Final Notice
On , the Financial Conduct Authority issued a Final Notice to Kyle Anthony Jones
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FINAL NOTICE
Reference
Number:
KXJ01244
1.
ACTION
1.1.
For the reasons given in this Final Notice, the Financial Conduct Authority (“the
Authority”) hereby:
(1)
imposes on Mr Jones a financial penalty of £443,153, pursuant to section
66 of the Financial Services and Markets Act 2000 (“the Act”); and
(2)
makes an order prohibiting Mr Jones from performing any function in
relation to any regulated activity carried on by an authorised person,
exempt person or exempt professional firm, pursuant to section 56 of the
Act.
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1.2.
However, the Authority has agreed not to enforce the financial penalty provided
that Mr Jones pays £7,200 to the Financial Services Compensation Scheme (the
“FSCS”). The £7,200 that Mr Jones has agreed to pay to the FSCS represents
substantially all of his available assets to meet a penalty or judgment.
2.
REASONS
2.1.
Pensions are a traditional way of saving and investing money in a tax-efficient
way for retirement. The value of an individual’s pension can have a significant
impact on their quality of life during retirement and, in some circumstances, may
affect whether they can afford to retire at all. It is of paramount importance that
consumers of financial services can have confidence that persons exerting
significant influence at authorised firms are accountable to the regulator and have
been approved as fit and proper.
2.2.
Between 16 January 2015 and 21 October 2016 (“the Relevant Period”), Mr Jones,
an independent financial adviser (“IFA”), was an approved person who held the
controlled function of CF30 (Customer) at Grosvenor Butterworth (Financial
Services) Limited (“GBFS”). GBFS was a small IFA firm authorised by the Authority
to conduct regulated activities, including arranging deals in investments and
advising on pension opt-outs and pension transfers (“Pension Transfers”).
2.3.
Mr Jones reported to Anthony Cuming (“Mr Cuming”), who was the sole person at
GBFS approved to perform the controlled functions of CF1 (Director), CF10
(Compliance Oversight), and CF11 (Money Laundering Reporting) and who was
also one of the 12 individuals at GBFS approved to perform the CF30 (Customer)
controlled function during the Relevant Period.
The Scheme
2.4.
During the Relevant Period, Mr Jones participated in a scheme involving a
number of firms and individuals (the “Scheme”), including Mr Cuming and
Steven Sahota (“Mr Sahota”) who was a discretionary fund manager at Beaufort
Securities Limited (“BSL”), a small to medium retail advisory stockbroker
authorised by the Authority, as well as other IFAs, an Unregulated Individual
(the “Unregulated Individual”) who oversaw the Scheme and certain Introducers
(“Introducers”). The Introducers were unregulated firms or individuals who
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referred pension holders to regulated IFAs for advice and recommendations
concerning their pension arrangements.
2.5.
As part of a team, Mr Sahota established and grew a discretionary fund
management service operated by BSL in London (the “DFM Service”), which
managed portfolios of assets, including the Strategic Income Portfolio (the
“Strategic Income Portfolio”).
2.6.
The Scheme involved certain participants (principally the Unregulated Individual
and his firms) identifying companies (the “Investment Companies”) which were
seeking to raise capital and contacting them with the promise of receiving
significant capital through BSL’s DFM Service. The Investment Companies issued
bonds or shares which were nearly all high-risk and of limited liquidity.
2.7.
In return, the Investment Companies were to make substantial payments by way
of marketing fees, marketing allowances, introducer fees, commission or other
fees (“Marketing Fees”), which would be distributed between the participants in
the Scheme. The investment products issued by the Investment Companies that
agreed to pay the Marketing Fees (“the Underlying Investments”) were included
in the Strategic Income Portfolio.
2.8.
Incentivised by Marketing Fees, the IFAs involved in the Scheme, including Mr
Jones and Mr Cuming at GBFS, would advise customers, who had been contacted
by Introducers involved in the Scheme, to transfer or switch their existing pensions
to the Beaufort SIPP (“Beaufort SIPP”), a white-labelled self-invested personal
pension (“SIPP”) created by BSL. These pension funds were invested by the DFM
Service, at the direction of Mr Sahota, into products contained within BSL’s
Strategic Income Portfolio, including the Underlying Investments.
2.9.
Certain Introducers would seek to: (a) influence the advice of the IFAs and Mr
Sahota’s investment management decisions, (b) direct Mr Sahota in relation to
the investment of pension holders’ funds into specific investments (including the
Underlying Investments) and (c) direct the IFAs to act as their agent.
2.10.
Pension holders’ funds were placed in the Strategic Income Portfolio and
thereby invested in the Underlying Investments, regardless of whether they
were suitable for those pension holders, so that those involved in the Scheme
would receive a share of the Marketing Fees. Mr Sahota’s team was responsible
for these investment decisions, which were effected by an assistant (who was
not involved in the Scheme). Mr Sahota failed to ensure that pension holders
were placed in suitable investments as he was driven by the desire for personal
gain (rather than by the needs of the pension holders) and exposed the pension
holders to a significant risk of detriment and, in many cases, actual loss.
2.11.
During the Relevant Period, there was little oversight of the DFM Service by BSL
senior management or by BSL’s discretionary fund management committee,
whose purpose was to monitor and supervise the activities of the discretionary
fund managers across BSL.
2.12.
In total, approximately £5.9 million in Marketing Fees was paid to the various
participants in the Scheme. Mr Jones received at least £310,000 in Marketing
Fees, out of which he paid approximately £39,000 to certain Introducers,
therefore retaining approximately £271,000 for himself.
2.13.
The payment of these Marketing Fees was not disclosed to the pension holders
and was to the ultimate detriment of the pension holders whose funds were
invested in the Underlying Investments. These Marketing Fees were separate from
the fees charged by the IFAs advising the pension holders and by the DFM Service,
which were payable by the pension holders in the usual way. In some cases, the
payment of Marketing Fees directly resulted in certain Investment Companies
facing significant financial difficulty and in turn substantially impaired the value of
the Underlying Investments.
Mr Jones’ and Mr Cuming’s involvement in the Scheme
2.14.
Between 20 January 2015 and 25 October 2016 GBFS advised at least 182
customers, in respect of around £14 million of customers’ funds to transfer or
switch their pensions to the Beaufort SIPP. At least 167 of these customers were
advised by Mr Jones or Mr Cuming, with Mr Jones advising no fewer than 68 of
these customers.
2.15.
That advice from Mr Jones and Mr Cuming was driven by the Marketing Fees they
would receive and paid little or no regard to the personal circumstances of the
customers and the high-risk nature of nearly all the Underlying Investments
included within the Strategic Income Portfolio.
2.16.
In furtherance of the Scheme, Mr Cuming and Mr Jones regularly discussed with
Mr Sahota where the pension holders’ funds should be invested and the exact
allocations. Mr Cuming and Mr Jones worked closely with Mr Sahota to invest
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customers’ funds in particular Underlying Investments.
2.17.
Further, Mr Jones sought to conceal his involvement in the Scheme and almost all
of the financial benefit he derived from it, by receiving the Marketing Fees from
Mr Cuming or through bank accounts held by his connected companies, rather
than via GBFS.
2.18.
As a result of his overriding interest and role in the Scheme, Mr Jones paid no real
regard to the Underlying Investments and the risks they posed before advising
customers, the suitability of the advice given to his customers, or the clear and
acute conflict of interest in play.
2.19.
Mr Jones failed to ensure that GBFS’ customers (a) were appropriately informed
of Mr Jones’ and GBFS’ relationship with the Introducers and the discretionary
fund manager (“DFM”) involved in the Scheme; and (b) were informed of the
significant Marketing Fees he personally received when he advised customers to
transfer or switch their pensions to the Beaufort SIPP and their pension funds
were then invested in the Underlying Investments included in the Strategic
Income Portfolio.
2.20.
As a result, GBFS’ customers did not know the true position and were unable to
make a fully informed decision about: (a) seeking advice from GBFS in relation to
transferring or switching their pension funds into a SIPP; (b) accepting the
personal recommendation they received from GBFS; and (c) using their existing
pension funds to purchase investments in the Strategic Income Portfolio. As a
consequence, the customers were exposed to a significant risk of loss and, in
many cases, actual loss.
2.21.
On 18 September 2017, following intervention by the Authority, GBFS signed a
voluntary requirement which was imposed by the Authority on GBFS following an
application by GBFS under section 55L(5) of the Act (“VREQ”) to cease all
regulated activities relating to pension switches (“Pension Switches”) which
involved the movement of funds from one personal pension scheme to another
where no safeguarded benefits are involved, or Pension Transfers.
2.22.
On 31 October 2017, at the request of the Authority, GBFS signed a further VREQ
to cease all regulated activities. GBFS subsequently applied to cancel its Part 4A
permission on 30 November 2017 and this was effected on 1 December 2017.
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2.23.
On 17 January 2018, GBFS entered into liquidation.
Complaints to the Financial Ombudsman Service
2.24.
Some customers who had been advised by GBFS to transfer or switch their
pensions subsequently complained to the Financial Ombudsman Service. A
number of these customers complained that they had been wrongly advised by
Mr Jones to transfer their pensions into a SIPP with BSL; that their funds had
been wrongly put into high-risk investments (namely, one or more of the
Underlying Investments); and that they had been placed into investments that
were not in line with their attitude to risk (“ATR”).
FSCS claims
2.25.
As a result of GBFS going into liquidation on 17 January 2018, complaints made
against GBFS were subsequently referred to the FSCS. As at 18 March 2024, the
FSCS had paid compensation of approximately £4 million in respect of claims
brought against GBFS. These claims were made by pension holders that, following
advice from GBFS, had switched/transferred their pensions to the Beaufort SIPP
and, as a result, their pension funds were invested in one or more investments
included in the Strategic Income Portfolio.
Mr Jones’ lack of integrity
2.26.
The Authority considers that throughout the Relevant Period Mr Jones
demonstrated a lack of integrity and is not a fit and proper person because, while
approved by the Authority to perform the CF30 (Customer) controlled function,
he acted dishonestly in that he:
(1)
participated in the Scheme, as a result of which GBFS’ customers whose
pension funds were invested in the Strategic Income Portfolio were exposed
to a significant risk of detriment and, in many cases, actual loss. Mr Jones
worked closely with other individuals involved in the Scheme to ensure that
customers’ pension funds were invested in particular products so that
significant Marketing Fees could be generated and paid to himself and Mr
Cuming and to other participants in the Scheme. Mr Jones failed to disclose
to customers that their pension funds were being invested in such products
and that he and Mr Cuming (as well as other participants in the Scheme)
would, in return, be personally receiving significant Marketing Fees, and
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the Authority concludes that he did not do so because it would have
exposed the Scheme; and
(2)
knowing what the Scheme involved and how it was structured, held himself
and GBFS out to customers as providing bespoke, independent investment
advice based on a comprehensive and fair analysis of the whole market. Mr
Jones knew that the advice given to customers was not independent but
he did not pay proper regard to such matters. Instead, he advised GBFS’
customers to transfer or switch their pensions to the DFM Service at BSL
in order that they would be invested specifically in the Strategic Income
Portfolio. Mr Jones knew that holding himself and GBFS out in this way was
misleading to customers as it did not reflect the reality of the part he and
Mr Cuming played in the Scheme or the service GBFS purported to provide.
In doing so, Mr Jones knowingly exposed customers to a significant risk of
loss and made significant personal financial gain at the expense of
customers’ investable funds.
2.27.
Further, the Authority considers that Mr Jones demonstrated a lack of integrity and
that he is not a fit and proper person, in that while approved by the Authority to
perform the CF30 (Customer) controlled function, he advised customers to transfer
or switch their pensions to the Beaufort SIPP, knowing that their pension funds
would be invested in Underlying Investments included in the Strategic Income
Portfolio at BSL, notwithstanding his awareness that the Underlying Investments
were nearly all high-risk and of limited liquidity and therefore were unlikely to be
suitable for many of GBFS’ customers. As a consequence, the advice provided was
unsuitable and was driven by the significant financial benefit Mr Jones would receive
in return. In providing such advice, Mr Jones failed to pay any real regard to the
suitability of the Underlying Investments and the risks they posed, and thereby
recklessly disregarded the interests of GBFS’ customers.
2.28.
The Authority considers Mr Jones’ misconduct to be particularly serious in light of
matters, including the following:
(1)
customers were not made aware of the true nature of the advice they
received, including the fact of Mr Jones’ involvement in the Scheme and his
financial interest in the transfer of pension funds into the Underlying
Investments within the Strategic Income Portfolio which created a clear and
acute conflict of interest;
(2)
Mr Jones used this conflict of interest to personally benefit from the
transfers of customers’ funds into these Underlying Investments in return
for significant financial benefit in the form of undisclosed Marketing Fees;
(3)
Mr Jones knowingly preferred his personal financial gain over ensuring GBFS’
customers received adequate and bespoke advice tailored to their individual
needs
and
circumstances.
Customers
were
therefore
denied
the
opportunity to make an informed decision on whether to use GBFS’ services
and whether to invest in the products recommended to them by Mr Jones.
The Authority considers that had customers known the true state of affairs,
it is likely they would have ceased to use GBFS’ services; and
(4)
customers were exposed to a significant risk of loss and, in many cases,
actual loss from the transfer of their pension funds into unsuitable
investments. During the Relevant Period, GBFS advised at least 182
customers, who had pensions with a total value of approximately £14
million, to transfer or switch their pensions to BSL’s DFM Service, where
their funds were invested in the Strategic Income Portfolio, with around £10
million invested in the Underlying Investments.
2.29.
Accordingly, the Authority hereby:
(1)
imposes a financial penalty on Mr Jones in the amount of £443,153
(including interest) for his breach of Statement of Principle 1 during the
Relevant Period; and
(2)
makes an order prohibiting Mr Jones from performing any function in
relation to any regulated activity carried on by an authorised person,
exempt person or exempt professional firm.
2.30.
However, Mr Jones has agreed to pay the FSCS £7,200, to contribute towards
the redress paid and payable to customers of GBFS who have been
disadvantaged. The £7,200 that Mr Jones has agreed to pay to the FSCS
represents substantially all of his assets available to meet a penalty or judgment.
Provided Mr Jones makes the agreed payment to the FSCS, the Authority will not
seek to enforce the financial penalty against him.
2.31.
This action will advance 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.
FAILINGS
3.1.
The regulatory provisions relevant to this Notice are referred to in the Annex.
3.2.
Statement of Principle 1 required Mr Jones to act with integrity in carrying out his CF30
(Customer) controlled function. A person will lack integrity where they act dishonestly
or recklessly. The Authority considers that during the Relevant Period, Mr Jones failed
to act with integrity in carrying out his controlled function at GBFS in breach of
Statement of Principle 1. This is evidenced by Mr Jones’ conduct set out at paragraphs
2.26 and 2.27 above.
Lack of fitness and propriety
3.3.
The Authority considers, based on the facts and matters set out in this Notice, that
Mr Jones lacks integrity and 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.
4.
SANCTION
Financial penalty
4.1.
The Authority’s Handbook of rules and Guidance (“Handbook”) entitled Decision
Procedure and Penalties Manual (“DEPP”) at 6.5B sets out the details of the five-step
framework that applies in respect of financial penalties imposed on individuals in non-
market abuse cases.
Step 1: disgorgement
4.2.
Mr Jones derived direct financial benefit from his breach of Statement of Principle 1 in
the form of the Marketing Fees that he received arising from the Scheme, which were
generated from the advice given by GBFS to customers to transfer or switch their
pensions to the BSL DFM Service. The Authority has calculated that the amount of the
direct benefit Mr Jones received in Marketing Fees during the Relevant Period totalled
£270,833.
4.3.
The Authority will ordinarily also charge interest on the benefit derived directly from
misconduct. The Authority considers it appropriate to apply simple interest at a rate
of 0.25% on Mr Jones’ benefit. Interest calculated on Mr Jones’ benefit from receipt
to the date of this Notice amounts to £5,920.
4.4.
Step 1 is therefore £276,753 (the total of £270,833 plus interest of £5,920).
Step 2: the seriousness of the breach
4.5.
The period of Mr Jones’ breach was from 16 January 2015 to 21 October 2016. The
Authority considers Mr Jones’ relevant income for this period to be £208,005.
4.6.
In deciding on the percentage of the relevant income that forms the basis of the Step
2 figure, the Authority considers the seriousness of the breach and chooses a
percentage between 0% and 40%.
4.7.
In assessing the seriousness level, the Authority takes into account various factors
which reflect the nature and impact of the breach, and whether it was committed
deliberately or recklessly.
Impact of the breach
4.8.
Mr Jones gained significant financial benefit as a result of the advice he provided to
customers to transfer or switch their pension to the Beaufort SIPP so that their pension
funds could be invested into the Underlying Investments included in the Strategic
Income Portfolio (DEPP 6.5B.2G(8)(a)).
4.9.
Mr Jones’ breach of Statement of Principle 1 exposed customers who transferred or
switched their pension to the Beaufort SIPP to a significant risk of loss and, in many
cases, caused customers to suffer actual loss (DEPP 6.5B.2G(8)(c)).
Nature of the breach
4.10.
Mr Jones breached Statement of Principle 1 repeatedly and over an extended
period of time (DEPP 6.5B.2G(9)(b)).
4.11.
Mr Jones failed to act with integrity because he acted dishonestly and recklessly
throughout the Relevant Period (DEPP 6.5B.2G(9)(e)).
Deliberate misconduct
4.12.
Mr Jones intentionally and repeatedly breached Statement of Principle 1 so that he
could receive significant Marketing Fees (DEPP 6.5B.2G(10)(a), (b) and (h)).
4.13.
Mr Jones knew that he and Mr Cuming on behalf of GBFS were misleading customers
and treating them unfairly by holding the firm out as providing bespoke, independent
investment advice based on a comprehensive and fair analysis of the whole market
when, as he knew, this did not reflect the reality of the service that GBFS would
provide given his and Mr Cuming’s involvement in the Scheme (DEPP
6.5B.2G(10)(c)).
Reckless misconduct
4.14.
Mr Jones acted recklessly in disregarding the interests of GBFS’ customers when
providing advice to them (DEPP 6.5B.2G(11)(a)).
Level of seriousness
4.15.
DEPP 6.5B.2G(12) lists factors likely to be considered ‘level 4 or 5 factors’. Of these,
the Authority considers the following factors to be relevant:
(1)
Mr Jones’ breach of Statement of Principle 1 exposed a large number of
customers to a significant risk of loss and, in many cases, caused customers
to suffer actual loss (DEPP 6.5B.2G(12)(a));
(2)
Mr Jones failed to act with integrity and was dishonest (DEPP
6.5B.2G(12)(d)); and
(3)
Mr Jones’ breach of Statement of Principle 1 was committed deliberately and
recklessly (DEPP 6.5B.2G(12)(g)).
4.16.
DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 or 3 factors’. The
Authority considers that none of these factors apply.
4.17.
Taking all of these factors into account, the Authority considers the seriousness of the
breach to be level 5 and so the Step 2 figure is 40% of £208,005.
4.18.
Step 2 is therefore £83,202.
Step 3: mitigating and aggravating factors
4.19.
The Authority considers that there are no factors that aggravate or mitigate the
breach.
4.20.
Step 3 is therefore £83,202.
Step 4: adjustment for deterrence
4.21.
The Authority considers the Step 3 figure of £83,202 and the absolute value of the
penalty is too small in relation to the breach to represent a sufficient deterrent to Mr
Jones and others, and so has increased the penalty at Step 4 by a multiple of 2.
4.22.
The reasons for applying this multiplier are that Mr Jones made a significant personal
financial gain from his misconduct, which was not included in the calculation of his
relevant income at Step 2, abused the position he held at GBFS to participate in the
Scheme, and exposed customers to the risk of, and actual, significant detriment.
4.23.
Step 4 is therefore £166,404.
Step 5: settlement discount
4.24.
No settlement discount applies.
4.25.
Step 5 is therefore £166,400 (rounded down to the nearest £100 in accordance with
the Authority’s usual practice).
4.26.
The Authority therefore imposes a financial penalty of £443,153 (namely £166,400
plus the Step 1 figure of £276,753 (including interest)) on Mr Jones for breaching
Statement of Principle 1.
Prohibition order
4.27.
The Authority has had regard to the guidance in Chapter 9 of the Authority’s
Handbook entitled Enforcement Guide (“EG”) in considering whether to prohibit Mr
Jones.
4.28.
By virtue of the matters addressed in this Notice, in particular the finding at paragraph
3.3 above, and having regard to its statutory objectives, including protecting and
enhancing the integrity of the UK financial system and securing an appropriate degree
of protection for consumers, the Authority considers that it is appropriate and
proportionate in all the circumstances to impose a prohibition order on Mr Jones under
section 56 of the Act in those terms.
5.
PROCEDURAL MATTERS
5.1.
This Notice is given to Mr Jones in accordance with section 390 of the Act.
5.2.
The following statutory rights are important.
Decision maker
5.3.
The decision which gave rise to the obligation to give this Notice was made by the
Settlement Decision Makers.
Manner and time for payment
5.4.
The financial penalty is due and payable in full by Mr Jones to the Authority no later
than 12 August 2024.
5.5.
However, the Authority has agreed not to enforce the financial penalty provided that
Mr Jones pays £7,200 to the Authority, for the purpose of onward payment to the
FSCS, which he may pay in equal monthly instalments of £200 on or before the first
day of the month, with the first such instalment of £200 due on or before 1 August
2024, and the 36th and final instalment of £200 accordingly due on or before 1 July
2027. The £7,200 that Mr Jones has agreed to pay represents substantially all of his
available assets to meet a penalty or judgment.
5.6.
If Mr Jones fails to pay any instalment or any part of an instalment of the £7,200 on
or before the day it is due to be paid (in accordance with paragraph 5.5 above), and
it remains outstanding after at least 14 days’ notice given by the Authority, then the
Authority may immediately recover the full amount of the financial penalty (less any
amounts paid to the Authority) as a debt owed by Mr Jones and due to the
Authority.
5.7.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of
information about the matter to which this Notice relates. Under those provisions,
the Authority must publish such information about the matter to which this Notice
relates as the Authority considers appropriate. The information may be published in
such manner as the Authority considers appropriate. However, the Authority may
not publish information if such publication would, in the opinion of the Authority, be
unfair to Mr Jones or prejudicial to the interests of consumers or detrimental to the
stability of the UK financial system.
5.8.
The Authority intends to publish such information about the matter to which this
Notice relates as it considers appropriate.
Authority contact
5.9.
For more information concerning this matter generally, contact Natalie Rivett at the
Authority (direct line: 020 7066 4166 / email: Natalie.Rivett@fca.org.uk).
Financial Conduct Authority, Enforcement and Market Oversight Division
ANNEX
RELEVANT STATUTORY PROVISIONS
1.1.
The Authority’s statutory objectives, set out in section 1B(3) of the Act, include
the operational objectives of securing an appropriate degree of protection for
consumers and protecting and enhancing the integrity of the UK financial system.
1.2.
Section 66 of the Act provides that the Authority may take action against a person
if it appears to the Authority that he is guilty of misconduct and the Authority is
satisfied that it is appropriate in all the circumstances to take action against him.
A person is guilty of misconduct if, while an approved person, he has failed to
comply with a Statement of Principle issued under section 64 of the Act, or has
been knowingly concerned in a contravention by a relevant authorised person of
a relevant requirement imposed on that authorised person.
1.3.
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 actives.
2.
RELEVANT REGULATORY PROVISIONS
Statements of Principle and Code of Practice for Approved Persons
2.1.
The Authority’s Statements of Principle and Code of Practice for Approved Persons
have been issued under section 64 of the Act.
2.2.
During the Relevant Period, Statement of Principle 1 stated:
‘An approved person must act with integrity in carrying out his accountable
functions.’
2.3.
‘Accountable functions’ include controlled functions and any other functions
performed by an approved person in relation to the carrying on of a regulated
activity by the authorised person to which the approval relates.
The Code of Practice for Approved Persons sets out descriptions of conduct which,
in the opinion of the Authority, does not comply with a Statement of Principle. It
also sets out factors which, in the Authority’s opinion, are to be taken into account
in determining whether an approved person’s conduct complies with a Statement
The Fit and Proper Test for Approved Persons
2.4.
The part of the Authority’s Handbook entitled “The Fit and Proper Test for Approved
Persons” (“FIT”) sets out the criteria that the Authority will consider when 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.
2.5.
FIT 1.3.1G states that the Authority will have regard to a number of factors when
assessing the fitness and propriety of a person. The most important considerations
will be the person’s honesty, integrity and reputation, competence and capability
and financial soundness.
The Authority’s policy for exercising its power to make a prohibition order
2.6.
The Authority’s policy in relation to prohibition orders is set out in Chapter 9 of EG.
2.7.
EG 9.1 states that the Authority may exercise this power where it considers that,
to achieve any of its regulatory 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.
DEPP
2.8.
Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the
Authority’s statement of policy with respect to the imposition and amount of
financial penalties under the Act.
FINAL NOTICE
Reference
Number:
KXJ01244
1.
ACTION
1.1.
For the reasons given in this Final Notice, the Financial Conduct Authority (“the
Authority”) hereby:
(1)
imposes on Mr Jones a financial penalty of £443,153, pursuant to section
66 of the Financial Services and Markets Act 2000 (“the Act”); and
(2)
makes an order prohibiting Mr Jones from performing any function in
relation to any regulated activity carried on by an authorised person,
exempt person or exempt professional firm, pursuant to section 56 of the
Act.
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1.2.
However, the Authority has agreed not to enforce the financial penalty provided
that Mr Jones pays £7,200 to the Financial Services Compensation Scheme (the
“FSCS”). The £7,200 that Mr Jones has agreed to pay to the FSCS represents
substantially all of his available assets to meet a penalty or judgment.
2.
REASONS
2.1.
Pensions are a traditional way of saving and investing money in a tax-efficient
way for retirement. The value of an individual’s pension can have a significant
impact on their quality of life during retirement and, in some circumstances, may
affect whether they can afford to retire at all. It is of paramount importance that
consumers of financial services can have confidence that persons exerting
significant influence at authorised firms are accountable to the regulator and have
been approved as fit and proper.
2.2.
Between 16 January 2015 and 21 October 2016 (“the Relevant Period”), Mr Jones,
an independent financial adviser (“IFA”), was an approved person who held the
controlled function of CF30 (Customer) at Grosvenor Butterworth (Financial
Services) Limited (“GBFS”). GBFS was a small IFA firm authorised by the Authority
to conduct regulated activities, including arranging deals in investments and
advising on pension opt-outs and pension transfers (“Pension Transfers”).
2.3.
Mr Jones reported to Anthony Cuming (“Mr Cuming”), who was the sole person at
GBFS approved to perform the controlled functions of CF1 (Director), CF10
(Compliance Oversight), and CF11 (Money Laundering Reporting) and who was
also one of the 12 individuals at GBFS approved to perform the CF30 (Customer)
controlled function during the Relevant Period.
The Scheme
2.4.
During the Relevant Period, Mr Jones participated in a scheme involving a
number of firms and individuals (the “Scheme”), including Mr Cuming and
Steven Sahota (“Mr Sahota”) who was a discretionary fund manager at Beaufort
Securities Limited (“BSL”), a small to medium retail advisory stockbroker
authorised by the Authority, as well as other IFAs, an Unregulated Individual
(the “Unregulated Individual”) who oversaw the Scheme and certain Introducers
(“Introducers”). The Introducers were unregulated firms or individuals who
3
referred pension holders to regulated IFAs for advice and recommendations
concerning their pension arrangements.
2.5.
As part of a team, Mr Sahota established and grew a discretionary fund
management service operated by BSL in London (the “DFM Service”), which
managed portfolios of assets, including the Strategic Income Portfolio (the
“Strategic Income Portfolio”).
2.6.
The Scheme involved certain participants (principally the Unregulated Individual
and his firms) identifying companies (the “Investment Companies”) which were
seeking to raise capital and contacting them with the promise of receiving
significant capital through BSL’s DFM Service. The Investment Companies issued
bonds or shares which were nearly all high-risk and of limited liquidity.
2.7.
In return, the Investment Companies were to make substantial payments by way
of marketing fees, marketing allowances, introducer fees, commission or other
fees (“Marketing Fees”), which would be distributed between the participants in
the Scheme. The investment products issued by the Investment Companies that
agreed to pay the Marketing Fees (“the Underlying Investments”) were included
in the Strategic Income Portfolio.
2.8.
Incentivised by Marketing Fees, the IFAs involved in the Scheme, including Mr
Jones and Mr Cuming at GBFS, would advise customers, who had been contacted
by Introducers involved in the Scheme, to transfer or switch their existing pensions
to the Beaufort SIPP (“Beaufort SIPP”), a white-labelled self-invested personal
pension (“SIPP”) created by BSL. These pension funds were invested by the DFM
Service, at the direction of Mr Sahota, into products contained within BSL’s
Strategic Income Portfolio, including the Underlying Investments.
2.9.
Certain Introducers would seek to: (a) influence the advice of the IFAs and Mr
Sahota’s investment management decisions, (b) direct Mr Sahota in relation to
the investment of pension holders’ funds into specific investments (including the
Underlying Investments) and (c) direct the IFAs to act as their agent.
2.10.
Pension holders’ funds were placed in the Strategic Income Portfolio and
thereby invested in the Underlying Investments, regardless of whether they
were suitable for those pension holders, so that those involved in the Scheme
would receive a share of the Marketing Fees. Mr Sahota’s team was responsible
for these investment decisions, which were effected by an assistant (who was
not involved in the Scheme). Mr Sahota failed to ensure that pension holders
were placed in suitable investments as he was driven by the desire for personal
gain (rather than by the needs of the pension holders) and exposed the pension
holders to a significant risk of detriment and, in many cases, actual loss.
2.11.
During the Relevant Period, there was little oversight of the DFM Service by BSL
senior management or by BSL’s discretionary fund management committee,
whose purpose was to monitor and supervise the activities of the discretionary
fund managers across BSL.
2.12.
In total, approximately £5.9 million in Marketing Fees was paid to the various
participants in the Scheme. Mr Jones received at least £310,000 in Marketing
Fees, out of which he paid approximately £39,000 to certain Introducers,
therefore retaining approximately £271,000 for himself.
2.13.
The payment of these Marketing Fees was not disclosed to the pension holders
and was to the ultimate detriment of the pension holders whose funds were
invested in the Underlying Investments. These Marketing Fees were separate from
the fees charged by the IFAs advising the pension holders and by the DFM Service,
which were payable by the pension holders in the usual way. In some cases, the
payment of Marketing Fees directly resulted in certain Investment Companies
facing significant financial difficulty and in turn substantially impaired the value of
the Underlying Investments.
Mr Jones’ and Mr Cuming’s involvement in the Scheme
2.14.
Between 20 January 2015 and 25 October 2016 GBFS advised at least 182
customers, in respect of around £14 million of customers’ funds to transfer or
switch their pensions to the Beaufort SIPP. At least 167 of these customers were
advised by Mr Jones or Mr Cuming, with Mr Jones advising no fewer than 68 of
these customers.
2.15.
That advice from Mr Jones and Mr Cuming was driven by the Marketing Fees they
would receive and paid little or no regard to the personal circumstances of the
customers and the high-risk nature of nearly all the Underlying Investments
included within the Strategic Income Portfolio.
2.16.
In furtherance of the Scheme, Mr Cuming and Mr Jones regularly discussed with
Mr Sahota where the pension holders’ funds should be invested and the exact
allocations. Mr Cuming and Mr Jones worked closely with Mr Sahota to invest
5
customers’ funds in particular Underlying Investments.
2.17.
Further, Mr Jones sought to conceal his involvement in the Scheme and almost all
of the financial benefit he derived from it, by receiving the Marketing Fees from
Mr Cuming or through bank accounts held by his connected companies, rather
than via GBFS.
2.18.
As a result of his overriding interest and role in the Scheme, Mr Jones paid no real
regard to the Underlying Investments and the risks they posed before advising
customers, the suitability of the advice given to his customers, or the clear and
acute conflict of interest in play.
2.19.
Mr Jones failed to ensure that GBFS’ customers (a) were appropriately informed
of Mr Jones’ and GBFS’ relationship with the Introducers and the discretionary
fund manager (“DFM”) involved in the Scheme; and (b) were informed of the
significant Marketing Fees he personally received when he advised customers to
transfer or switch their pensions to the Beaufort SIPP and their pension funds
were then invested in the Underlying Investments included in the Strategic
Income Portfolio.
2.20.
As a result, GBFS’ customers did not know the true position and were unable to
make a fully informed decision about: (a) seeking advice from GBFS in relation to
transferring or switching their pension funds into a SIPP; (b) accepting the
personal recommendation they received from GBFS; and (c) using their existing
pension funds to purchase investments in the Strategic Income Portfolio. As a
consequence, the customers were exposed to a significant risk of loss and, in
many cases, actual loss.
2.21.
On 18 September 2017, following intervention by the Authority, GBFS signed a
voluntary requirement which was imposed by the Authority on GBFS following an
application by GBFS under section 55L(5) of the Act (“VREQ”) to cease all
regulated activities relating to pension switches (“Pension Switches”) which
involved the movement of funds from one personal pension scheme to another
where no safeguarded benefits are involved, or Pension Transfers.
2.22.
On 31 October 2017, at the request of the Authority, GBFS signed a further VREQ
to cease all regulated activities. GBFS subsequently applied to cancel its Part 4A
permission on 30 November 2017 and this was effected on 1 December 2017.
6
2.23.
On 17 January 2018, GBFS entered into liquidation.
Complaints to the Financial Ombudsman Service
2.24.
Some customers who had been advised by GBFS to transfer or switch their
pensions subsequently complained to the Financial Ombudsman Service. A
number of these customers complained that they had been wrongly advised by
Mr Jones to transfer their pensions into a SIPP with BSL; that their funds had
been wrongly put into high-risk investments (namely, one or more of the
Underlying Investments); and that they had been placed into investments that
were not in line with their attitude to risk (“ATR”).
FSCS claims
2.25.
As a result of GBFS going into liquidation on 17 January 2018, complaints made
against GBFS were subsequently referred to the FSCS. As at 18 March 2024, the
FSCS had paid compensation of approximately £4 million in respect of claims
brought against GBFS. These claims were made by pension holders that, following
advice from GBFS, had switched/transferred their pensions to the Beaufort SIPP
and, as a result, their pension funds were invested in one or more investments
included in the Strategic Income Portfolio.
Mr Jones’ lack of integrity
2.26.
The Authority considers that throughout the Relevant Period Mr Jones
demonstrated a lack of integrity and is not a fit and proper person because, while
approved by the Authority to perform the CF30 (Customer) controlled function,
he acted dishonestly in that he:
(1)
participated in the Scheme, as a result of which GBFS’ customers whose
pension funds were invested in the Strategic Income Portfolio were exposed
to a significant risk of detriment and, in many cases, actual loss. Mr Jones
worked closely with other individuals involved in the Scheme to ensure that
customers’ pension funds were invested in particular products so that
significant Marketing Fees could be generated and paid to himself and Mr
Cuming and to other participants in the Scheme. Mr Jones failed to disclose
to customers that their pension funds were being invested in such products
and that he and Mr Cuming (as well as other participants in the Scheme)
would, in return, be personally receiving significant Marketing Fees, and
7
the Authority concludes that he did not do so because it would have
exposed the Scheme; and
(2)
knowing what the Scheme involved and how it was structured, held himself
and GBFS out to customers as providing bespoke, independent investment
advice based on a comprehensive and fair analysis of the whole market. Mr
Jones knew that the advice given to customers was not independent but
he did not pay proper regard to such matters. Instead, he advised GBFS’
customers to transfer or switch their pensions to the DFM Service at BSL
in order that they would be invested specifically in the Strategic Income
Portfolio. Mr Jones knew that holding himself and GBFS out in this way was
misleading to customers as it did not reflect the reality of the part he and
Mr Cuming played in the Scheme or the service GBFS purported to provide.
In doing so, Mr Jones knowingly exposed customers to a significant risk of
loss and made significant personal financial gain at the expense of
customers’ investable funds.
2.27.
Further, the Authority considers that Mr Jones demonstrated a lack of integrity and
that he is not a fit and proper person, in that while approved by the Authority to
perform the CF30 (Customer) controlled function, he advised customers to transfer
or switch their pensions to the Beaufort SIPP, knowing that their pension funds
would be invested in Underlying Investments included in the Strategic Income
Portfolio at BSL, notwithstanding his awareness that the Underlying Investments
were nearly all high-risk and of limited liquidity and therefore were unlikely to be
suitable for many of GBFS’ customers. As a consequence, the advice provided was
unsuitable and was driven by the significant financial benefit Mr Jones would receive
in return. In providing such advice, Mr Jones failed to pay any real regard to the
suitability of the Underlying Investments and the risks they posed, and thereby
recklessly disregarded the interests of GBFS’ customers.
2.28.
The Authority considers Mr Jones’ misconduct to be particularly serious in light of
matters, including the following:
(1)
customers were not made aware of the true nature of the advice they
received, including the fact of Mr Jones’ involvement in the Scheme and his
financial interest in the transfer of pension funds into the Underlying
Investments within the Strategic Income Portfolio which created a clear and
acute conflict of interest;
(2)
Mr Jones used this conflict of interest to personally benefit from the
transfers of customers’ funds into these Underlying Investments in return
for significant financial benefit in the form of undisclosed Marketing Fees;
(3)
Mr Jones knowingly preferred his personal financial gain over ensuring GBFS’
customers received adequate and bespoke advice tailored to their individual
needs
and
circumstances.
Customers
were
therefore
denied
the
opportunity to make an informed decision on whether to use GBFS’ services
and whether to invest in the products recommended to them by Mr Jones.
The Authority considers that had customers known the true state of affairs,
it is likely they would have ceased to use GBFS’ services; and
(4)
customers were exposed to a significant risk of loss and, in many cases,
actual loss from the transfer of their pension funds into unsuitable
investments. During the Relevant Period, GBFS advised at least 182
customers, who had pensions with a total value of approximately £14
million, to transfer or switch their pensions to BSL’s DFM Service, where
their funds were invested in the Strategic Income Portfolio, with around £10
million invested in the Underlying Investments.
2.29.
Accordingly, the Authority hereby:
(1)
imposes a financial penalty on Mr Jones in the amount of £443,153
(including interest) for his breach of Statement of Principle 1 during the
Relevant Period; and
(2)
makes an order prohibiting Mr Jones from performing any function in
relation to any regulated activity carried on by an authorised person,
exempt person or exempt professional firm.
2.30.
However, Mr Jones has agreed to pay the FSCS £7,200, to contribute towards
the redress paid and payable to customers of GBFS who have been
disadvantaged. The £7,200 that Mr Jones has agreed to pay to the FSCS
represents substantially all of his assets available to meet a penalty or judgment.
Provided Mr Jones makes the agreed payment to the FSCS, the Authority will not
seek to enforce the financial penalty against him.
2.31.
This action will advance 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.
FAILINGS
3.1.
The regulatory provisions relevant to this Notice are referred to in the Annex.
3.2.
Statement of Principle 1 required Mr Jones to act with integrity in carrying out his CF30
(Customer) controlled function. A person will lack integrity where they act dishonestly
or recklessly. The Authority considers that during the Relevant Period, Mr Jones failed
to act with integrity in carrying out his controlled function at GBFS in breach of
Statement of Principle 1. This is evidenced by Mr Jones’ conduct set out at paragraphs
2.26 and 2.27 above.
Lack of fitness and propriety
3.3.
The Authority considers, based on the facts and matters set out in this Notice, that
Mr Jones lacks integrity and 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.
4.
SANCTION
Financial penalty
4.1.
The Authority’s Handbook of rules and Guidance (“Handbook”) entitled Decision
Procedure and Penalties Manual (“DEPP”) at 6.5B sets out the details of the five-step
framework that applies in respect of financial penalties imposed on individuals in non-
market abuse cases.
Step 1: disgorgement
4.2.
Mr Jones derived direct financial benefit from his breach of Statement of Principle 1 in
the form of the Marketing Fees that he received arising from the Scheme, which were
generated from the advice given by GBFS to customers to transfer or switch their
pensions to the BSL DFM Service. The Authority has calculated that the amount of the
direct benefit Mr Jones received in Marketing Fees during the Relevant Period totalled
£270,833.
4.3.
The Authority will ordinarily also charge interest on the benefit derived directly from
misconduct. The Authority considers it appropriate to apply simple interest at a rate
of 0.25% on Mr Jones’ benefit. Interest calculated on Mr Jones’ benefit from receipt
to the date of this Notice amounts to £5,920.
4.4.
Step 1 is therefore £276,753 (the total of £270,833 plus interest of £5,920).
Step 2: the seriousness of the breach
4.5.
The period of Mr Jones’ breach was from 16 January 2015 to 21 October 2016. The
Authority considers Mr Jones’ relevant income for this period to be £208,005.
4.6.
In deciding on the percentage of the relevant income that forms the basis of the Step
2 figure, the Authority considers the seriousness of the breach and chooses a
percentage between 0% and 40%.
4.7.
In assessing the seriousness level, the Authority takes into account various factors
which reflect the nature and impact of the breach, and whether it was committed
deliberately or recklessly.
Impact of the breach
4.8.
Mr Jones gained significant financial benefit as a result of the advice he provided to
customers to transfer or switch their pension to the Beaufort SIPP so that their pension
funds could be invested into the Underlying Investments included in the Strategic
Income Portfolio (DEPP 6.5B.2G(8)(a)).
4.9.
Mr Jones’ breach of Statement of Principle 1 exposed customers who transferred or
switched their pension to the Beaufort SIPP to a significant risk of loss and, in many
cases, caused customers to suffer actual loss (DEPP 6.5B.2G(8)(c)).
Nature of the breach
4.10.
Mr Jones breached Statement of Principle 1 repeatedly and over an extended
period of time (DEPP 6.5B.2G(9)(b)).
4.11.
Mr Jones failed to act with integrity because he acted dishonestly and recklessly
throughout the Relevant Period (DEPP 6.5B.2G(9)(e)).
Deliberate misconduct
4.12.
Mr Jones intentionally and repeatedly breached Statement of Principle 1 so that he
could receive significant Marketing Fees (DEPP 6.5B.2G(10)(a), (b) and (h)).
4.13.
Mr Jones knew that he and Mr Cuming on behalf of GBFS were misleading customers
and treating them unfairly by holding the firm out as providing bespoke, independent
investment advice based on a comprehensive and fair analysis of the whole market
when, as he knew, this did not reflect the reality of the service that GBFS would
provide given his and Mr Cuming’s involvement in the Scheme (DEPP
6.5B.2G(10)(c)).
Reckless misconduct
4.14.
Mr Jones acted recklessly in disregarding the interests of GBFS’ customers when
providing advice to them (DEPP 6.5B.2G(11)(a)).
Level of seriousness
4.15.
DEPP 6.5B.2G(12) lists factors likely to be considered ‘level 4 or 5 factors’. Of these,
the Authority considers the following factors to be relevant:
(1)
Mr Jones’ breach of Statement of Principle 1 exposed a large number of
customers to a significant risk of loss and, in many cases, caused customers
to suffer actual loss (DEPP 6.5B.2G(12)(a));
(2)
Mr Jones failed to act with integrity and was dishonest (DEPP
6.5B.2G(12)(d)); and
(3)
Mr Jones’ breach of Statement of Principle 1 was committed deliberately and
recklessly (DEPP 6.5B.2G(12)(g)).
4.16.
DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 or 3 factors’. The
Authority considers that none of these factors apply.
4.17.
Taking all of these factors into account, the Authority considers the seriousness of the
breach to be level 5 and so the Step 2 figure is 40% of £208,005.
4.18.
Step 2 is therefore £83,202.
Step 3: mitigating and aggravating factors
4.19.
The Authority considers that there are no factors that aggravate or mitigate the
breach.
4.20.
Step 3 is therefore £83,202.
Step 4: adjustment for deterrence
4.21.
The Authority considers the Step 3 figure of £83,202 and the absolute value of the
penalty is too small in relation to the breach to represent a sufficient deterrent to Mr
Jones and others, and so has increased the penalty at Step 4 by a multiple of 2.
4.22.
The reasons for applying this multiplier are that Mr Jones made a significant personal
financial gain from his misconduct, which was not included in the calculation of his
relevant income at Step 2, abused the position he held at GBFS to participate in the
Scheme, and exposed customers to the risk of, and actual, significant detriment.
4.23.
Step 4 is therefore £166,404.
Step 5: settlement discount
4.24.
No settlement discount applies.
4.25.
Step 5 is therefore £166,400 (rounded down to the nearest £100 in accordance with
the Authority’s usual practice).
4.26.
The Authority therefore imposes a financial penalty of £443,153 (namely £166,400
plus the Step 1 figure of £276,753 (including interest)) on Mr Jones for breaching
Statement of Principle 1.
Prohibition order
4.27.
The Authority has had regard to the guidance in Chapter 9 of the Authority’s
Handbook entitled Enforcement Guide (“EG”) in considering whether to prohibit Mr
Jones.
4.28.
By virtue of the matters addressed in this Notice, in particular the finding at paragraph
3.3 above, and having regard to its statutory objectives, including protecting and
enhancing the integrity of the UK financial system and securing an appropriate degree
of protection for consumers, the Authority considers that it is appropriate and
proportionate in all the circumstances to impose a prohibition order on Mr Jones under
section 56 of the Act in those terms.
5.
PROCEDURAL MATTERS
5.1.
This Notice is given to Mr Jones in accordance with section 390 of the Act.
5.2.
The following statutory rights are important.
Decision maker
5.3.
The decision which gave rise to the obligation to give this Notice was made by the
Settlement Decision Makers.
Manner and time for payment
5.4.
The financial penalty is due and payable in full by Mr Jones to the Authority no later
than 12 August 2024.
5.5.
However, the Authority has agreed not to enforce the financial penalty provided that
Mr Jones pays £7,200 to the Authority, for the purpose of onward payment to the
FSCS, which he may pay in equal monthly instalments of £200 on or before the first
day of the month, with the first such instalment of £200 due on or before 1 August
2024, and the 36th and final instalment of £200 accordingly due on or before 1 July
2027. The £7,200 that Mr Jones has agreed to pay represents substantially all of his
available assets to meet a penalty or judgment.
5.6.
If Mr Jones fails to pay any instalment or any part of an instalment of the £7,200 on
or before the day it is due to be paid (in accordance with paragraph 5.5 above), and
it remains outstanding after at least 14 days’ notice given by the Authority, then the
Authority may immediately recover the full amount of the financial penalty (less any
amounts paid to the Authority) as a debt owed by Mr Jones and due to the
Authority.
5.7.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of
information about the matter to which this Notice relates. Under those provisions,
the Authority must publish such information about the matter to which this Notice
relates as the Authority considers appropriate. The information may be published in
such manner as the Authority considers appropriate. However, the Authority may
not publish information if such publication would, in the opinion of the Authority, be
unfair to Mr Jones or prejudicial to the interests of consumers or detrimental to the
stability of the UK financial system.
5.8.
The Authority intends to publish such information about the matter to which this
Notice relates as it considers appropriate.
Authority contact
5.9.
For more information concerning this matter generally, contact Natalie Rivett at the
Authority (direct line: 020 7066 4166 / email: Natalie.Rivett@fca.org.uk).
Financial Conduct Authority, Enforcement and Market Oversight Division
ANNEX
RELEVANT STATUTORY PROVISIONS
1.1.
The Authority’s statutory objectives, set out in section 1B(3) of the Act, include
the operational objectives of securing an appropriate degree of protection for
consumers and protecting and enhancing the integrity of the UK financial system.
1.2.
Section 66 of the Act provides that the Authority may take action against a person
if it appears to the Authority that he is guilty of misconduct and the Authority is
satisfied that it is appropriate in all the circumstances to take action against him.
A person is guilty of misconduct if, while an approved person, he has failed to
comply with a Statement of Principle issued under section 64 of the Act, or has
been knowingly concerned in a contravention by a relevant authorised person of
a relevant requirement imposed on that authorised person.
1.3.
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 actives.
2.
RELEVANT REGULATORY PROVISIONS
Statements of Principle and Code of Practice for Approved Persons
2.1.
The Authority’s Statements of Principle and Code of Practice for Approved Persons
have been issued under section 64 of the Act.
2.2.
During the Relevant Period, Statement of Principle 1 stated:
‘An approved person must act with integrity in carrying out his accountable
functions.’
2.3.
‘Accountable functions’ include controlled functions and any other functions
performed by an approved person in relation to the carrying on of a regulated
activity by the authorised person to which the approval relates.
The Code of Practice for Approved Persons sets out descriptions of conduct which,
in the opinion of the Authority, does not comply with a Statement of Principle. It
also sets out factors which, in the Authority’s opinion, are to be taken into account
in determining whether an approved person’s conduct complies with a Statement
The Fit and Proper Test for Approved Persons
2.4.
The part of the Authority’s Handbook entitled “The Fit and Proper Test for Approved
Persons” (“FIT”) sets out the criteria that the Authority will consider when 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.
2.5.
FIT 1.3.1G states that the Authority will have regard to a number of factors when
assessing the fitness and propriety of a person. The most important considerations
will be the person’s honesty, integrity and reputation, competence and capability
and financial soundness.
The Authority’s policy for exercising its power to make a prohibition order
2.6.
The Authority’s policy in relation to prohibition orders is set out in Chapter 9 of EG.
2.7.
EG 9.1 states that the Authority may exercise this power where it considers that,
to achieve any of its regulatory 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.
DEPP
2.8.
Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the
Authority’s statement of policy with respect to the imposition and amount of
financial penalties under the Act.