Final Notice
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FINAL NOTICE
1.
ACTION
1.1.
For the reasons given in this Final Notice, the Authority has decided to:
(1) make an order, pursuant to section 56 of the Financial Services and
Markets Act 2000 (“the Act”), prohibiting Mr John Chiesa from performing
any function in relation to any regulated activity carried on by an
authorised person, exempt person or exempt professional firm; and
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(2) withdraw, pursuant to section 63 of the Act, the approval given to Mr
Chiesa under section 61 of the Act to perform the CF4 (Partner), CF10
(Compliance Oversight), CF11 (Money Laundering Reporting) and CF30
(Customer) controlled functions.
1.2.
On 26 October 2016 the Authority gave Mr Chiesa a Decision Notice which
notified him that it had decided to take the actions referred to in paragraphs 1.1
(1) and (2). On 23 November 2016 Mr Chiesa referred the Authority’s Decision
Notice to the Upper Tribunal (Tax and Chancery Chamber) (“the Tribunal”). On
19 September 2017, Mr Chiesa applied to withdraw his reference and on 28
September 2017 the Tribunal gave its consent to this withdrawal. A Further
Decision Notice was given to him, pursuant to section 388(3) of the Act, in
respect of the same matter as the Decision Notice dated 26 October 2016.
1.3.
Following withdrawal of the reference to the Tribunal, the Authority has issued
2.
SUMMARY OF REASONS
2.1.
The Authority has decided to take the actions set out in paragraph 1.1 because
it has concluded that Mr Chiesa is not fit and proper to perform any function in
relation to any regulated activity carried on by an authorised person, exempt
person or exempt professional firm. The Authority has concluded that Mr Chiesa
lacks fitness and propriety on account of his lack of integrity in his dealings with
his trustee in sequestration. Paragraphs 2.2 to 2.10 summarise the reasons
why the Authority has reached that conclusion.
2.2.
Mr Chiesa, together with Mrs Chiesa, was a founding partner of Planners, an
authorised firm which provided personal investment advice. Planners became
insolvent and went into sequestration in October 2011 as a consequence of
which, because they were partners at the firm (an unlimited liability partnership
formed under Scots law), Mr and Mrs Chiesa were at the same time also placed
in sequestration.
2.3.
At the time of their sequestration Planners, and Mr and Mrs Chiesa as partners
with unlimited liability for Planners’ debts, had significant liabilities due to the
need to pay compensation in respect of numerous valid complaints relating to
the advice Planners gave on GTEP sales. These liabilities began to accrue about
three years prior to their sequestration, and during those three years Mr and
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Mrs Chiesa took steps to protect their assets and money from tax and from
creditors’ claims. These steps included:
(1) the establishment of the WIFAR Trust, an off-shore remuneration trust, into
which the profits of Planners were directed, and from which Mr and Mrs
Chiesa received, between them, about £991,000 between December 2008
and March 2011, with the payments being made in the form of loans. The
Authority’s view is that those loans were never intended to be repaid
during their lifetimes and that if they were ever repaid the funds would
remain available to Mr and/or Mrs Chiesa;
(2) the rearrangement of their personal expense payments, so that from June
2011 onwards they were met from the bank accounts of Westwood
Trustees, a successful non-authorised business, founded by Mr and Mrs
Chiesa, which specialised in establishing off-shore remuneration trusts for
its clients. From June 2011, Mr and Mrs Chiesa also received funds directly
from Westwood Trustees for their own spending; and
(3) making changes to their ownership and control of Westwood Trustees. In
March 2011, when they each owned 50% of Westwood Trustees, Mr and
Mrs Chiesa decided that Westwood Trustees should issue new shares in
itself directly to the WIFAR Fiduciary Management Company, an off-shore
company which they owned and were the only directors of, which had the
effect of transferring ownership of 98% of Westwood Trustees to the
WIFAR Fiduciary Management Company. In August 2011, they then
resigned as directors of Westwood Trustees and of the WIFAR Fiduciary
Management Company, and transferred legal ownership of the WIFAR
Fiduciary Management Company to the director of the off-shore corporate
trustee of the WIFAR Trust, who also became its sole director. In fact,
notwithstanding these actions, after August 2011 they each retained
beneficial ownership of 50% of the WIFAR Fiduciary Management Company
(and therefore of Westwood Trustees), and Mr Chiesa retained de facto
control of Westwood Trustees.
2.4.
As a result of these actions, Mr and Mrs Chiesa were able to access significant
funds at a time when Planners was accruing significant liabilities (and therefore
Mr and Mrs Chiesa were too). Mr and Mrs Chiesa have continued to have access
to significant funds throughout their sequestration, including from the WTR
Trust, an off-shore remuneration trust established by Westwood Trustees’
directors in February 2012, and into which the profits of Westwood Trustees
were directed from that time onwards. Between August 2011 and December
2014, Mr and Mrs Chiesa jointly received, either directly or indirectly, a net
benefit of around £2.6 million from the profits of Westwood Trustees.
2.5.
In November 2011, a trustee in sequestration was appointed, whose role was to
establish the value of Mr and Mrs Chiesa’s assets and the level of their personal
liabilities, realise those assets for the benefit of their creditors, and assess
whether Mr and Mrs Chiesa were in the position to pay a regular financial
contribution to the sequestrated estate for the benefit of their creditors during
their sequestration. The Trustee’s role was also to review any transactions at an
undervalue that Mr and Mrs Chiesa had made in the five year period prior to the
commencement of their sequestration. In the weeks following his appointment,
the Trustee asked Mr and Mrs Chiesa to provide him with details of their
financial circumstances, including at a meeting in December 2011. Mr Chiesa
was aware that he and Mrs Chiesa had a duty to disclose fully and accurately all
of their financial circumstances to the Trustee. However, Mr Chiesa lacked
integrity in his dealings with the Trustee by making inadequate, incomplete
and/or misleading disclosures, thereby failing adequately to disclose the true
position, in relation to:
(1) the changes they had made to their ownership and control of Westwood
Trustees in order to protect their assets and money;
(2) the scale of the funds they were receiving directly from Westwood
Trustees;
(3) Westwood Trustees’ payment of significant personal expenses on their
behalf;
(4) the full extent of their high level of personal expenditure immediately
before and around the time of their sequestration;
(5) valuable assets that they still owned or had disposed of at an undervalue in
the previous five years; and
(6) their interest in any funds repaid under, and their control over, a £991,000
debt secured against two properties that they jointly owned.
2.6.
Mr Chiesa was also aware that he and Mrs Chiesa had a duty to disclose fully
and accurately to the Trustee any change in their financial circumstances during
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their sequestration. However, Mr Chiesa misled the Trustee by failing to
disclose, and/or making inadequate, incomplete and/or misleading disclosures
so that the Trustee was unaware, that during their sequestration:
(1) they had access to significant funds from Westwood Trustees, including via
the WTR Trust;
(2) Westwood Trustees was continuing to pay significant personal expenses on
their behalf; and
(3) the level of their personal expenditure was significantly higher than
indicated.
2.7.
The effect of Mr Chiesa’s actions was to mislead the Trustee in order to avoid
the Trustee inquiring into – and possibly recovering for the benefit of his, Mrs
Chiesa’s and Planners’ creditors - assets which he and Mrs Chiesa legally or
beneficially owned or in which they had some form of interest and/or control
either directly or indirectly.
2.8.
In contrast to his disclosures to the Trustee, which gave the Trustee the
impression that he had limited income and expenditure and no material assets,
Mr Chiesa had disclosed to banks, a few months before he was placed in
sequestration and then during his sequestration, a high level of income,
expenditure and assets. In the Authority’s view, Mr Chiesa knowingly disclosed
fundamentally different and contradictory information to the banks and to the
Trustee, and in both cases the information he disclosed was that which would
best support his objectives in supplying that information. The Authority
considers that the conflict in the information provided by Mr Chiesa to the banks
and to the Trustee is evidence of Mr Chiesa’s lack of integrity when providing
details of his and Mrs Chiesa’s financial circumstances to the Trustee.
2.9.
As a consequence of Mr Chiesa’s misleading disclosures to the Trustee regarding
his and Mrs Chiesa’s financial circumstances, the Trustee was misled as to the
true value of the assets in Mr and Mrs Chiesa’s estates, transactions at an
undervalue that Mr and/or Mrs Chiesa had made in the five year period prior to
the commencement of their sequestration, their access to funds and the level of
financial contributions to their sequestrated estates for the benefit of their
creditors that Mr and Mrs Chiesa were able to make. Planners, and therefore Mr
and Mrs Chiesa, had over £5 million of liabilities, mainly arising from customer
claims in respect of mis-sales of GTEPs by Planners. The FSCS has to date paid
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out over £3.8 million to former customers of Planners; the FSCS’s cap of
£50,000 per claim has, however, meant that many of Planners’ former
customers have been unable to recover the full amount they were entitled to
recover.
2.10.
Mr Chiesa’s lack of integrity in his dealings with the Trustee demonstrates that
he is not a fit and proper person to perform any function in relation to any
regulated activity carried on by an authorised person, exempt person or exempt
professional firm. Further, he poses a risk to consumers, as is demonstrated by
his actions which had the effect of misleading the Trustee in order to avoid
paying his creditors, including former customers of Planners who were owed
compensation.
2.11.
The Authority has therefore decided to make an order, pursuant to section 56 of
the Act, prohibiting Mr Chiesa from performing any such function and has
decided, pursuant to section 63 of the Act, to withdraw the approval given to Mr
Chiesa under section 61 of the Act to perform the CF4 (Partner), CF10
(Compliance Oversight), CF11 (Money Laundering Reporting) and CF30
(Customer) controlled functions.
2.12.
This action supports the Authority’s operational objectives of securing an
appropriate degree of protection for consumers and protecting and enhancing
the integrity of the UK financial system.
3.
DEFINITIONS
3.1.
The definitions below are used in this Notice.
“the Act” means the Financial Services and Markets Act 2000;
“the Authority” means the body corporate previously known as the Financial
Services Authority and renamed on 1 April 2013 as the Financial Conduct
Authority;
“DEPP” means the Decision Procedure and Penalties Manual section of the
Handbook;
“EG” means the Enforcement Guide part of the Handbook;
“FIT” means the Fit and Proper Test for Approved Persons section of the
Handbook;
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“FOS” means the Financial Ombudsman Service;
“FSCS” means the Financial Services Compensation Scheme;
“GTEP” means geared traded endowment policy;
“the Handbook” means the Authority’s Handbook of rules and guidance;
“Mrs Chiesa” refers to Colette Marie Chiesa, Mr Chiesa’s wife, also approved to
perform the CF4 (Partner) controlled function at Planners, and formerly a
director of Westwood Trustees;
“Planners” means the authorised firm called Westwood, which also traded as
Westwood Independent Financial Planners and Westwood Independent Financial
Advisers, which was formed with unlimited liability under Scots law;
“TEP” means traded endowment policy;
“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber);
“the Trustee” means the trustee in sequestration appointed on 16 November
2011 in respect of Mr and Mrs Chiesa’s sequestration;
“Westwood Trustees” means Asset House Piccadilly Limited (company number
SC182931), which until 15 September 2016 was known as Westwood Trustees
Limited;
“WIFAR Fiduciary Management Company” has the definition set out in paragraph
4.8 of this Notice;
“WIFAR Trust” means the Westwood Independent Financial Advisers off-shore
remuneration trust;
“WTR Fiduciary Management Company” has the definition set out in paragraph
4.38 of this Notice; and
“WTR Trust” means the Westwood Trustees off-shore remuneration trust.
4.
FACTS AND MATTERS
4.1.
Mr and Mrs Chiesa founded Planners in 1994. They were both partners at the
firm, which traded principally as Westwood Independent Financial Planners and
Westwood Independent Financial Advisers. Mr Chiesa was approved to perform
the CF4 (Partner), CF10 (Compliance Oversight) and CF11 (Money Laundering
Reporting) controlled functions on 1 December 2001, and the CF30 (Customer)
controlled function on 1 November 2007.
4.2.
Until its sequestration on 18 October 2011, Planners provided personal
investment advice from its office in Motherwell, Scotland. Mr and Mrs Chiesa
opened a second Planners office in London in or around 2006. Mr Chiesa was
the managing partner of Planners, occupying the lead advisory and customer-
facing role. He shared responsibility for the strategic direction of the
partnership with Mrs Chiesa, who occupied an operational management role.
4.3.
In or around 2005, Planners began advising customers to invest in GTEPs. The
nature of the sales of GTEPs by Planners formed the basis of later regulatory
action taken by the Authority that resulted in a financial penalty of £100,000
being imposed on Planners on 17 December 2013 after the Tribunal upheld the
Authority’s decision to impose such a penalty. GTEPs involve an initial
investment to buy a selection of TEPs and then the borrowing of a further
amount to purchase additional TEPs (i.e. gearing, hence GTEP). The portfolio of
TEPs acquired was used as security for a loan facility to buy the additional TEPs
and to fund the various payments throughout the life of the GTEP plan. The
Tribunal concluded that the GTEP plan sold by Planners was high-risk because of
the gearing and other factors which, when taken together, raise the level of risk
inherent in the plan. The Tribunal also held that, as the GTEP plan was high-
risk, it was not suitable for those customers with a lower risk tolerance who
were advised by Planners to invest in GTEPs.
Mr and Mrs Chiesa’s financial affairs prior to their sequestration
4.4.
Between 2008 and their sequestration on 18 October 2011, Planners, and Mr
and Mrs Chiesa in their capacity as partners with unlimited liability for Planners’
debts, began to accrue significant liabilities due to the need to pay
compensation in respect of numerous valid complaints relating to the advice
they gave on GTEP sales. During this period Mr and Mrs Chiesa began to take
steps to protect their assets and money from tax and from creditors’ claims.
4.5.
In April 2008, the Authority commenced an investigation into Planners’ sales of
GTEPs. The investigation into Planners coincided with five other investigations
by the Authority into firms selling GTEPs, which resulted in financial penalties of
£10,500 and £35,000 being imposed on two firms in October 2008. In May
2010, the Authority publicly censured another firm and stated in the final notice
that it would have imposed a financial penalty of £350,000 on that firm but for
its insolvency.
4.6.
In December 2008, the Authority advised Mr and Mrs Chiesa that it proposed to
impose a significant financial penalty on Planners on the basis that Planners had
failed to ensure it gave suitable advice in relation to GTEPs. Therefore, no later
than December 2008, Mr and Mrs Chiesa were aware that it was possible
Planners would be subject to a financial penalty imposed upon it by the
Authority in addition to potential compensation payments to customers.
Mr and Mrs Chiesa’s first off-shore remuneration trust
4.7.
In November 2008, Mr and Mrs Chiesa, in their capacity as unlimited liability
partners at Planners, together established the WIFAR Trust, an off-shore
remuneration trust incorporated in Belize. Their purpose in establishing the
trust was to reduce Planners’ profits and therefore their tax liabilities, whilst
permitting them to continue to gain access to the funds generated from
Planners’ trading activities, and whilst also protecting those funds from the
claims of any future creditors.
4.8.
Between December 2008 and November 2011, Mr and Mrs Chiesa directed the
profits of Planners, as well as other assets of Mr and Mrs Chiesa or parties
connected to them, into the WIFAR Trust. The WIFAR Trust was administered
by an off-shore trustee company, which delegated control of the trust property
to another off-shore company that Mr and Mrs Chiesa had themselves
specifically incorporated (the “WIFAR Fiduciary Management Company”). Until
August 2011, Mr and Mrs Chiesa were the only directors and shareholders of the
WIFAR Fiduciary Management Company.
4.9.
When Mr and/or Mrs Chiesa wished to access money, they requested it from the
WIFAR Trust via the WIFAR Fiduciary Management Company. Mr and Mrs
Chiesa received, between them, around £991,000 from the WIFAR Trust
between December 2008 and March 2011, of which Mr Chiesa’s share was
around £328,800. The payments were made in the form of loans (with interest
accruing), however, the Authority’s view is that, in reality, those loans were
never intended to be repaid during their lifetimes because:
(1)
the WIFAR Trust property comprised assets that would otherwise have
accrued to Mr and Mrs Chiesa, including the profits from Planners;
(2)
Mr and Mrs Chiesa had effective control over the actions of the off-shore
trustee, due to their power under the WIFAR Trust deed to remove and
replace that trustee. This meant the off-shore trustee was unlikely ever to
recall the loans made to Mr or Mrs Chiesa from the WIFAR Trust;
(3)
the off-shore trustee had in any event delegated total control of the WIFAR
Trust property to the WIFAR Fiduciary Management Company that Mr and
Mrs Chiesa had incorporated and legally owned until August 2011 and
beneficially thereafter (see paragraph 4.20(3) below); and
(4)
the business of Westwood Trustees, developed by Mr and Mrs Chiesa,
involved introducing clients to off-shore remuneration trusts from which
the clients were intended to receive financial benefits, in particular the
reduction in their tax liabilities, the continued ability to access the funds
generated from their trading activities and the protection of those funds
from any creditors (see paragraphs 4.12 to 4.13 below for an explanation
of Westwood Trustees’ business).
GTEP complaints
4.10.
From around February 2011, the FOS began to receive an increasing number of
complaints from customers of Planners who had been advised to buy GTEPs. In
May 2011, the Authority issued a Decision Notice to Planners, which set out the
Authority’s decision to impose a financial penalty of £100,000 on the firm for its
failure to give suitable advice in relation to its GTEP sales. Mr and Mrs Chiesa
referred that Decision Notice to the Tribunal and in November 2013 the Tribunal
upheld the Authority’s decision.
4.11.
In June 2011, four months before their sequestration, Mr and Mrs Chiesa sold
Planners’ business book to a colleague’s company, which received a list of
existing and potential customers and did not assume any of Planners’ liabilities.
At that time, in addition to being aware that significant liabilities were arising to
past customers of Planners, Mr and Mrs Chiesa were also aware that the
Authority had decided to impose a £100,000 financial penalty on Planners and
that an increasing number of GTEP customers were making complaints.
Mr and Mrs Chiesa’s off-shore remuneration trusts business
4.12.
From around 2010, Mr and Mrs Chiesa began to focus on another business,
Westwood Trustees, a small non-authorised firm which they had founded in
1998. Although that business had been secondary to Planners (it originally
provided a will-writing service to Planners’ customers), Mr and Mrs Chiesa began
to develop the Westwood Trustees business, by acting as an introducer for a
firm which established off-shore remuneration trusts. The purpose of these off-
shore remuneration trusts, like the WIFAR Trust, was to reduce their client’s
profits and therefore their client’s tax liabilities, whilst permitting their client to
continue to gain access to the funds generated from their trading activities, and
whilst also protecting those funds from the claims of any future creditors.
4.13.
Westwood Trustees began to build a network of other introducers and earned
commission on every new client introduced, calculated as a percentage of the
total value of assets that each new client placed into their own off-shore
remuneration trust. Westwood Trustees was a successful introducer and,
around 2006, developed its business model so that it included establishing off-
shore remuneration trusts itself for its own clients. Westwood Trustees
promoted the financial benefits of these off-shore remuneration trusts on its
website under headings such as “Protect your Assets from Tax”, “Shield your
Assets from Creditors” and “You’ve worked hard for your money, now learn how
to keep it”.
4.14.
By 2011, Westwood Trustees had built a large network of its own introducers
and was turning over around £1 million per annum, while liabilities from the
Planners business continued to mount.
4.15.
Mr Chiesa was the driving force behind the growth of Westwood Trustees. Mrs
Chiesa’s role was more limited but she was involved in managing and promoting
the business and aware of the services that it offered.
4.16.
On three separate occasions between June 2008 and June 2011 (when Planners’
business book was sold), Mr Chiesa declared to a bank that he and Mrs Chiesa
jointly-owned assets with a net worth between approximately £1 million and
£2.2 million.
4.17.
In June 2011, four months before their sequestration, Mr Chiesa declared to his
bank that he owned assets with a net value of £942,600 and that he had an
annual income of £325,000.
The debt giving rise to Planners’ and Mr and Mrs Chiesa’s sequestration,
and Mr and Mrs Chiesa’s rearrangement of their financial affairs
4.18.
In the first half of 2011, Planners was overdue in paying commission to two of
Planners’ advisers, despite having already received the commission payments
from the relevant product providers.
4.19.
On 16 March 2011, at which time Mr and Mrs Chiesa each owned 50% of
Westwood Trustees and were two of the four directors of the company, at Mr
Chiesa’s instigation, Mr and Mrs Chiesa changed their ownership of Westwood
Trustees. They did this by deciding that Westwood Trustees should issue 4,900
new shares in itself directly to the WIFAR Fiduciary Management Company, at a
cost of £1 per share, which had the effect of transferring ownership of 98% of
Westwood Trustees to the WIFAR Fiduciary Management Company (of which Mr
and Mrs Chiesa were the sole directors and shareholders).
4.20.
Between June and August 2011, while the commission Planners owed to the two
advisers remained unpaid and for which they had joint and several liability as
partners in that firm, at Mr Chiesa’s instigation, Mr and Mrs Chiesa further
rearranged their financial affairs in connection with their more profitable
business, Westwood Trustees. They did so in three key ways:
(1) First, from June 2011, they rearranged their personal expense payments so
that they were met from Westwood Trustees’ bank accounts, rather than
from their own personal bank accounts, and also received funds directly
from Westwood Trustees’ accounts for their own spending:
(i)
Mr Chiesa arranged for Westwood Trustees to pay significant
expenses on his behalf, such as costs relating to the Bentley car he
drove, which amounted to a minimum monthly average of £1,500,
and monthly payments to his ex-wife; and
(ii)
Mr and Mrs Chiesa together arranged for Westwood Trustees to pay
significant joint expenses such as their rental of residential properties
in London, travel expenses and investments.
(2) Secondly, having become the sole directors of Westwood Trustees on 25
July 2011, Mr and Mrs Chiesa resigned as directors on 11 August 2011. By
mid-November 2011 two previous members of its administrative staff
constituted the board of directors of Westwood Trustees, and they were
joined by two other previous members of its administrative staff in
February 2012. None of those individuals had any prior experience in
being a director of a company.
(3) Thirdly, Mr and Mrs Chiesa made changes to their ownership of Westwood
Trustees. Previously they had owned 100% of Westwood Trustees, 98% of
which they had held, since 16 March 2011, indirectly via the off-shore
WIFAR Fiduciary Management Company. In August 2011 they resigned as
directors of the WIFAR Fiduciary Management Company and transferred
legal ownership of that company to the director of an off-shore company,
which was also the trustee of the WIFAR Trust, and who also became its
sole director. The shares they transferred in the WIFAR Fiduciary
Management Company were held in trust for Mr and Mrs Chiesa by the
director of the off-shore company, so that Mr and Mrs Chiesa continued to
wholly own that company beneficially. This left Mr and Mrs Chiesa each
holding only 1% of Westwood Trustees’ shares, whereas in fact through the
trust each continued beneficially to own, directly and indirectly, 50% of
Westwood Trustees’ shares.
4.21.
During the month of August 2011 alone, Mr and Mrs Chiesa received the benefit
of £116,370 paid out on their behalf by Westwood Trustees. By the end of
2011, they had received a further £109,000, and in 2012 they received a further
£426,000. By the end of 2014, they had received a total benefit of
approximately £1.39 million, of which £1.17 million was expenses paid on their
behalf, which is a monthly average of over £34,000, paid by Westwood Trustees
to cover Mr and Mrs Chiesa’s combined personal expenditure. Until December
2013, the minimum benefit they received in any one month was over £20,000.
The £1.39 million that they received in total included approximately £20,000 on
football and tennis tickets, £86,000 of other payments to a football club,
£134,000 on costs associated with their Bentley, Porsche and Mercedes vehicles,
£36,000 on party and catering costs, and £124,000 on Mr Chiesa’s helicopter
flying lessons.
4.22.
By the end of August 2011, the commission owed to two of Planners’ advisers
remained unpaid, even though Mr and Mrs Chiesa had rearranged their finances
to continue receiving the benefit of Westwood Trustees’ profits, and Mr Chiesa
had recently declared substantial personal assets and financial resources to his
bank. Funds were therefore available to Mr Chiesa personally to pay these
debts.
Sequestrations
4.23.
Planners and Mr and Mrs Chiesa failed to comply with requests by the advisers
to pay them their commission and, on 18 October 2011, one of the advisers
petitioned for the sequestration of Planners and Mr and Mrs Chiesa on the basis
of the debt owed to him, which amounted to £40,443. The petition was
unchallenged and their sequestration was awarded on 16 November 2011. Mr
and Mrs Chiesa were discharged from their debts 12 months after being placed
in sequestration, on 18 October 2012.
4.24.
The sequestration of Planners meant that all claims against the firm filed with
the FOS at that date were referred to the FSCS, because of Planners’ default.
Since Planners’ sequestration, the FSCS has received over 100 claims against Mr
and Mrs Chiesa trading as Planners. As at 19 September 2016, the FSCS had
paid out a total of £3,856,618 in compensation. It is likely that these customers
would have been entitled to total compensation of over £5 million, however a
number of the claims to the FSCS were subject to the FSCS cap of £50,000 per
individual.
Mr Chiesa’s disclosures to the Trustee
4.25.
On 16 November 2011, a trustee in sequestration was appointed, whose role
was to establish the value of Mr and Mrs Chiesa’s assets and income and the
level of their liabilities and expenses, realise those assets for the benefit of their
creditors and assess whether Mr and Mrs Chiesa were in the position to pay a
regular financial contribution to their creditors during their sequestration. The
Trustee’s role was also to review any transactions at an undervalue that Mr and
Mrs Chiesa had made in the five year period prior to the commencement of their
sequestration.
4.26.
In the weeks following his appointment, until early January 2012, the Trustee
asked Mr and Mrs Chiesa to provide him with details of their financial
circumstances, including at a meeting on 20 December 2011. It was Mr Chiesa
who responded to the Trustee’s requests and provided the Trustee with details
of both his and Mrs Chiesa’s financial circumstances, including at the 20
December 2011 meeting. It was also Mr Chiesa who responded to any queries
that the Trustee raised about their financial circumstances during their
sequestration.
4.27.
At the meeting on 20 December 2011, the Trustee reminded Mr and Mrs Chiesa
that they had an obligation to disclose fully and accurately all of their financial
circumstances, and explained in detail the nature of this obligation. During the
meeting, the Trustee asked Mr and Mrs Chiesa questions about their financial
circumstances, including about any income that they had access to, the size of
their monthly personal expenditure, and whether they possessed any assets of
value, or had disposed of any at an undervalue in the previous five years, or had
liabilities.
4.28.
The Trustee filled in two forms on the basis of the information provided by Mr
Chiesa about his financial circumstances: a Statement of Assets and Liabilities
(Form 3) and a Supplementary Questionnaire. The Statement of Assets and
Liabilities included the following statements: “I have stated in this statement
details of all my assets, liabilities and income as at the date of my bankruptcy
on 16 Nov 2011” and “I certify that the information I have supplied in Form 3 is
true, complete and accurate to the best of my knowledge and belief.” The
Supplementary Questionnaire included a similar declaration and both forms
included warnings that it was an offence for Mr Chiesa to make false statements
in relation to his assets, liabilities and financial affairs. Mr Chiesa signed both of
these forms at the 20 December 2011 meeting. He also signed a Statement of
Undertakings, dated 16 December 2011, in which he confirmed, among other
things, that:
(1) He had a legal obligation to co-operate with the Trustee and to provide any
financial information or documents which the Trustee may require;
(2) He had made a full disclosure of all assets which he owned or in which he
had an interest as at the date of his sequestration, and that he would notify
the Trustee if he acquired any further assets during the period of his
sequestration; and
(3) He would immediately inform the Trustee of any change in his financial
circumstances during the period of his sequestration.
4.29.
The Trustee also filled in a Statement of Assets and Liabilities and a
Supplementary Questionnaire on the basis of the information provided by Mr
Chiesa about Mrs Chiesa’s financial circumstances. Mrs Chiesa signed these
forms at the meeting on 20 December 2011 and signed a Statement of
Undertakings on 16 December 2011.
4.30.
Despite being aware that he and Mrs Chiesa had a duty to disclose fully and
accurately all of their financial circumstances to the Trustee, in the weeks
following their being placed in sequestration, including at the 20 December 2011
meeting, Mr Chiesa did not inform the Trustee of the changes they had made to
their ownership and control of Westwood Trustees in order to protect their
assets and money, or that they had access to significant funds. Instead, the
information Mr Chiesa provided to the Trustee was designed to give the
impression that they did not have access to significant funds, had no net assets,
and had limited income and relatively modest personal expenditure, to the
extent that they each could only afford to contribute £200 per month to the
sequestrated estate for the benefit of their creditors. In particular, Mr Chiesa
misled the Trustee by telling him (or by omission leading him to believe) that:
(1) they were receiving very limited income and were therefore dependent on
loans from third parties to cover their monthly expenses (see (2) below);
(2) their combined monthly expenses were relatively modest: around £2,745
per month to cover their mortgage payments, bills, and very limited
personal expenses;
(3) they had no valuable assets: in particular, he did not disclose details of
their continued beneficial ownership of Westwood Trustees and the WIFAR
Fiduciary Management Company, the likely value of their unassigned and
assigned life assurance policies, the latter of which he led the Trustee to
assume had no residual value, or that Mrs Chiesa owned valuable
jewellery;
(4) they had not transferred any valuable assets to third parties at an
undervalue in the previous five years; and
(5) they owed a debt of £991,000 to the WIFAR Trust, for which two of their
properties were charged as security.
Mr Chiesa’s failure to disclose his and Mrs Chiesa’s access to Westwood
Trustees’ profits
4.31.
Contrary to Mr Chiesa’s representations to the Trustee that he and Mrs Chiesa
were reliant on loans from a third party, had limited income and expenditure
and no net assets, in reality, they had access to ample funds to sustain a
luxurious lifestyle.
4.32.
Mr Chiesa was aware when he told the Trustee (or by omission led the Trustee
to understand) that he and Mrs Chiesa were reliant on loans and had limited
income and expenditure and no net assets, that his relationship to Westwood
Trustees had not changed in any material sense upon their sequestration, and
that in fact he continued to drive the business forward and retained de facto
control of it, and that they both had access to its significant profits.
4.33.
Mr Chiesa remained the principal sales consultant at Westwood Trustees after he
and Mrs Chiesa were placed in sequestration, bringing in the majority of new
business. He also continued to provide advice to, and exercise influence over,
the previous members of Westwood Trustees’ administrative staff who, during
their sequestration, were the only appointed directors of Westwood Trustees.
One of these directors resigned in June 2013 but the other three directors
remain in place.
4.34.
As set out at paragraphs 4.20(1) and 4.21 above, from June 2011 Mr and Mrs
Chiesa had their expenses paid from Westwood Trustees’ accounts and received
further funds into their personal bank accounts directly from Westwood
Trustees. Although Mr Chiesa provided the Trustee with bank statements which
showed that Westwood Trustees had made three payments of either £1,000 or
£2,000 to Mr and Mrs Chiesa’s personal joint bank account between 23
November 2011 and 4 January 2012, he did not disclose to the Trustee the scale
of the funds that they were receiving directly from Westwood Trustees, nor that
Westwood Trustees was paying significant personal expenses on their behalf on
a regular basis.
4.35.
These expenses included £166,000 of legal costs incurred by Mr and Mrs Chiesa
during the Tribunal proceedings relating to their reference of the Decision Notice
given to Planners by the Authority in May 2011. In February 2012 Mr and Mrs
Chiesa’s legal representatives drew up the documentation to enable the new
directors of Westwood Trustees to continue to make these payments, and that
documentation described the expense to Westwood Trustees as a reflection of
the continued “fundamental commercial importance” of both Mr and Mrs Chiesa
to the business.
4.36.
From April 2012, six months into their sequestration, Mr and Mrs Chiesa also
began to receive funds from Westwood Trustees via an off-shore remuneration
trust, the WTR Trust. The WTR Trust was established by Westwood Trustees’
directors on 7 February 2012 and is similar in structure to the WIFAR Trust that
Mr and Mrs Chiesa had used to direct the profits of Planners.
4.37.
The WTR Trust is structured so that Mr and Mrs Chiesa, or parties closely
connected to them, can retain access to the trust property, which comprises
funds derived from the profits of Westwood Trustees. Those profits are intended
to be protected in the WTR Trust from tax liabilities and from creditor claims.
4.38.
The WTR Trust is administered by an off-shore trustee, which was also the
trustee of the WIFAR Trust, but also by another company, based in the UK,
which was specifically incorporated for the purpose of the WTR Trust (the “WTR
Fiduciary Management Company”) and which acts on behalf of the off-shore
trustee.
4.39.
When Mr and/or Mrs Chiesa wished to access the WTR Trust funds from April
2012 onwards, they made a request to the WTR Fiduciary Management
Company. The directors and controllers of the WTR Fiduciary Management
Company have always been the directors of Westwood Trustees and therefore
closely connected to Mr and Mrs Chiesa.
4.40.
Payments are made from the WTR Trust in the form of loans (with interest
accruing). However, the Authority’s view is that, in reality, those loans are
never intended to be repaid by Mr or Mrs Chiesa during their lifetimes because:
(1)
the business of Westwood Trustees, developed by Mr and Mrs Chiesa,
involved introducing clients to off-shore remuneration trusts from which
the clients were intended to receive financial benefits, in particular the
reduction in their tax liabilities, the continued ability to access the funds
generated from their trading activities and the protection of those funds
from any creditors;
(2)
monies in the WTR Trust were derived from the profits of Westwood
Trustees, which Mr and Mrs Chiesa continued, directly and indirectly, to
wholly beneficially own;
(3)
Mr Chiesa, by remaining the primary driver of new business and
exercising influence over the firm’s directors, continued throughout their
sequestration to exercise de facto control over the business of Westwood
Trustees, and sought to gain the benefit of the profits generated in that
period;
(4)
Mr and Mrs Chiesa, or parties closely connected to them, have had
effective control over the off-shore trustee, due to their power under the
WTR Trust deed to remove and replace that trustee. This means the off-
shore trustee is unlikely ever to recall the loans made to Mr or Mrs Chiesa
from the WTR Trust; and
(5)
the off-shore trustee has in any event delegated total control of the WTR
Trust property to the WTR Fiduciary Management Company, of which the
directors and controllers are individuals closely connected to Mr and Mrs
Chiesa.
4.41.
As much as 97% of Westwood Trustees’ profits were paid into the WTR Trust in
the 12 months up to August 2014. These profits were paid into a designated UK
bank account held in the name of the WTR Fiduciary Management Company.
Together, Mr and Mrs Chiesa received approximately £780,000 of Westwood
Trustees’ profits via the WTR Trust in 2012, and a total of approximately £2.6
million between April 2012 and December 2014, at an average of over £84,000
per month. Of this, they used £1.42 million to regularly ‘repay’ the money they
had either received directly from Westwood Trustees or had been paid in the
form of expenses (as per paragraph 4.34 above). In total, Mr and Mrs Chiesa
received approximately 53% of the funds derived from the profits of Westwood
Trustees paid into the WTR Trust between February 2012 and December 2014.
In contrast, the Westwood Trustees directors during that period received
between them approximately £420,000 from the WTR Trust, which is
approximately 8.6% of Westwood Trustees’ profits.
4.42.
In June 2013, Mr Chiesa declared in a banking application that he was receiving
income of £230,000 per annum and income after tax of £15,000 per month, in
connection with his full-time employment at Westwood Trustees.
4.43.
Mr and Mrs Chiesa were aware, having each signed a Statement of
Undertakings, that they had a duty to declare material changes in their financial
circumstances during the period of their sequestration to the Trustee. In May
2012, October 2012 and November 2012, the Trustee wrote to each of Mr and
Mrs Chiesa, reminding them of their duty to provide any information that the
Trustee may require regarding their assets and financial affairs, and asking
them to complete a form detailing the current state of their affairs. Mr and Mrs
Chiesa did not respond to the May 2012 and November 2012 letters. In
response to the October 2012 letter, Mr Chiesa sent the Trustee two completed
forms, one signed by him and the other by Mrs Chiesa. Both of these forms
stated that Mr and Mrs Chiesa were receiving monthly income from consultancy
work of £2,000 and £1,700 respectively and that their monthly expenditure was
£1,980 and £1,612 respectively (including the £200 they were each contributing
to the sequestrated estate). Mr Chiesa did not inform the Trustee of the funds
they were receiving from the WTR Trust, or that Westwood Trustees was paying
significant personal expenses on their behalf. The Trustee therefore continued
to administer Mr and Mrs Chiesa’s sequestrated estate on the basis that their
financial position had not materially changed since December 2011.
Mr Chiesa’s failure to disclose his and Mrs Chiesa’s high personal
spending
4.44.
Contrary to Mr Chiesa’s disclosure to the Trustee in December 2011 that his and
Mrs Chiesa’s joint living expenses amounted to around £2,745 per month, and
his and Mrs Chiesa’s disclosure to the Trustee in October 2012 that their
combined living expenditure was about £3,600 per month (including their £400
contribution to the sequestrated estate), in reality, they continued to enjoy a
much higher standard of living. Their joint living expenses at these times were,
in fact, at least £9,000 per month, and they had significant additional expenses.
4.45.
In June 2011, four months before their sequestration, Mr Chiesa declared to a
bank that he and Mrs Chiesa had combined living expenses of £9,425 per
month. This included monthly rental/mortgage costs of £6,000.
4.46.
In July 2013, nine months after they had been discharged from their debts, but
while they were still in sequestration and therefore continued to have a duty to
disclose changes in their financial circumstances to the Trustee, Mr and Mrs
Chiesa declared to a bank combined total monthly expenses of £9,300 and a
combined monthly disposable income after expenses of £10,700.
4.47.
From May 2011 until at least October 2012, Mr and Mrs Chiesa’s monthly rental
on their London address was around £5,000. This was paid for them out of a
Westwood Trustees account, which had the effect of concealing this expense
from the Trustee. Mr Chiesa did not notify the Trustee of this rental liability.
4.48.
In addition to their monthly living expenses, Mr and Mrs Chiesa’s other monthly
spending was high, and of a nature which conflicted with Mr Chiesa’s
representations to the Trustee that they had limited income and expenditure
and no net assets, and with the minimal contribution of £200 per month that
they were each paying to their sequestrated estate. By way of example,
between August 2011 and December 2014 Mr Chiesa spent an average of
£12,000 per month on flying lessons, tennis tickets, football tickets and club
membership, and various financial investments. Mr Chiesa did not disclose
either the level or nature of this spending to the Trustee at any time during his
sequestration.
4.49.
Mr Chiesa did not disclose to the Trustee the true level and nature of his and
Mrs Chiesa’s personal spending in order to minimise the chance of further
investigation into the source of the funds they were receiving. He led the
Trustee to believe that the loans they were living from were relatively modest
and designed to cover relatively modest day-to-day living expenses.
4.50.
Mr Chiesa therefore misled the Trustee by failing to disclose to him, at the
meeting on 20 December 2011 and at any other time during his sequestration,
the reality of his and Mrs Chiesa’s financial situation. This was that Westwood
Trustees was not just paying them funds to cover day-to-day living expenses,
but was meeting their considerable personal expenses, such that they had the
benefit of a monthly average of around £34,000 in expenses and/or spending
money, and that from April 2012 they continued to access the profits of that
company in the form of loans which were not arms-length commercial loans and
which were never intended to be repaid within their lifetimes.
Mr Chiesa’s failure to disclose valuable assets and/or the transfer of
valuable assets at an undervalue in the five years before sequestration
4.51.
Mr Chiesa’s disclosure to the Trustee that he and Mrs Chiesa owned no valuable
assets at the time they were placed in sequestration, and had not transferred
any valuable assets to third parties at an undervalue in the five years before
sequestration, was inaccurate and misleading.
4.52.
In fact, they each had legal ownership of 1% of Westwood Trustees and
beneficial ownership of 50% of the WIFAR Fiduciary Management Company,
which owned 98% of Westwood Trustees (see paragraph 4.20(3) above).
Although Mr Chiesa informed the Trustee that he and Mrs Chiesa each had legal
ownership of 1% of Westwood Trustees, he did not disclose to the Trustee that
Westwood Trustees was a valuable company capable of paying over £1 million
per annum into an off-shore remuneration trust for the benefit of Mr and Mrs
Chiesa and others connected with Westwood Trustees. Mr Chiesa also did not
disclose his and Mrs Chiesa’s beneficial ownership of the WIFAR Fiduciary
Management Company, and therefore of the remaining 98% of Westwood
Trustees, nor the transfers of ownership that had taken place in March 2011 and
August 2011 which resulted in him and Mrs Chiesa no longer having 100% legal
ownership of both companies (see paragraphs 4.19 and 4.20(3) above). The
Authority considers that these transfers were made as part of the steps taken by
Mr and Mrs Chiesa to protect their assets and money from creditors, and that he
did not disclose these transfers, their beneficial ownership of the companies or
that Westwood Trustees was a valuable company for the same reason.
4.53.
Mr Chiesa failed to provide adequate details to the Trustee of the interest that
he and Mrs Chiesa had, between them, in three unassigned life assurance
policies and in five assigned life assurance policies. The Authority estimates
that, at the time they were placed in sequestration, these seven policies had a
combined surrender value of at least £270,000. Mr Chiesa chose to disclose his
and Mrs Chiesa’s interest in these life assurance policies to the Trustee via his
lawyer, and did so in a manner that did not convey to the lawyer or the Trustee
the likely value of the policies. He did this in order that they might retain the
benefit of the policies throughout their sequestration.
4.54.
Mr Chiesa also did not disclose to the Trustee valuable jewellery that Mrs Chiesa
either owned or had disposed of in the previous five years. In a June 2008 bank
application, Mr and Mrs Chiesa had disclosed that Mrs Chiesa owned jewellery
with a total value of over £100,000. At an interview with the Authority on 18
February 2015, Mrs Chiesa disclosed that she still owned jewellery which, in the
June 2008 bank application, they had valued at over £50,000, including a
£17,000 Cartier diamond watch and a £15,000 diamond ring, and informed the
Authority that she had lost, given away, traded in or sold the other items of
jewellery.
4.55.
Further, Mr Chiesa did not disclose to the Trustee unidentified valuable assets
which he had disclosed to a bank in December 2010 as being owned by him and
Mrs Chiesa. These assets included a £136,000 investment, which was
mentioned in the “Other Significant assets” section of the bank application form.
In June 2011, Mr Chiesa informed his bank that there had been no material
change in respect of the information he had provided in December 2010. Mr
and Mrs Chiesa did not provide the Trustee with details of these assets or of any
disposal or loss of value of any such assets in the four months prior to their
sequestration, or respond to the Authority’s requirement that they provide the
Authority with details of the assets.
Mr Chiesa’s misleading disclosures about a debt secured against his and
Mrs Chiesa’s properties
4.56.
Mr Chiesa disclosed to the Trustee that there were charges against two
properties he owned jointly with Mrs Chiesa, as security for a £991,000 debt
they owed to the off-shore trustee of the WIFAR Trust. However, Mr Chiesa
failed to explain the nature of the apparent debt and the charges against those
two properties.
4.57.
The Authority’s view is that, in reality, those loans were never intended to be
repaid during their lifetimes because, for the reasons explained at paragraph 4.9
above, Mr and Mrs Chiesa retained effective control over the WIFAR Trust
property at all times, and that Mr Chiesa was aware of this. Had the loans been
repaid, Mr and Mrs Chiesa would have retained access to such funds.
4.58.
The two properties to which the charges applied were presented as having little
or no value to Mr and Mrs Chiesa due to the loan arrangement described in
paragraph 4.56 above. By placing charges against them in favour of the trustee
of the WIFAR Trust, Mr and Mrs Chiesa were acting to ensure that any future
realisable equity in those properties would be paid to the WIFAR Trust for their
use, rather than to their creditors. Such information was relevant to the
Trustee’s understanding of their financial circumstances and should have been
disclosed when the loans and charges were made known to the Trustee.
5.
FAILINGS
5.1.
The regulatory provisions relevant to this Notice are referred to in Annex A.
5.2.
By reason of the facts and matters set out in this Notice, the Authority considers
that Mr Chiesa is not a fit and proper person as he lacks integrity.
5.3.
Mr Chiesa misled the Trustee in order to protect his and Mrs Chiesa’s wealth
from the liabilities in Planners which, as partners in that firm, they were jointly
and severally liable for.
5.4.
Specifically, he misled the Trustee in the weeks after he and Mrs Chiesa were
placed in sequestration, including at a meeting on 20 December 2011, by
making misleading disclosures, and/or failing adequately to disclose the true
position, in relation to:
(1) the changes they had made to their ownership and control of Westwood
Trustees in order to protect their assets and money;
(2) the scale of the funds they were receiving directly from the successful non-
authorised business of Westwood Trustees;
(3) Westwood Trustees’ payment of significant personal expenses on their
behalf;
(4) the full extent of their high level of personal expenditure immediately
before and around the time of their sequestration;
(5) valuable assets that they still owned or had disposed of at an undervalue in
the previous five years; and
(6) their interest in any funds repaid under, and their control over, a £991,000
debt secured against two properties that they jointly owned.
5.5.
Further, Mr Chiesa misled the Trustee by failing to disclose, and/or making
misleading disclosures so that the Trustee was unaware of, changes to his and
Mrs Chiesa’s financial circumstances during the period of their sequestration. As
a result, the Trustee was misled in relation to:
(1) their access to significant funds from Westwood Trustees, including via the
WTR Trust;
(2) Westwood Trustees’ continuing payment of significant personal expenses
on their behalf; and
(3) the very high level of their personal expenditure during their sequestration.
5.6.
Mr and Mrs Chiesa must have known that Planners would face significant
customer claims and regulatory action. They therefore, from November 2008,
started to take active steps to protect their assets and business interests from
potential claims. Whilst making declarations to banks which indicated that he
and Mrs Chiesa had a high level of income and assets, and whilst living a
luxurious lifestyle, Mr Chiesa made it appear to the Trustee that they had limited
income and expenditure and no net assets.
5.7.
Mr Chiesa was aware that the effect of the misleading and inadequate disclosure
of his and Mrs Chiesa’s financial circumstances to the Trustee was to increase
the prospect that the steps that they had taken, both before and after they were
placed in sequestration, to protect their assets and money from creditors’ claims
would succeed. He misled the Trustee in order to preserve his and Mrs Chiesa’s
wealth.
5.8.
Save for £200 per month, Mr Chiesa did not apply any of the wealth that he
declared to one bank in June 2011 and another bank in June 2013 towards
paying any of his creditors. Instead, around £3.8 million of Planners’ liability for
over £5 million of customer claims in respect of mis-sales of GTEPs was
ultimately borne by the FSCS following Planners’ default.
6.
SANCTIONS
Withdrawal of approval and prohibition
6.1.
The Authority has had regard to the guidance in Chapter 9 of EG and considers
it is appropriate and proportionate in all the circumstances to withdraw Mr
Chiesa’s CF4 (Partner), CF10 (Compliance Oversight), CF11 (Money Laundering
Reporting) and CF30 (Customer) controlled functions at Planners and to prohibit
him from performing any function in relation to any regulated activity carried on
by an authorised person, exempt person or exempt professional firm, because
he is not a fit and proper person.
6.2.
The Authority considers that Mr Chiesa is not a fit and proper person as he lacks
integrity. Further, he poses a risk to consumers and to confidence in the
financial system. First, because of the serious and prolonged nature of his
conduct, which began with his misleading disclosures to the Trustee in the
weeks after he entered sequestration and continued during his sequestration, in
particular when he failed to give a true account of his financial circumstances
when requested by the Trustee. Secondly, because Mr Chiesa misled the
Trustee in order to reduce the risk of having to make payments to creditors,
which he knew would include Planners’ former customers, which demonstrates
that he is willing to put his own interests above those of consumers and
regulated firms and individuals. Thirdly, because Mr Chiesa has close ties to
the regulated community due to his involvement with Westwood Trustees, which
has a network of introducers including approximately 30 approved persons. The
Authority considers there is a significant risk that Mr Chiesa’s involvement with
Westwood Trustees and those approved persons could continue and/or increase
in future.
6.3.
In the circumstances, the Authority considers that it is appropriate and
proportionate to prohibit Mr Chiesa from performing any function in relation to
any regulated activity carried on by an authorised person, exempt person or
exempt professional firm.
6.4.
These sanctions support the Authority’s operational objectives of securing an
appropriate degree of protection for consumers and protecting and enhancing
the integrity of the UK financial system.
7.
PROCEDURAL MATTERS
Decision maker
7.1.
The decision which gave rise to the obligation to give this Final Notice was made
by the Settlement Decision Makers.
7.2.
This Final Notice is given under, and in accordance with, section 390 of the Act.
7.3.
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 these
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.
7.4.
The Authority intends to publish such information about the matter to which this
Final Notice relates as it considers appropriate.
Contacts
7.5.
For more information concerning this matter generally, contact Rachel West of
the Enforcement and Market Oversight Division of the Authority (direct line: 020
7066 0142).
Financial Conduct Authority, Enforcement and Market Oversight Division
ANNEX A
RELEVANT STATUTORY PROVISIONS
1.
Section 56 of the Act provides that the Authority may make an order prohibiting an
individual from performing a specified function, any function falling within a
specified description or any function, if it appears to the Authority that that
individual is not a fit and proper person to perform functions in relation to a
regulated activity carried on by an authorised person, exempt person or a person
to whom, as a result of Part 20, the general prohibition does not apply in relation
to that activity. Such an order may relate to a specified regulated activity, any
regulated activity falling within a specified description, or all regulated activities.
2.
The Authority has the power, pursuant to section 63 of the Act, to withdraw an
approval given under section 59 of the Act – to perform the CF4 (Partner), CF10
(Compliance Oversight), CF11 (Money Laundering Reporting) and CF30 (Customer)
controlled functions - if it considers that the person is not a fit and proper person to
perform the functions.
RELEVANT HANDBOOK PROVISIONS
Fit and Proper Test for Approved Persons (FIT)
3.
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.
4.
FIT 1.3 provides that the Authority will have regard to a number of factors when
assessing the fitness and propriety of a person. The most important considerations
will be the person’s honesty, integrity and reputation, competence and capability,
and financial soundness.
5.
FIT 2.1.1G provides that in determining a person’s honesty and integrity the
Authority will have regard to all relevant matters.
The Authority’s policy for exercising its powers to make prohibition orders and
to withdraw approvals
6.
EG 9.1.1G provides that the Authority’s power under section 56 of the Act to
prohibit individuals who are not fit and proper from carrying out functions in
relation to regulated activities helps the Authority to work towards achieving its
regulatory 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.
7.
EG 9.1.2G provides that the Authority’s effective use of the power under section 63
of the Act to withdraw approval from an approved person will also help ensure high
standards of regulatory conduct by preventing an approved person from continuing
to perform the controlled function to which the approval relates if he is not a fit and
proper person to perform that function. Where it considers this is appropriate, the
Authority may prohibit an approved person, in addition to withdrawing their
approval.
8.
EG 9.2.2G sets out the general scope of the Authority’s powers in respect of
prohibition orders, 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.
9.
EG 9.2.3G provides that the scope of a prohibition order will depend on the range
of functions that the individual 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.
10.
EG 9.3.2G provides that, when deciding whether to make a prohibition order
against an approved person and/or withdraw their approval, the Authority will
consider all the relevant circumstances of the case which may include, but are not
limited to, the following factors (among others):
(1)
whether the individual is fit and proper to perform functions in relation to
regulated activities. The criteria for assessing the fitness and propriety of
an approved person are contained in FIT 2.1 (Honesty, integrity and
reputation), FIT 2.2 (Competence and capability) and FIT 2.3 (Financial
soundness);
(2)
the relevance and materiality of any matters indicating unfitness;
(3)
the length of time since the occurrence of any matters indicating
unfitness;
30
(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.