financial penalty is £20,000 before discount for early settlement.

Withdrawal of approval and prohibition

6.15. The FSA has had regard to the guidance in Chapter 9 of the EG in proposing that Mr
Jones be prohibited from performing significant influence functions in relation to the
promotion of UCIS. The FSA would be minded to revoke the prohibition order, on
Mr Jones’ application, in the event that Mr Jones is able to demonstrate to the
satisfaction of the FSA that he has taken adequate steps to remedy his lack of
competence and capability. The relevant provisions of EG are set out in Annex A of
this Notice.

6.16. Given the nature and seriousness of the failures outlined above, the FSA has
concluded that Mr Jones is not fit and proper to perform significant influence
functions or customer functions in relation to the promotion of UCIS.

6.17. In particular, Mr Jones demonstrated a fundamental lack of understanding of the
restrictions and risks associated with promoting UCIS to retail customers. In the
interests of consumer protection, the FSA deems it appropriate to impose a
prohibition order on Mr Jones in the terms set out above.

7.
DECISION MAKER

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

8.
IMPORTANT

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

Time and manner of payment

8.2.
The financial penalty must be paid in full by Mr Jones to the FSA by no later than 5
October 2011, being 14 days from the date of this Final Notice.

If the financial penalty is not paid

8.3.
If all or any part of the financial penalty is outstanding on 6 October 2011, the FSA
may recover the outstanding amount as a debt owed by Mr Jones 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 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 Mr Jones or prejudicial to
the interest of consumers.

8.5.
The FSA intends to publish such information about the matter to which this Final
Notice relates as it considers appropriate.

8.6.
For more information about this matter, contact Rachel West of the Enforcement and
Financial Crime Division at the FSA (direct line: 020 7066 0142 /fax: 020 7066
0143).

Tom Spender
Head of Department
FSA Enforcement and Financial Crime Division


ANNEX A

RELEVANT STATUTORY PROVISIONS, REGULATORY REQUIREMENTS AND
FSA GUIDANCE

1.
Statutory provisions

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

1.2.
Section 56 of the Act provides that the FSA may make a prohibition order prohibiting
and individual from performing a specified function.

1.3.
Section 66 of the Act provides that the FSA may take action against a person if it
appears to the FSA that he is guilty of misconduct and the FSA is satisfied that it is
appropriate in all the circumstances to take action against him. Misconduct includes
failure, while an approved person, to comply with a statement of principle issued
under section 64 of the Act. The action that may be taken by the FSA includes the
imposition of a penalty on the approved person of such amount as it considers
appropriate.

1.4.
Section 238(1) of the Act provides that an authorised person must not communicate
an invitation or inducement to participate in a collective investment scheme. Section
238(4) provides that certain authorised schemes are exempted from this prohibition.

1.5.
UCIS is defined in the glossary to the FSA Handbook of Rules and Guidance as “a
collective investment scheme which is not a regulated collective investment scheme”.
Unless a collective investment scheme (“CIS”) falls within the narrow definition of a
regulated CIS1 , it will be a UCIS.

1.6.
The PCIS Order and COBS 4.12 provide for circumstances when UCIS may be
promoted to customers without advisers falling foul of section 238 of the Act. There
are a number of exemptions that may be applied to the section 238 restriction. For
example, under the PCIS Order, UCIS may be promoted to persons defined as
“certified high net worth investors” and “sophisticated investors”.

1.7.
Section 4.12 of COBS defines eight categories of persons to whom an authorised
person may promote UCIS. These include:

(1)
Category 2: a person for whom a firm has taken reasonable steps to ensure that
investment in a collective investment scheme is suitable and who is an
“established” or “newly accepted” client of the firm; and

1 A CIS is defined in the Handbook Glossary as follows: (a) an investment company with variable capital; or (b)
an authorised unit trust scheme: or (c) a recognised scheme, (ie a CIS constituted overseas and formally
recognised under sections 264, 270 or 272 of the Financial Services and Markets Act 2000); whether or not the
units are held within an ISA or personal pension scheme.

(2)
Category 8: a person to whom the firm has undertaken an adequate assessment
of expertise, experience and knowledge and to whom the firm has provided
certain written warnings.

1.8.
An authorised firm must take reasonable steps to ensure that its personal
recommendations to customers are suitable in compliance with the rules in Chapter 9
of COBS and Principle 9.

2.
Handbook provisions

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

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

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

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

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

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

2.6.
Statement of Principle 7 provides that an approved person performing a significant
influence function must take reasonable steps to ensure that the business of the firm
for which he is responsible in his controlled function complies with the relevant
requirements and standards of the regulatory system.

2.7.
APER 3.1.8G provides, in relation to applying Statements of Principle 5 to 7, that the
nature, scale and complexity of the business under management and the role and
responsibility of the individual performing a significant influence function within the
firm will be relevant in assessing whether an approved person’s conduct was
reasonable.

2.8.
APER 3.3.1E states that in determining whether or not the conduct of an approved
person performing a significant influence complies with Statements of Principle 5 to

7, the following are factors which, in the opinion of the FSA, are to be taken into
account:

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

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

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

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

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

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

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

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

2.12. APER 4.7.7E provides that failing to take steps to ensure that procedures and systems
of control are reviewed and, if appropriate, improved, following the identification of
significant breaches (whether suspected or actual) of the relevant requirements and
standards of the regulatory system relating to its regulated activities is conduct that
does not comply with Statement of Principle 7.

3.
Other relevant regulatory provisions

Fit and proper test for Approved Persons

3.1.
The part of the FSA Handbook entitled “FIT” sets out the Fit and Proper Test for
Approved Persons. The purpose of FIT is to outline the main criteria for assessing the
fitness and propriety of a candidate for a controlled function. FIT is also relevant in
assessing the continuing fitness and propriety of an approved person.

3.2.
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 considerations will be the
person’s competence and capability.

3.3.
As set out in FIT 2.2, in determining a person’s competence and capability, the FSA
will have regard to matters including but not limited to:

(1)
whether the person satisfies the relevant FSA training and competence
requirements in relation to the controlled function the person performs or is
intended to perform; and

(2)
whether the person has demonstrated by experience and training that the
person is able, or will be able if approved, to perform the controlled function.

Enforcement Guide (“EG”)

3.4.
The FSA’s policy on exercising its enforcement power is set out in the EG, which
came into effect on 28 August 2007.

FSA’s policy for exercising its power to make a prohibition order and withdraw a
person’s approval

3.5.
The FSA’s approach to exercising its powers to make prohibition orders and withdraw
approvals is set out at Chapter 9 of EG.

3.6.
EG 9.1 states that the FSA’s power to make prohibition orders under section 56 of the
Act helps it work towards achieving its regulatory objectives. The FSA may exercise
this power 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.

3.7.
EG 9.4 sets out the general scope of the FSA’s powers in this respect, which include
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. EG 9.5 provides that the scope of a prohibition order will
vary according to 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 posed by him to consumers or the market generally.

3.8.
In circumstances where the FSA has concerns about the fitness and propriety of an
approved person, EG 9.8 to 9.14 provides guidance. In particular, EG 9.8 states that
the FSA may consider whether it should prohibit that person from performing
functions in relation to regulated activities, withdraw that person’s approval or both.
In deciding whether to withdraw approval and/or make a prohibition order, the FSA
will consider whether its regulatory objectives can be achieved adequately by
imposing disciplinary sanctions.

3.9.
EG 9.9 states that the FSA will consider all the relevant circumstances when deciding
whether to make a prohibition order against an approved person and/or to withdraw
that person’s approval. Such circumstances may include, but are not limited to, the
following factors:

(1)
whether the individual is fit and proper to perform functions in relation to
regulated activities, including in relation to the criteria for assessing the
fitness and propriety of an approved person in terms of competence and
capability as set out in FIT 2.2;

(2)
the relevance and materiality of any matters indicating unfitness;

(3)
the length of time since the occurrence of any matters indicating unfitness;

(4)
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;

(5)
the severity of the risk which the individual poses to consumers and to
confidence in the financial system; and

(6)
the previous disciplinary record and general compliance history of the
individual.

3.10. 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 serious lack of competence.

Decision Procedure and Penalties Manual (“DEPP”)

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

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

3.13. 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.

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

Deterrence: DEPP 6.5.2G(1)

3.15. 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)

3.16. The FSA will consider the seriousness of the breach in relation to the nature of the
rule, requirement or provision breached, which can include considerations such as the
duration and frequency of the breach, whether the breach revealed serious or systemic
weaknesses in the person’s procedures or of the management systems or internal
controls relating to all or part of a person’s business, the nature and extent of any

financial crime facilitated, occasioned or otherwise attributable to the breach and the
loss or risk of loss caused to consumers, investors or other market users.

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

3.17. 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)

3.18. 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)

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

Conduct following the breach: DEPP 6.5.2G(8)

3.20. 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)

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

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

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