FINAL NOTICE

Individual Ref. No: JRS01216


TAKE NOTICE: The Financial Services Authority of 25 The North Colonnade, Canary

Wharf, London, E14 5HS (“the FSA”) has taken the following action:

1.
ACTION

1.1.
For the reasons listed below, the FSA has taken the following action against Mr James

Robert Short (‘James Short’):

(1)
published a statement of James Short’s misconduct pursuant to section 66 of

the Financial Services and Markets Act 2000 (“the Act”) for failing to comply

with Statement of Principle 1 of the FSA’s Statements of Principle and Code of

Conduct for Approved Persons (“Statements of Principle”); and

(2)
made a prohibition order, pursuant to section 56 of the Act, to prevent James

Short from carrying out any function in relation to any regulated activity

carried on by any authorised person, exempt person, or exempt professional

firm (“the Prohibition Order”) because James Short is not a fit and proper

person. The Prohibition Order takes effect immediately.

1.2 The FSA considered that the misconduct in such a case would normally warrant a

financial penalty of £100,000. James Short provided verifiable evidence that the

imposition of such a financial penalty would cause him serious financial hardship.

The FSA would have been minded to impose such a financial penalty notwithstanding

James Short’s financial position, if it were not for the actions of James Short’s fellow

director, his father Martin Frederick Short (‘Martin Short’). On being made aware of

James Short’s wrongdoing Martin Short took immediate and proactive steps at

substantial cost to himself and his family to ensure that detriment to clients was

minimised and matters outstanding with insurers were settled. To do so Martin Short

used his life savings and also funds from other family members, including over

£100,000 that would otherwise have formed an inheritance due to James Short. His

actions went beyond any legal obligation enforceable against him, and cost

substantially more than the amount of the fine considered. The FSA was of the view

that, in light of the actions of Martin Short, it was not appropriate to impose any

financial penalty on James Short that might fall on the family. The FSA therefore

considered that this case is exceptional and that the actions it has taken are appropriate

and proportionate in all the circumstances of the case.

2.
REASONS FOR THE ACTION

2.1.
The FSA concluded on the basis of the facts and matters described below:

(a)
that through the insurance intermediary business, Martin Short

(Insurance Consultants) Limited (“MSIC”), following receipt of

premium payments from four commercial clients, James Short

deliberately and knowingly failed to insure those clients but instead

retained the entire premium payment to be used by the firm without the

knowledge or consent of the other director or any other employees at

MSIC; and

(b)
James Short deliberately and knowingly falsified documentation in the

names of Companies A and B in order to mislead those clients into

believing that valid insurance cover was in place; and

(c)
James Short deliberately and actively misled his fellow director in

relation to MSIC’s business affairs and financial position and he

deliberately and actively misled the FSA when it first interviewed him.

2.2.
The FSA considered James Short’s dishonest conduct to be extremely serious because

he abused the trust and confidence that his clients placed in him, misrepresenting to

them that valid insurance was in place when he knew that not to be the case. This is

particularly concerning because it left a number of MSIC’s clients, who ran fleets of

passenger vehicles, exposed to substantial financial and legal risks of which they were

unaware. James Short poses a risk both to consumers and to maintaining confidence

in the UK financial system. Action has been taken against James Short in support of

the FSA’s regulatory objectives of the reduction of financial crime, market confidence

and the protection of consumers.

2.3.
For these reasons, the FSA considered that it was necessary and proportionate to

publish a statement of James Short’s misconduct and to make a Prohibition Order

against him.

3.
STATUTORY PROVISIONS, REGULATORY GUIDANCE AND POLICY

3.1.
The relevant statutory provisions, regulatory guidance and policy relied upon are set

out at Annex A.

4.
FACTS AND MATTERS RELIED ON

4.1.
MSIC is a small insurance broking business established by James Short’s father,

Martin Short, over 25 years ago. It was authorised by the FSA on 14 January 2005 to

carry out insurance mediation business and served retail and small and medium

commercial customers. James Short and Martin Short were the two shareholders and

directors of MSIC. In recent years James Short was also the firm’s principal active

broker for personal lines such as motor and household insurance and commercial

insurance for businesses, including motor fleet cover and employers’ and public

liability cover. MSIC employed three other permanent employees who had clerical

roles.

4.2.
On 14 January 2005 James Short gained approval to hold controlled functions CF1

(Director) and CF8 (Apportionment and Oversight) (he ceased to perform the CF8 role

on 31 March 2009) and to be responsible for insurance mediation at MSIC. Martin

Short also held the CF1 (Director) controlled function but in recent years did not have

an active broking or claims handling role within the running of the firm. Martin Short

received reports from James Short and reviewed management information provided to

him by James Short regarding the firm’s business, including information relating to

new business and the firm’s financial status, all of which appeared to be satisfactory.

4.3.
The FSA received information from two clients of MSIC, Company A and Company

B, that they had paid premiums to MSIC for motor fleet insurance and subsequently

discovered, after asking MSIC to handle claims following road traffic accidents, that

James Short had failed to place insurance. On the basis of this information the FSA

commenced an investigation on 11 November 2010.

4.4.
Early discussions between the FSA and Companies A and B suggested that James

Short had failed to provide either company with policy documentation but that he had

written to each to confirm that insurance cover was in place. He had also sent further

misleading correspondence regarding premium adjustments and claims to each

company during the period when cover was supposed to be in place, with the result

that each company believed that valid insurance was in place.

4.5.
The FSA interviewed James Short three times. The first interview was conducted

during an unannounced visit to the firm’s offices on 16 November 2010. During that

interview James Short denied any misconduct, insisting that cover had been properly

placed for Companies A and B. He also indicated that Martin Short (who was not in

the office) was on holiday and could not be contacted.

4.6.
The FSA was not satisfied with the answers provided by James Short during the first

interview and was concerned that the problem might not be confined to Companies A

and B. Immediately following that visit the FSA made direct contact with Martin

Short and following discussions with him MSIC submitted a voluntary application for

variation of the firm’s Part IV permission to the FSA on 24 November 2010 which

provided that:

(i)
MSIC was to engage an independent third party to complete to the FSA’s

satisfaction a review of all the firm’s insurance business submitted since 1

January 2007 to include, where appropriate, a customer contact exercise to

ensure that customers were properly insured and, where this was not the case,

to recommend any appropriate redress;

(ii)
James Short was to cease immediately to perform his CF1 director function

and to cease to be responsible for insurance mediation, as well as submitting a

‘Form C’ to the FSA notifying it that he would be ceasing to perform his

controlled functions;

(iii)
James Short was not to engage in any activity in relation to the firm except

under the direct supervision of Martin Short or a representative of the

independent third party.

4.7.
MSIC submitted a ‘Form C’ to the FSA on 3 December 2010 notifying the FSA that

James Short had ceased to perform the controlled function of CF1 director as well as

ceasing to be responsible for insurance mediation.

The independent third party’s findings

4.8.
The independent third party review required by the voluntary variation of permission

dated 24 November 2010 determined that MSIC had not been performing to the level

that James Short had led Martin Short to believe and that the firm was in financial

difficulties.

4.9.
James Short failed to inform Martin Short that two insurers cancelled their agency

arrangements with MSIC. He misled Martin Short by providing plausible explanations

5

about MSIC’s performance and by inputting fictitious clients into MSIC’s electronic

records systems to persuade Martin Short that the business was still growing.

4.10. James Short withheld calls from MSIC’s solicitors to Martin Short. He also

intercepted calls and e-mails from the independent third party to Martin Short and

responded to some of these e-mails pretending to be Martin Short. During the review

by the independent third party, James Short made a number of admissions, as detailed

below.

Interviews with James Short

4.11. In his second and third interviews with the FSA James Short made admissions that he

(i)
accepted substantial premiums from Companies A and B but did not place

insurance for them;

(ii)
deliberately misled Companies A and B into believing that they had valid

insurance in place;

(iii)
lied to Company C in order to obtain £30,000 from it which it believed was a

premium payment in advance of the following year’s insurance policy to

secure a discount on the cost of that policy;

(iv)
accepted a premium of £5,000 from Company D and arranged insurance cover

but failed to pass the premium on to the insurer who subsequently cancelled the

insurance policy for non-payment of the premium; and

(v)
exploited the relationship of trust that exists between insurance brokers and

their clients in order to dishonestly obtain money from these clients,

deliberately misleading them and leaving three of them (Companies A, B and

D) uninsured.

4.12. James Short actively misled Martin Short, informing him that the business was doing

well and was gaining significant new commercial clients. As the principal active

broker and the person who had greatest contact with commercial clients, as well as

control over the firm’s records, James Short concealed his misconduct from Martin

6

Short and from other staff at the firm for a significant period of time. Martin Short

only became aware of the misconduct following the FSA’s intervention and he worked

with the FSA to determine the extent of the problem and ensure that MSIC’s affected

customers suffered no further detriment. Martin Short made a number of payments

from his own personal funds to MSIC’s affected customers and to other creditors of

MSIC.

James Short’s misconduct

Company A

4.13. James Short’s misconduct started with Company A which is a commercial and private

hire company operating a fleet of coaches, minibuses and private cars.

4.14. MSIC had a binding authority arrangement with Insurer A whereby, as long as the

client met Insurer A’s criteria, MSIC had authority to issue a cover note thereby

putting the client on risk before the risk had been formally presented to, and accepted

by, Insurer A. In July 2009 under this arrangement James Short set up a motor fleet

policy with Insurer A for Company A. The premium for this insurance policy was

£32,986.30 which Company A paid in full to MSIC. James Short subsequently sent the

proposal form signed by Company A to Insurer A but he did not forward the premium

to the insurer.

4.15. Two weeks after the policy commenced Insurer A declined to provide insurance on the

basis that Company A’s vehicle mix and claims history did not meet Insurer A’s

criteria. Insurer A cancelled the policy from inception and Company A was left

uninsured.

4.16. James Short did not inform Company A that its vehicles were uninsured and he

retained within MSIC the premium Company A had already paid. He tried to obtain

insurance for Company A elsewhere but no other insurer would accept the risk

because of Company A’s vehicle mix and claims history. James Short stated that he

‘gambled’ that Company A’s vehicles would not be involved in any accidents.

7

4.17. As there was no valid insurance cover in place, MSIC was unable to issue any policy

documentation to Company A. James Short lied to Company A about this, informing it

that the delays were attributable to Insurer A.

4.18. To further his deception, James Short sent quarterly declaration forms to Company A

purportedly giving it the opportunity to make mid-term adjustments to the policy. He

received payments for two adjustments from Company A in the amounts of £2,176.98

(October 2009) and £1,527.36 (February 2010) and paid them into MSIC’s client

account.

4.19. During the period from July 2009 to July 2010 when Company A believed that it had

valid motor fleet cover in place a number of its vehicles were involved in accidents.

Company A submitted the ensuing claims to MSIC and James Short dealt with a

number of the claims by making payments to Company A using the premium of

£32,000 that it had paid to MSIC in July 2009. For other, smaller claims James Short

advised Company A to settle these claims privately on the basis that they fell within

the excess amount on Company A’s motor fleet insurance. Company A therefore

remained unaware that there was no valid insurance in place.

4.20. Shortly after the supposed commencement of Company A’s insurance with Insurer A,

Company A made a claim following an accident. Company A had hired the vehicle

concerned from a third party and the damage to the vehicle was such that it was taken

to a recovery yard. The vehicle remained in the recovery yard for about nine months

as James Short had not arranged insurance for Company A and therefore no insurer

inspected the vehicle to determine the value of the insurance claim. Company A was

unaware of this and continued to be liable for the hire charges for the vehicle while it

was in the recovery yard. James Short lied to Company A by telling it that its

insurance policy would cover the hire charges. He also informed Company A that

Insurer A was to blame for the delay in processing Company A’s claim. In total,

Company A’s claim in relation to this vehicle was approximately £36,000, including

hire charges.

4.21. Company A’s solicitors informed the FSA that on 12 July 2010 MSIC told Company

A that it had received just over £36,000 from Insurer A in settlement of Company A’s

claim and would pay this to Company A within three days. The amount was not paid

to Company A despite further promises and assurances from James Short. On 28 July

2010 MSIC gave Company A a client account cheque for £36,000; this was returned

unpaid by MSIC’s bank due to lack of funds. James Short stated that he deliberately

issued this cheque on behalf of MSIC to Company A in the amount of £36,000, even

though he knew that there were insufficient funds in MSIC’s account, as a delaying

tactic.

4.22. In July 2010 Company A contacted James Short in order to renew its motor fleet

insurance for 2010-2011. James Short was unable to obtain any quotations from the

insurance market as Company A did not have a claims history for the preceding year

as there had been no valid insurance in place.

4.23. James Short again lied to Company A, informing it that insurance for its commercial

vehicles was available with Insurer B and he calculated a premium himself which he

put to Company A and it accepted. He informed Company A that it need not pay the

premium quoted as the amount due from settlement of the outstanding claims by

Insurer A (referred to above) would cover the amount of the premium.

4.24. James Short told Company A that its private car fleet would be insured for 2010-2011

through Insurer E and it appears that this insurance was actually placed, although

Company A later cancelled it.

4.25. In 2010 Company A asked James Short to provide it with a copy of its claims history

for 2009-2010. As there had been no valid insurance cover in place for this period,

James Short was unable to provide the document requested so he prepared one himself

detailing claims between July 2009 and May 2010. Company A queried the document

as, unlike claims histories it had received previously, this one did not have the

Insurer’s name or logo on it. James Short lied to Company A, stating that not every

insurer’s claims history document included the insurer’s name or logo.

4.26. Company A informed James Short in September 2010 that it wished to cancel the

insurance policies and it took its business elsewhere.

4.27. On 17 September 2010 Company A’s solicitors wrote to MSIC demanding payment of

the claim for £36,000 referred to above and repayment of the premiums Company A

had paid to MSIC. James Short gave further assurances that he would make payments

and concealed the letter from Martin Short. James Short spoke to Company A’s

solicitors but did not have the funds to satisfy Company A’s claim. On 8 October 2010

Company A filed a winding-up petition against MSIC which James Short also

concealed from Martin Short.

Company B

4.28. Company B is a commercial and private hire company operating a fleet of coaches,

minibuses and private cars. It sought motor fleet insurance and employers’ and public

liability (‘EPL’) insurance through MSIC in mid-2009.

4.29. James Short issued a cover note to Company B through MSIC’s arrangement with

Insurer A (referred to at paragraph 4.13 above) and informed Company B that he had

placed motor fleet and EPL insurance for it for one year beginning in July 2009 with

Insurer A at a combined total premium of £10,698.75. Company B entered a premium

credit agreement whereby a third party credit provider paid the total premium in full to

MSIC with Company B reimbursing the credit provider in monthly instalments,

including additional charges for the credit arrangement, in the total amount of

£11,818.

4.30. James Short sent the proposal form and a copy of the cover note to Insurer A but it

declined the risk because Company B’s claims history did not meet Insurer A’s

criteria. Despite several attempts he failed to place the cover elsewhere and he did not

tell Company B that it did not have valid insurance in place. Instead he wrote to

Company B and purported to provide details of insurance cover and subsequently

provided a policy number which he admitted he had created himself. James Short

stated that the premium paid by the third party credit provider on behalf of Company

B was paid into MSIC’s client bank account and it was used to cover the ongoing

costs of running MSIC.

4.31. During the 2009/2010 period a number of Company B’s vehicles were involved in

accidents and Company B contacted James Short to deal with several claims on its

fleet policy on its behalf. James Short did not inform Company B that no such fleet

cover existed; instead he made payments to Company B from the premium it had paid

to MSIC and from MSIC’s funds while telling Company B that the payments were

from Insurer A in settlement of the claims.

4.32. James Short had insufficient funds available to enable him to satisfy all of Company

B’s accident claims and there was protracted correspondence between Company B and

James Short during 2009/2010 regarding non-payment of claims. In or around

September 2009, and as a result of his dissatisfaction with James Short’s handling of

the outstanding claims, a director of Company B attended MSIC’s offices to speak to

James Short. James Short informed him that the problem lay with Insurer A as it was

notorious for poor administration and processing claims and gave Company B’s

director assurances that he would ensure that the outstanding claims were dealt with.

4.33. In July 2010, although the correspondence regarding non-payment of certain claims

was ongoing, Company B sought to renew its fleet and EPL cover through MSIC.

James Short informed Company B that its fleet cover for the year from July 2010

would be provided by a different insurer, Insurer B, at a cost of £8,975.00 (a figure

that James Short admitted he had made up) while the EPL cover would be placed

through Insurer C at a cost of £551.25. Company B paid both premiums in full to

MSIC in July 2010.

4.34. James Short was unable to obtain fleet cover for Company B for the period from July

2010 as he was unable to produce a claims history for the preceding year as there had

been no valid insurance in place.

4.35. James Short placed Company B’s EPL cover for 2010-2011 on July 16 2010 through

Insurer C’s online system, describing Company B as an “Accountancy” business.

James Short stated that, due to technical difficulties with Insurer C’s website, Insurer

C had advised him to choose the first option on a list menu when describing Company

B’s business. James Short accepted that the fact that Company B appeared on the

insurer’s system as an ‘accountancy’ business meant that Company B was unlikely to

have adequate cover in place. Subsequently MSIC refunded the premium paid by

Company B for its EPL cover and Company B obtained cover through another

insurance broker.

4.36. On 31 August 2010 the owner of Company B attended at MSIC’s offices with a friend

who worked in the insurance industry. Company B’s owner demanded to speak to

James Short and refused to leave MSIC’s office until he had done so. In order to get

Company B’s owner and his friend out of MSIC’s offices, James Short issued a cover

note from a cover note book provided to MSIC by Insurer B and told Company B’s

owner that he would chase Insurer B to provide the policy documents. Company B had

never received a policy number or documents from MSIC which had instead issued

monthly cover notes to Company B. Company B’s owner asked James Short for the

policy number for the previous year’s insurance (2009/2010) and James Short

provided one. When Company B contacted the insurer to check the policy number, it

was informed that the number related to a very old policy unrelated to Company B.

4.37. The owner of Company B informed the FSA that one of the company’s mini-buses

was involved in an accident in February 2010 and James Short informed Company B

that the insurer had accepted the claim and had authorised collection and repair of the

mini-bus as well as the use of a courtesy car. Seven or eight months later, when

nothing had happened, Company B confronted James Short and he admitted that there

was no valid insurance in place. He then refunded to Company B all the monies it had

paid to MSIC and the credit charges that Company B had paid to the third party credit

provider. Company B had no further dealings with James Short or MSIC.

4.38. Company C is a large commercial food supplier which had several insurance policies

placed through MSIC, including a product recall policy.

4.39. James Short admitted that in 2010 he lied to Company C, telling it that it would

receive a discount on the cost of the following year’s product recall policy if it paid

£30,000 in advance. He informed Company C that the insurer involved wanted to fill

its book of business for the following year and therefore was offering the discount as

an inducement. James Short admitted that he had lied to obtain a large cash injection

for MSIC.

4.40. Company C duly made three payments of £10,000 in anticipation of the future

discount and James Short paid this money into MSIC’s client account.

Company D


4.41. Company D is a courier company which sought to place its motor vehicle fleet

insurance through MSIC for 2010-2011. James Short informed Company D that he

had placed its fleet cover through Insurer F at a premium of approximately £5,000

which was paid in full by company D.

4.42. James Short admitted to the FSA that he had received the premium payment from

Company D and had paid it into MSIC’s client account, instead of passing it on to

Insurer F. He admitted misleading company D into believing that it had valid

insurance in place.

4.43. In September 2010 Insurer F wrote directly to Company D to notify it that its policy

had been cancelled due to non-payment of the premium. Company D then contacted

James Short and he admitted to the FSA that he told Company D that there must have

been an error at Insurer F and that he would try to have it corrected. James Short

admitted to the FSA that there was no policy in place and that he never attempted to

correct the situation.

4.44. This matter came to light in November 2010 after the FSA’s intervention when

Company D called MSIC to make a change to its insurance policy and spoke to a

member of staff who contacted the insurer which said that the policy had been

cancelled in September 2010. MSIC through Martin Short immediately took action to

address the problem and placed emergency insurance cover with Insurer C for

Company D at its own cost. Martin Short informed the FSA that company D has since

cancelled this emergency insurance with Insurer C and has obtained insurance through

another broker.

5.
ANALYSIS OF BREACHES

5.1.
By reason of the facts and matters referred to in section 4 above the FSA concluded

that James Short is in breach of Statement of Principle 1 in that:

(1)
He deliberately failed to put in place insurance cover for Companies A, B and

D despite receiving premiums into MSIC from those clients for that purpose;

(2)
He used the premiums received from Companies A, B, C and D to contribute

to MSIC’s running costs;

(3)
He provided false information to Companies A, B and D with the deliberate

intention of misleading them into believing that they had valid insurance in

place;

(4)
He knowingly obtained funds from Company C on a false basis by leading

Company C to believe that an advance payment would secure a discount on a

future insurance policy and he did this solely to obtain further funds for the use

of MSIC; and

(5)
All of this was done of his own accord and without the knowledge or consent

of the other director or employees. He deliberately and actively misled his

fellow director, Martin Short, in relation to the business affairs and financial

position of MSIC and he deliberately and actively misled the FSA when it first

interviewed him.

6.
ANALYSIS OF SANCTIONS

Public censure

6.1
The FSA's policy in relation to the imposition of a public censure is set out in Chapter

6 of the Decision Procedure and Penalties Manual (“DEPP”), which forms part of the

FSA Handbook. On 6 March 2010 the FSA adopted a new penalty-setting regime. As

James Short’s misconduct began in July 2009, well before the adoption of the new

regime, and he continued the same course of misconduct after March 2010, the FSA

considered this case under the regime which applied before 6 March 2010.

6.2
In addition, the FSA had regard to the corresponding provisions of Chapter 7 of the

Enforcement Guide (“EG”).

6.3 The principal purpose of issuing a public censure is to promote high standards of

regulatory 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.

6.4
DEPP 6.4.2G sets out the factors that may be of particular relevance in determining

whether it is appropriate to issue a public censure rather than impose a financial

penalty. The criteria are not exhaustive and DEPP 6.4.1G(1) provides that the FSA

will consider all relevant circumstances of the case when deciding whether to impose a

penalty or issue a public censure. The FSA considers that the following factors are

particularly relevant in this case:

Deterrence (DEPP 6.4.2G(1))

6.5
In determining whether to publish a statement of James Short’s misconduct the FSA

had regard to the need to ensure that those who are approved persons act with integrity

and do not abuse their positions in the financial services industry. The FSA considers

that a public censure should be imposed to demonstrate to James Short and others the

seriousness with which the FSA regards his behaviour.

6.6
The FSA also had regard to the FSA’s objective of reducing financial crime and

ensuring that behaviour by individuals which undermines confidence in the financial

system is not tolerated.


The seriousness of the breach in question (DEPP 6.4.2G(3))

6.7
The FSA had regard to the seriousness of the breaches, including the nature of the

requirements breached, the duration and frequency of the breaches and the number of

customers who were affected and/or placed at risk of loss.

6.8
James Short’s conduct in his significant influence function at MSIC fell short of the

FSA’s prescribed regulatory standards for approved persons. In particular, from July

2009 until late 2010 James Short demonstrated a lack of integrity. In addition to

deliberately misappropriating clients’ monies and misleading those clients, James

Short actively misled his fellow director to conceal his misconduct.

6.9
As a result of his serious misconduct, the FSA considers that James Short poses a

serious risk to consumers and to confidence in the financial system.

Conduct following the breach (DEPP 6.4.2G(5))

6.10
Pursuant to the voluntary variation of permission submitted to the FSA by MSIC on

24 November 2010, James Short ceased to perform his controlled function and to be

responsible for insurance mediation. He thereby allayed the FSA’s concerns that he

might pose an ongoing risk to MSIC’s clients.

6.11
Although he did not do so at the first opportunity, James Short made full admissions to

the FSA at his second and third interviews at a comparatively early stage of the

investigation thereby significantly reducing the length of the FSA’s investigation.

6.12
The FSA had regard to all the circumstances of this case and to the fact that the

detriment suffered by clients of MSIC was minimised due to the efforts of Martin

Short who acted immediately and proactively and:

(i)
did not put MSIC into liquidation, instead paying in excess of £370,000 to

clients and insurers and to cover costs associated with James Short’s

misconduct. Martin Short used his own funds (including his life savings) and

funds from family members, including over £100,000 that James Short was

due to inherit;

(ii)
would be likely to attempt to pay any financial penalty imposed on James

Short.

Previous action taken by the FSA (DEPP 6.4.2G(7))

6.13
In determining the appropriate sanction, the FSA took into account sanctions imposed

by the FSA on other approved persons for similar behaviour. This was considered

alongside the deterrent purpose for which the FSA imposes sanctions.

The financial impact on the person concerned (DEPP 6.4.2G(8))

6.14
The FSA viewed James Short’s breach of Statement of Principle 1 as very serious and

would have imposed a financial penalty of £100,000. James Short provided verifiable

evidence that imposing such a financial penalty would cause him serious financial

hardship. Despite this, the FSA would have been minded to impose a financial penalty

of £100,000 in this case given the nature and seriousness of James Short’s misconduct.

However, the FSA considered that the immediate and proactive steps taken by James

Short’s fellow director to compensate from his personal and family funds those who

had suffered detriment constituted exceptional circumstances such that it was

appropriate in this particular case to issue a public censure rather than impose a

financial penalty.

6.15
The FSA considered whether James Short is a fit and proper person. In doing so, the

FSA had regard to its regulatory requirements and relevant guidance. In assessing

James Short’s honesty, integrity and reputation for the purpose of considering whether

he is a fit and proper person, the FSA had regard to his conduct as detailed above.

6.16
The FSA considered that James Short demonstrated a lack of honesty and integrity.

He is not a fit and proper person to perform regulated activities and the FSA has

therefore made the Prohibition Order against him pursuant to section 56 of the Act.

7.
CONCLUSIONS

7.1
On the basis of the facts and matters described above, the FSA concluded that James

Short’s conduct fell short of the minimum regulatory standards required of an

approved person and that he breached Statement of Principle 1.

7.2
The FSA, having regard to all the circumstances, therefore considered that it was

appropriate and proportionate to issue a public censure of James Short’s misconduct

and to make the Prohibition Order against him.

PROCEDURAL MATTERS

Decision maker

8.1.
The decision which gave rise to the obligation to give this Notice was made by the

Settlement Decision Makers.

8.2
This Final Notice is given in accordance with section 390 of the Act.

8.3
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 James Short or prejudicial to

the interests of consumers.

8.4
The FSA intends to publish such information about the matter to which this Final

Notice relates as it considers appropriate.

FSA contacts

8.5 For more information concerning this matter generally, contact Paul Howick (direct

line: 020 7066 7954) of the Enforcement and Financial Crime Division of the FSA.

……………………………..

Tom Spender

FSA Enforcement and Financial Crime Division


ANNEX A

RELEVANT STATUTORY PROVISIONS, REGULATORY REQUIREMENTS

AND GUIDANCE

1.
Statements of Principle and Code of Practice for Approved Persons

1.1.
The FSA’s Statements of Principle and Code of Practice for Approved Persons

(“Statements of Principle”) are issued under section 64 of the Act.

1.2.
The relevant Statement of Principle in this case is:

Statement of Principle 1: “An approved person must act with integrity in carrying out

his controlled function.”

1.3.
The Code of Practice for Approved Persons sets out descriptions of conduct which, in

the opinion of the FSA, does not comply with a Statement of Principle. It also sets

out, in certain cases, 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. The specific examples given are not intended to be exhaustive.

1.4.
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, the precise

circumstances of the individual case, the characteristics of the particular controlled

function and the behaviour expected in that function (APER 3.1.3G).

1.5.
An approved person will only be in breach of a Statement of Principle if they are

personally culpable, that is, in a situation where their conduct was deliberate or where

their standard of conduct was below that which would be reasonable in all the

circumstances (APER 3.1.4G).

1.6.
In determining whether an approved person's conduct was in breach of a Statement of

Principle, the FSA will take into account the extent to which the approved person

acted in a way that is stated to be in breach of a Statement of Principle (APER

3.1.5G).

1.7.
The Code of Practice for Approved Persons (and in particular the specific examples of

behaviour which may be in breach of a generic description of conduct in the code) is

not an exhaustive list of types of conduct that may contravene the Statements of

Principle (APER 3.1.6G).

Statement of Principle 1 (APER 2.1.2P)

1.8.
APER 4.1.1G reiterates Statement of Principle 1 that: "An approved person must act

with integrity in carrying out his controlled function."

1.9.
APER 4.1.2E states that, in the opinion of the FSA, conduct of the type described in

paragraphs 4.1.3E, 4.1.5E, 4.1.6E, 4.1.8E, 4.1.10E, 4.1.12E or 4.1.13E of APER does

not comply with Statement of Principle 1.

1.10. APER 4.1.3E explains that deliberately misleading (or attempting to mislead) by act or

omission (1) a client; or (3) the FSA falls within APER 4.1.2E.

1.11. APER 4.1.4E states that behaviour of the type referred to in APER 4.1.3E, and

therefore falling within APER 4.1.2E, includes, inter alia, deliberately: (1) falsifying

documents; and (9) providing false or inaccurate documentation or information,

including details of training, qualifications, past employment record or experience.

1.12. APER 4.1.6E states that deliberately failing to inform without reasonable cause: (1) a

customer; or (3) the FSA; of the fact that their understanding of a material issue is

incorrect, despite being aware of their misunderstanding, falls within APER 4.1.2E.

1.13. APER 4.1.7E states that behaviour of the type referred to in APER 4.1.6E, and

therefore falling within APER 4.1.2E, includes, but is not limited to, deliberately

failing to disclose the existence of falsified documents.

2.
Guidance on exercise of disciplinary powers

2.1.
When exercising its powers, the FSA seeks to act in a way it considers most

appropriate for the purpose of meeting its regulatory objectives, which are set out in

section 2(2) of the Act.

2.2
The FSA’s policy on exercising its enforcement power is set out in the Enforcement

Guide (“EG”), which came into effect on 28 August 2007. EG 2.2(2) states that the

FSA will seek to exercise its enforcement power in a manner that is transparent,

proportionate and consistent with its publicly stated policies.

Exercising the power to make a prohibition order under section 56 of the Act – EG 9

2.3
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.

2.4
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. Depending on the circumstances of each case, it may seek to

prohibit individuals from performing any class of function in relation to any class of

regulated activity, or it may limit the prohibition order to specific functions in relation

to specific regulated activities.

2.5
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.

2.6
EG 9.9 provides that when deciding whether to make a prohibition order, 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 fitness and propriety are set out

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

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

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

(4)
the severity of the risk which the individual poses to consumers and to

confidence in the financial system.


2.7
EG 9.11 provides that due to the diverse nature of the activities and functions which

the FSA regulates, it is not possible to produce a definitive list of matters which the

FSA might take into account when considering whether an individual is not a fit and

proper person to perform a particular, or any, function in relation to a particular, or

any firm. However, EG 9.12 gives examples of types of behaviour which have

previously resulted in the FSA deciding to issue a prohibition order, and one such

example is a serious lack of competence.

2.8
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.

2.9
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.

2.10
FIT identifies three criteria as being the most important considerations, namely:

(1)
FIT 2.1 (honesty, integrity and reputation): This includes an individual’s

openness and honesty in dealing with customers, market participants and

regulators and willingness to comply with requirements placed on him by or

under the Act as well as other legal and professional obligations and ethical

standards;

(2)
FIT 2.2 (competence and capability): This includes an assessment of the

individual’s skills in carrying out the controlled function that he is performing;

and

(3)
FIT 2.3 (financial soundness): This includes an assessment of the individual’s

financial soundness.

2.11
FIT 2.1.1G(1) provides that in determining a person’s honesty, integrity and

reputation, the FSA will have regard to all relevant matters including, but not limited

to, whether the person has contravened any of the requirements and standards of the

regulatory system, whether the person has been the subject of any justified complaint

relating to regulated activities and whether, in the past, the person has been candid and

truthful in all his dealings with regulatory bodies and 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.