FINAL NOTICE

Individual FSA reference: JXE00025

1.
ACTION

1.1
For the reasons given below, the FSA hereby:

1) makes an order pursuant to section 56 of the Financial Services and Markets

Act (“the Act”) prohibiting Mr Jonathan Edwards (“Mr Edwards”) from

performing the CF10 (Compliance Oversight) function in relation to any

regulated activity carried on by any authorised person, exempt person or

exempt professional firm (the “Prohibition Order”), because he lacks the

competence and capability to perform that controlled function; and

2) makes an order pursuant to section 56 of the Act prohibiting Mr Edwards from

performing any other significant influence functions and the CF30 (Customer)

function in relation to any regulated activity carried on by any authorised

person, exempt person or exempt professional firm which promotes and or

recommends unregulated collective investment schemes to retail customers

(“UCIS”) (the “further Prohibition Order”).

1.2
The FSA would also have imposed a financial penalty of £20,000 on Mr Edwards in

respect of his breach of APER Statement of Principle 6 pursuant to section 66 of the

Act but for the fact that this would cause serious financial hardship to Mr Edwards.

2.
SUMMARY OF REASONS

2.1
On the basis of the facts and matters detailed below, the FSA concluded that Mr

Edwards failed to comply with APER Statement of Principle 6 and that he lacks

competence and capability to perform the controlled function of CF10 (Compliance

oversight). The FSA also concluded that he lacks the competence and capability to

perform any function in relation to the promotion and recommendation of UCIS to

retail customers by any authorised person, exempt person or exempt professional

firm.

2.2
Mr Edwards was formerly an approved person performing the controlled function of

CF10 (Compliance oversight) at an authorised firm, namely Rockingham Independent

Limited. Mr Edwards had no previous experience of performing such a function and

in practice he spent most of his time between 17 May 2005 and 16 August 2010

providing pension and investment advice to Rockingham’s customers.

Breach of the Restriction on the Promotion of UCIS

2.3
UCIS is defined in the glossary to the FSA Handbook of Rules and Guidance as “a

collective investment scheme which is not a regulated collective investment scheme”.

Unless a collective investment scheme (“CIS”) falls within the narrow definition of a

regulated CIS1, it will be a UCIS. A UCIS does not carry the same level of regulatory

oversight as a CIS in relation to matters such as the clarification of fees charged or

diversification, but it is still subject to regulation, notably around the extent to which

and persons to whom it can be marketed. Section 238 of the Act precludes the

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

promotion of a UCIS by an authorised person except in certain specified

circumstances, broadly these include promotions to investment professionals, existing

customers of an authorised person, and certain high net worth individuals or

sophisticated investors.

2.4
The FSA identified that at least 39 of Rockingham’s customers were recommended to

invest in UCIS.

2.5
Mr Edwards had no knowledge or understanding of the statutory and regulatory

restrictions on the promotion of UCIS to retail customers and therefore failed to

ensure that Rockingham had regard to those restrictions when it promoted and

recommended UCIS.

2.6
By failing adequately to perform the CF10 (Compliance oversight) function at

Rockingham, he put 426 customers at risk of receiving unsuitable personal

recommendations (ie pension and investment advice) between June 2008 and June

2010.

3.
STATUTORY PROVISIONS, REGULATORY GUIDANCE AND POLICY

3.1 Relevant statutory provisions, regulatory guidance and policy are set out as an Annex

to this Notice.

4.
FACTS AND MATTERS RELIED ON

4.1 Mr Edwards was a director of Rockingham.

4.2
Mr Edwards was approved to perform the controlled functions of CF1 (Director), CF8

(Apportionment and Oversight), CF10 (Compliance Oversight), CF11 (Money

Laundering Reporting), CF30 (Customer), and Responsibility for Insurance

Mediation, in relation to regulated activities carried on by Rockingham.

4.3
Mr Edwards was approved to perform the CF10 (Compliance oversight) function

from 17 May 2005. He admitted that in practice he spent most of his time providing

pension and investment advice to Rockingham’s customers.

4.4
By September 2008 Mr Edwards recognised, as did the Board of Rockingham, that he

did not have sufficient time or focus to perform the CF10 (Compliance oversight)

function. In March 2009, Mr Edwards reported to the Board that he had no time to

perform the CF10 (Compliance oversight) function and that he did not have enough

knowledge to perform the role. However, Mr Edwards did not ask for his approval to

perform that function to be withdrawn. Mr Edwards continued nominally to perform

the function at Rockingham until 16 August 2010 when he resigned from

Rockingham. Mr Edwards did so only after the FSA had raised concerns about his

competence and capability.

4.5
The consequences of Mr Edwards continuing to perform the CF10 (Compliance

oversight) function were serious:

(1)
Rockingham promoted and recommended UCIS to retail customers without

any knowledge of or regard for the statutory and regulatory restrictions on the

promotion of UCIS to such customers. Rockingham also failed to gather

sufficient financial and personal information about its customers to determine

their eligibility for UCIS promotions or to assess the suitability of its

recommendations to customers to invest in UCIS;

(2)
Rockingham promoted its Retirement Income Tri-Investment product as

relatively low risk, despite the fact that capital invested in some of the

underlying investments was not guaranteed to be returned;

(3)
Mr Edwards failed to identify the concentration risk associated with the

practice of investing 100% of customers’ pension transfers into one fund or

scheme;

(4)
Mr Edwards failed to ensure that appropriate checking of client files was

undertaken to help ensure the suitability of Rockingham’s personal

recommendations;

(5)
Mr Edwards also failed to identify that Gary Forster was performing the

controlled function of CF3 (Chief Executive) without first seeking the

approval of the FSA to perform that function, in contravention of section 59 of

the Act.

4.6
The FSA found some significant matters of concern on a small sample of client files

relating to Mr Edwards’ personal recommendations to customers, which compounded

its concern that he could not be relied upon to help ensure that the recommendations

made by other advisers were suitable.

4.7
Mr Edwards therefore failed to act with due skill, care and diligence in performing the

CF10 (Compliance oversight) function at Rockingham, in breach of Statement of

Principle 6. He also failed to act with competence and capability in the performance

of this function at Rockingham.

Analysis of sanctions

4.8
The FSA’s policy on the imposition of financial penalties that applied from 17 May

2005 to 5 March 2010, (the majority of the relevant period), was set out in Chapter 6

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

FSA Handbook. The relevant sections of DEPP are set out in more detail in Annex A.

In addition, the FSA has had regard to the corresponding provisions of Chapter 13 of

the Enforcement Manual which were in force during part of the relevant period up to

4.9
The principal purpose of imposing a financial penalty is to promote high standards of

regulatory conduct by deterring persons who have committed breaches from

committing further breaches, helping to deter other persons from committing similar

breaches and demonstrating generally the benefits of compliant behaviour. A financial

penalty is a tool that the FSA may employ to help it achieve its regulatory objectives.

4.10
In determining whether or not it is appropriate in principle to impose a financial

penalty on Edwards, the FSA has taken into account DEPP 6.2.4G and has determined

that his conduct fell well below that which is reasonable in all the circumstances and

that he is personally culpable.

4.11
In determining the level of financial penalty that it would have imposed the FSA

considered those factors set out at paragraph 6.5 of DEPP.

4.12
Mr Edwards agreeing to perform the CF10 (Compliance oversight) function at

Rockingham, and his subsequent failure to dedicate time and to focus on actually

performing the function in any meaningful sense is serious misconduct and had

serious consequences (DEPP 6.4.2G(3) and 6.5.2G(2)) in that it exposed

Rockingham’s customers to the risk of receiving unsuitable pension and investment

advice. By way of mitigation Mr Edwards drew the matter to the attention of the

Board of Rockingham (DEPP 6.2.1G(1)(a) and 6.5.2G(3)(d)). Even so no competent

approved person was performing the CF10 (Compliance oversight) function at

Rockingham between 17 May 2005 and 16 August 2010 (DEPP 6.2.1G(1)(b) and

4.13
Mr Edwards failed to take reasonable steps to ensure that customers were treated

fairly (DEPP 6.2.1G(1)(f)).

4.14
Mr Edwards agreed to be registered as the person performing the CF10 (Compliance

oversight) function at Rockingham even though he had no previous experience of

performing such a function and he recognised that he did not have sufficient

knowledge to continue performing the function. In doing so, his conduct fell well

below that which is reasonable in all the circumstances (DEPP 6.2.4G, 6.2.6(G)(1)

and (3), 6.2.7(G) and 6.5.2G(1)).

4.15
Mr Edwards received income from the business (DEPP 6.5.2G(6)).

5.
CONCLUSION

5.1
The FSA therefore concluded that Mr Edwards breached APER Statement of

Principle 6 by failing to perform his controlled function with due skill, care and

diligence from the date on which he became an approved person. In practice Mr

Edwards failed to perform the CF10 (Compliance oversight) function at Rockingham

in any meaningful sense, and therefore he is responsible to a large degree for its

compliance failures. But for the fact that the imposition of a financial penalty on Mr

Edwards would cause him financial hardship, the FSA would have imposed a

financial penalty of £20,000 before any discount on Mr Edwards

5.2
The FSA is of the view that Mr Edwards is not a fit and proper person as he lacks the

competence and capability to perform controlled functions in relation to regulated

activities. Given his failure to have regard to the statutory and regulatory restrictions

relating to UCIS before promoting and recommending UCIS, we consider that, as a

further consumer protection measure, he should be prevented from performing any

significant influence and customer functions at any authorised firm whose activities

include promoting and/or recommending UCIS. For these reasons, the Prohibition

Order and the further Prohibition Order are considered to be necessary and

proportionate sanctions.

6.
PROCEDURAL MATTERS

6.1
The decision which gave rise to the obligation to give this Final Notice was made on

behalf of the FSA by the Settlement Decision Makers. The effective date of the

Prohibition Order and the further Prohibition Order is 15 August 2011.

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

6.3
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 you or detrimental to the

interests of consumers.

6.4
The FSA intends to publish such information about the matter to which this Final

Notice relates as it considers appropriate.

FSA contacts

6.5
For more information concerning this matter generally, Chris Walmsley (direct line:

020 7066 5894/ fax: 020 7066 5895) of the Enforcement and Financial Crime

Division of the FSA. .

7

Tom Spender
Head of Department
FSA Enforcement and Financial Crime Division

1.
STATUTORY PROVISIONS, REGULATORY GUIDANCE AND POLICY

Statutory provisions

1.1
The FSA’s statutory objectives, set out in section 2(2) of the Act, include the
protection of consumers, maintaining market confidence and the reduction of
financial crime.

1.2
The FSA has the power, by virtue of section 66 of the Act, to impose a penalty on Mr
Edwards of such amount as it considers appropriate where it appears to the FSA that
he is guilty of misconduct and it is satisfied that it is appropriate in all the
circumstances to take action against him.

1.3
You are guilty of misconduct if, while an approved person, you fail to comply with a
statement of principle issued under section 64 or have been knowingly concerned in a
contravention by the relevant authorised person of a requirement imposed on that
authorised person by or under the Act.

1.4
The FSA has the power, by virtue of section 56 of the Act, to make an order
prohibiting you from performing a specified function, any function falling within a
specified description or any function, if it appears to the FSA that you are not a fit and
proper person to perform functions in relation to a regulated activity carried on by an
authorised person. Such an order may relate to a specific regulated activity, an
activity falling within a specified description or all regulated activities. The power to
withdraw approval arises from section 63 of the Act.

Statements of Principle for approved persons

1.5
A part of the FSA’s Handbook has the title Statements of Principle and Code of
Practice for Approved Persons (“APER”). It sets out the Statements of Principle in
respect of approved persons and conduct which, in the opinion of the FSA, constitutes
a failure to comply with them. It also describes factors the FSA will take into account
in determining whether an approved person’s conduct complies with a particular
Statement of Principle.

1.6
APER 3.1.3G states that, when establishing compliance with, or breach of, a
Statement of Principle, account will be taken of the context in which a course of
conduct was undertaken, the circumstances of the individual case, the characteristics
of the particular controlled function and the behaviour expected in that function.

1.7
APER 3.1.4G provides that an approved person will only be in breach of a Statement
of Principle where he is personally culpable, that is, in a situation where his conduct
was deliberate or where his standard of conduct was below that which would be
reasonable in all the circumstances.

1.8
In this case, the FSA considers the most relevant Statement of Principle to be
Statement of Principle 6.

1.9
Statement of Principle 6 requires that an approved person performing a significant
influence function must exercise due skill, care and diligence in managing the
business of the firm for which he is responsible in his controlled function.

1.10
APER 4.6 sets out a number of examples of behaviour which the FSA considers
constitute a failure to comply with Statement of Principle 6. Of particular relevance
is APER 4.6.11G which states:

“An approved person performing a significant influence function will not
always manage the business on a day-to-day basis himself. The extent to
which he does so will depend on a number of factors, including the nature,
scale and complexity of the business and his position within it. The larger and
more complex the business, the greater the need for clear and effective
delegation and reporting lines. The FSA will look to the approved person
performing a significant influence function to take reasonable steps to ensure
that systems are in place which result in issues being addressed at the
appropriate level. When issues come to his attention, he should deal with them
in an appropriate way.”

1.11
Also relevant is APER 4.6.12G(1) which states:

“It is important for the approved person performing a significant influence function to
understand the business for which he is responsible (APER 4.6.4E). An approved
person performing a significant influence function is unlikely to be an expert in all
aspects of a complex financial services business. However, he should understand and
inform himself about the business sufficiently to understand the risks of its trading,
credit or other business activities.”

Fit and proper test for approved persons

1.12
A part of the FSA’s Handbook has the title “The Fit and Proper test for Approved
Persons” (“FIT”). 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.

1.13
FIT 1.3.1G provides that the FSA will have regard to a number of factors when
assessing a person’s fitness and propriety. One of the considerations will be the
person’s competence and capability.

1.14
In determining a person’s competence and capability, FIT 2.2 provides that the FSA
will have regard to matters including, but not limited to, those set out in FIT 2.2.1G:

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

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

FSA’s policy on exercising its power to impose a financial penalty

1.15
Guidance on the imposition of penalties is provided in Chapter 6 of the FSA’s
Decision Procedure and Penalties Manual (“DEPP”), entitled “Penalties”. DEPP 6
states that the FSA will consider the full circumstances of each case when
determining whether or not to take action for a financial penalty and sets out a non-
exhaustive list of factors that may be relevant for this purpose.

1.16
DEPP 6.2.1G states that:

“The FSA will consider the full circumstances of each case when determining
whether or not to take action for a financial penalty or public censure. Set out
below is a list of factors that may be relevant for this purpose. The list is not
exhaustive: not all of these factors may be applicable in a particular case, and
there may be other factors, not listed, that are relevant.

(1)
The nature, seriousness and impact of the suspected breach, including:

(a)
whether the breach was deliberate or reckless;

(b)
the duration and frequency of the breach; …

(f)
the loss or risk of loss caused to consumers or other market users;

(2)
The conduct of the person after the breach, including the following:

(b)
the degree of co-operation the person showed during the investigation
of the breach; …

(5)
Action taken by the FSA in previous similar cases.”

1.17
DEPP 6.2.4G states that:

“the primary responsibility for ensuring compliance with a firm's regulatory
obligations rests with the firm itself. However, the FSA may take disciplinary
action against an approved person where there is evidence of personal
culpability on the part of that approved person. Personal culpability arises
where the behaviour was deliberate or where the approved person's standard
of behaviour was below that which would be reasonable in all the
circumstances at the time of the conduct concerned.”

1.18
DEPP 6.2.6G states that:

“In addition to the general factors outlined in DEPP 6.2.1G, there are some
additional considerations that may be relevant when deciding whether to take
action against an approved person pursuant to section 66 of the Act. This list
of those considerations is non-exhaustive. Not all considerations below may
be relevant in every case, and there may be other considerations, not listed,
that are relevant.

(1)
The approved person's position and responsibilities. The FSA may take
into account the responsibility of those exercising significant influence

functions in the firm for the conduct of the firm. The more senior the
approved person responsible for the misconduct, the more seriously the
FSA is likely to view the misconduct, and therefore the more likely it is
to take action against the approved person. …

(3)
Whether disciplinary action would be a proportionate response to the
nature and seriousness of the breach by the approved person.”

1.19
DEPP 6.2.7G states that the FSA will not discipline approved persons on the basis of
vicarious liability (that is, holding them responsible for the acts of others), provided
appropriate delegation and supervision has taken place (see APER 4.6.13G and APER
4.6.14G). In particular, disciplinary action will not be taken against an approved
person performing a significant influence function simply because a regulatory failure
has occurred in an area of business for which he is responsible. The FSA will consider
that an approved person performing a significant influence function may have
breached Statements of Principle 5 to 7 only if his conduct was below the standard
which would be reasonable in all the circumstances at the time of the conduct
concerned (see also APER 3.1.8G).

1.20
DEPP 6.4.2G states that:

“The criteria for determining whether it is appropriate to issue a public
censure rather than impose a financial penalty are similar to those for
determining the amount of penalty set out in DEPP 6.5. Some particular
considerations that may be relevant when the FSA determines whether to issue
a public censure rather than impose a financial penalty are: …

(3)
if the breach is more serious in nature or degree, this may be a factor
in favour of a financial penalty, on the basis that the sanction should
reflect the seriousness of the breach; other things being equal, the
more serious the breach, the more likely the FSA is to impose a
financial penalty;”

1.21
DEPP 6.5.2G states that:

“The following factors may be relevant to determining the appropriate level of
financial penalty to be imposed on a person under the Act:

(1)
Deterrence

When determining the appropriate level of penalty, the FSA will have
regard to the principal purpose for which it imposes sanctions, namely to
promote high standards of regulatory and/or market conduct by deterring
persons who have committed breaches from committing further breaches
and helping to deter other persons from committing similar breaches, as
well as demonstrating generally the benefits of compliant business.

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

The FSA will consider the seriousness of the breach in relation to the nature
of the rule, requirement or provision breached. The following
considerations are among those that may be relevant:

(a)
the duration and frequency of the breach; …

(d)
the loss or risk of loss caused to consumers, investors or other
market users;…

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

The FSA will regard as more serious a breach which is deliberately or recklessly
committed. The matters to which the FSA may have regard in determining whether
a breach was deliberate or reckless include, but are not limited to, the following: …

(d)
whether the person has given no apparent consideration to the consequences
of the behaviour that constitutes the breach; …

If the FSA decides that the breach was deliberate or reckless, it is more likely to impose a
higher penalty on a person than would otherwise be the case. …

(5) The size, financial resources and other circumstances of the person on whom
the penalty is to be imposed.

The FSA may have regard to whether the imposition of a financial penalty will cause
financial hardship.

(6)
The amount of benefit gained or loss avoided

The FSA may have regard to the amount of benefit gained or loss avoided as a
result of the breach, for example:

(a)
the FSA will propose a penalty which is consistent with the principle that a
person should not benefit from the breach; and

(b)
the penalty should also act as an incentive to the person (and others) to
comply with regulatory standards and required standards of market conduct.
…

(8)
Conduct following the breach

The FSA may take the following factors into account: …

(c)
any remedial steps taken since the breach was identified, including whether these
were taken on the person's own initiative or that of the FSA or another regulatory
authority; for example, identifying whether consumers or investors or other market
users suffered loss and compensating them where they have; correcting any
misleading statement or impression; taking disciplinary action against staff involved
(if appropriate); and taking steps to ensure that similar problems cannot arise in the
future…”

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

1.22
The FSA’s approach to exercising its powers to make prohibition orders and
withdraw approvals is set out at Chapter 9 of the Enforcement Guide (“EG”). The
FSA has had regard to the appropriate provisions of EG that applied during the
relevant period.

1.23
EG 9.1 states that the FSA’s power to make prohibition orders under section 56 of the
Act helps it work towards achieving its regulatory objectives. The FSA may exercise
this power where it considers that, to achieve any of those objectives, it is appropriate
either to prevent an individual from performing any functions in relation to regulated
activities or to restrict the functions which he may perform.

1.24
EG 9.2 states that the FSA’s effective use of the power under section 63 of FSMA to
withdraw approval from an approved person will also help to ensure high standards of
regulatory conduct by preventing an approved person from continuing to perform the
controlled function to which the approval relates if he is not a fit and proper person to
perform that function. Where it considers this is appropriate, the FSA may prohibit an
approved person, in addition to withdrawing their approval.

1.25
EG 9.4 sets out the general scope of the FSA’s powers in this respect, which include
the power to make a range of prohibition orders depending on the circumstances of
each case and the range of regulated activities to which the individual’s lack of fitness
and propriety is relevant. EG 9.5 provides that the scope of a prohibition order will
vary according to the range of functions which the individual concerned performs in
relation to regulated activities, the reasons why he is not fit and proper and the
severity of risk posed by him to consumers or the market generally.

1.26
In circumstances where the FSA has concerns about the fitness and propriety of an
approved person, EG 9.8 to 9.14 provides guidance. In particular, EG 9.8 states that
the FSA may consider whether it should prohibit that person from performing
functions in relation to regulated activities, withdraw that person’s approval or both.
In deciding whether to withdraw approval and/or make a prohibition order, the FSA
will consider whether its regulatory objectives can be achieved adequately by
imposing disciplinary sanctions.

1.27
EG 9.9 states that the FSA will consider all the relevant circumstances when deciding
whether to make a prohibition order against an approved person and/or to withdraw
that person’s approval. Such circumstances may include, but are not limited to, the
following factors:

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

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

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

(4)
the particular controlled function the approved person is (or was) performing,
the nature and activities of the firm concerned and the markets in which he
operates;

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

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

1.28
EG 9.12 provides a number of examples of types of behaviour which have previously
resulted in the FSA deciding to issue a prohibition order or withdraw the approval of
an approved person. The examples include serious lack of competence.