FINAL NOTICE

1.
ACTION

1.1.
For the reasons given in this notice, the FSA hereby imposes on Savoy Investment
Management Limited (“Savoy”, “the firm”) a financial penalty of £412,000 in respect
of breaches of Principle 3 (Management and Control), Principle 9 (Customers:
Relationships of Trust) of the FSA’s Principles for Businesses (“the Principles”) and
breaches of rules in the part of the FSA’s Handbook relating to the Conduct of
Business Sourcebook (“COBS”).

1.2.
Savoy agreed to settle at an early stage of the FSA’s investigation and therefore
qualified for a 30% (stage 1) discount under the FSA’s executive settlement
procedures. Were it not for this discount, the FSA would have imposed a financial
penalty of £590,000 on Savoy.

2.
SUMMARY OF REASONS

2.1.
On the basis of the facts and matters described below, the FSA considers that between
1 April 2010 to 31 January 2012 (“the Relevant Period”) Savoy failed to comply with
Principles 3 and 9 and the rules set out in COBS 9.2.1R, COBS 9.2.2R and COBS
9.2.3R.

2.2.
The FSA found that Savoy failed to take reasonable care to organise and control its
affairs responsibly and effectively, with adequate risk management systems, in breach
of Principle 3.

2.3.
In particular, Savoy had limited front office controls over the provision of investment
advice and portfolio management services and Savoy failed to take reasonable care to
ensure the suitability of its advice and portfolio management in that:

(1)
there were deficiencies in the documentation in client files;

(2)
whilst the firm put in place programmes to refresh its Know Your Customer
(“KYC”) information, these programmes were not completed on a timely
basis;

(3)
the firm’s compliance monitoring for suitability was inadequate in terms of the
number of files reviewed and the frequency of review, particularly given the
serious deficiencies it was identifying from the reviews it did complete; and

(4)
where deficiencies were found in client files, Savoy’s senior managers failed
to implement the remedial action required on a timely basis.

2.4.
Further, the FSA found that Savoy failed to take reasonable care to ensure the
suitability of portfolios for discretionary clients and the suitability of its advice to
managed advisory clients, in breach of Principle 9 and the relevant COBS rules.
When a review of a sample of 52 client files was undertaken, 23 (44%) did not
contain sufficient information to determine the suitability of the transactions. When
further information was obtained, 12 (23%) of these files were found to be at a high
risk of unsuitability. In particular, it was identified that:

(1)
poor KYC information was obtained about clients and key information was
missing;

(2)
there was out-of-date and inadequate fact-find information and failures to
update this information annually as required by the firm’s own procedures;

(3)
some investment managers used a risk categorisation methodology that
inappropriately conflicted with the firm’s own client risk profiling
documentation;

(4)
investment allocations were made that did not accord with the client’s
expectations and / or match the client’s attitude to risk (“ATR”);

(5)
there was no clear rationale recorded for investment allocations on
discretionary management client files; and

(6)
there was no evidence on discretionary and managed advisory client files to
explain lack of diversification within the portfolios.

2.5.
The FSA regards these failings as significant due to the high potential for unsuitability
found on client files and the potential impact this could have on clients.

2.6.
Savoy’s failings are aggravated by the fact that:

(1)
the failings in records in Savoy’s client files were not resolved on a timely
basis and persisted for a significant period, being first identified in 2009;

(2)
the systems and compliance failings identified by the review of 52 files
revealed significant weaknesses across the firm’s systems and controls,
including the firm’s front office controls, compliance monitoring and record-
keeping functions; and

(3)
there was, during the course of the Relevant Period, a growing level of
awareness in the wealth management sector of the importance of ensuring
suitable outcomes for clients given the FSA’s thematic review of the sector in
2010 and 2011 and the letter sent by the FSA to chief executive officers of
wealth management firms on 14 June 2011.

2.7.
However, Savoy’s failings are mitigated by that fact that the firm:

(1)
has taken considerable steps in response to the FSA’s concerns, including
agreeing to recommendations by the skilled persons and taking further steps on
its own initiative, including increasing its compliance resources, changing its
management structure and introducing a new client relationship management
systems;

(2)
established a working group on suitability in April 2011 to identify
weaknesses in the investment management suitability and risk profiling
process, develop a suitability framework for KYC information and client risk
assessment and change the firm’s systems and controls around the suitability
of the firm’s investment advice and discretionary decisions for its clients. As a
result of the work of the working group on suitability, Savoy redesigned its
client KYC process and procedures and is currently refreshing its existing
client KYC information in line with these;

(3)
has volunteered to provide redress to those clients identified as having suffered
loss in the suitability review of 52 client files; and

(4)
has pro-actively instigated a past business review of investment advice. This
will, where necessary, include contact with clients who may have been
adversely affected by Savoy’s failings. This review is being overseen by an
independent third party. Savoy has volunteered to compensate all clients who
have suffered a loss as a result of any failings on its part.

2.8.
This action supports the FSA’s regulatory objective of the protection of consumers.

3.
DEFINITIONS

3.1.
The definitions below are used in this Final Notice.

“The Act” means the Financial Services and Markets Act 2000.

“ATR” means attitude to risk.

“COBS rules” means the rules set out in the Conduct of Business Sourcebook within
the FSA Handbook.

“Compliance Manual” means the in-house compliance manual used by Savoy’s
investment managers and compliance staff during the Relevant Period.

“Discretionary client” means a client who has delegated full responsibility for
investment choice and management of their assets to Savoy.

“The FSA” means the Financial Services Authority.

“FSA Handbook” means the FSA Handbook of Rules and Guidance.

“KYC” means Know Your Customer.

“Managed advisory client” means a client with greater involvement and responsibility
over the selection of investments within their portfolios than a discretionary client,
whose express consent is required prior to the undertaking of any investment activity.

“Relevant Period” means 1 April 2010 to 31 January 2012.

“Savoy / the firm” means Savoy Investment Management Limited.

“The Tribunal” means the Upper Tribunal (Tax and Chancery Chamber).

4.
FACTS AND MATTERS

4.1.
Savoy is a wealth management firm which specialises in the provision of portfolio
investment management services on both a discretionary and a managed advisory
basis, as well as providing execution only services. Clients are predominantly high
net worth individuals, charities, pensions and trusts that the firm usually classifies as
“retail clients”.

4.2.
During the Relevant Period, Savoy had approximately 4,000 clients allocated across
eight investment directors and 13 investment managers. As at 30 September 2011,
Savoy reported total funds under management of £889 million.

4.3.
Savoy is a wholly-owned subsidiary of Ashcourt Rowan Plc, which is listed on AIM
in London with a market capitalisation of approximately £40 million.

4.4.
Up to and during the Relevant Period, Savoy received several external reports
highlighting concerns relating to advice given to its clients and to the quality of
compliance controls.

4.5.
On 13 May 2009 Savoy was required by the FSA to appoint a skilled person (“Skilled
Person A”) under Section 166 of the Act, to review the adequacy, effectiveness and
appropriateness of senior management arrangements, governance, oversight
arrangements and systems and controls, including compliance oversight and
monitoring.

4.6.
Skilled Person A issued its final report on 17 July 2009. The report identified
weaknesses in Savoy’s controls relating to the obtaining and updating of KYC
information.

4.7.
This report was produced in the context of a decision by Savoy’s Board in March
2009 to commence a project to ensure that clients’ KYC information was correct and
up to date.

4.8.
The firm provided a progress update on the KYC refresh project and the steps
recommended by Skilled Person A to the FSA by way of a letter dated 30 November
2009, in which the FSA was informed that "all executives have issued update KYC to
clients and will continue to update as and when necessary". The letter also indicated
that Savoy had been recommended to "place increased critical focus on the KYC
element of future ongoing suitability assessments" and that this was agreed and
implemented. The KYC project was discussed at the Savoy Board meeting held on 15
December 2009, where it was noted that there had been a 40% response from clients.

4.9.
Skilled Person A issued a follow up report in June 2010, which found that:

“the KYC programme is still ongoing twelve months after it started. [Skilled Person
A] understands that this exercise is only approximately 51% complete…and it would
have been expected that greater progress would have been made in this area.”

Skilled Person A also stated that:

“the initial letters did not provide sufficient emphasis on the importance of updating
information and reliance on a default position was not felt to be appropriate…where
clients decline to provide information a further letter is sent explaining the
importance of up to date information in providing suitable recommendations.
However, [Skilled Person A]…would suggest that this letter also request the
information again after explaining the reasons why the details are important.”

The firm advised the FSA that the KYC update project was closed on 30 June 2011.

4.10. During 2010 and 2011, Savoy was reviewed as part of further thematic work on
wealth management firms and suitability of advice, which resulted in the issue of a
“Dear CEO” letter to wealth management firms on 14 June 2011. This letter set out
several areas of concern arising from the wealth management thematic review,
including firms’ inability to demonstrate suitability due to KYC failings and lack of
information on clients’ financial situation, experience and objectives and the risk of
unsuitability in client portfolios due to inconsistencies between investments and
clients’ ATR and investment objectives.

4.11. On 4 November 2011 the FSA required Savoy to appoint a skilled person pursuant to
Section 166 of the Act (“Skilled Person B”). The scope of the review included:

(1)
the adequacy and effectiveness of the firm’s systems and controls relating to
the suitability of investment decisions and the retention of appropriate
documents; and

(2)
the suitability of investment portfolios for an appropriate sample of clients.

4.12. Skilled Person B, as part of its analysis on suitability, reviewed a sample of 52 client
files between November 2011 and January 2012 and issued its final report on 11 June
2012.

Savoy’s control framework

Investment managers

4.13. Private client wealth management firms such as Savoy should have controls in place
to monitor their investment managers’ portfolio management activities, including:

(1)
investment committees;

(2)
house models for asset allocation and / or stock selection;

(3)
an approved security list;

(4)
guidelines on what are suitable investments within the risk appetites chosen by
the client;

(5)
computer systems which monitor adherence to clients’ investment restrictions,
and, where applicable, investment objectives and risk appetites;

(6)
periodic sample peer reviews of clients’ portfolios by senior management and /
or other investment managers; and

(7)
exception reporting of client portfolios and stock / asset allocations outside
certain tolerances reviewed within the fund management teams and
Compliance.

4.14. Although prior to the Relevant Period Savoy had performed, for a short period, some
peer reviews, these had ceased by March 2010. 15 reviews were conducted between
December 2009 and March 2010. Savoy had not implemented the other controls by
the end of the Relevant Period.

4.15. Accordingly, there were limited front office controls over investment and / or stock
allocation and a lack of formal management oversight of the portfolios, with managers
retaining a significant level of autonomy. As a result, Savoy was heavily reliant on its
individual investment managers to ensure that clients’ portfolios were suitable and
invested in accordance with clients’ investment objectives and investment restrictions.

4.16. Skilled Person B found that Savoy’s lack of front office controls and investment
manager autonomy over clients’ portfolio investment strategy and asset / stock
allocation allowed significant variances between otherwise comparable client
portfolios according to the individual investment manager’s personal expertise,
understanding of client requirements and attitude to prevailing economic and market
conditions.

4.17. In the absence of front office controls and in the light of the firm’s reliance on
individual investment managers to ensure suitability of advice, it was necessary for
investment managers to record clearly and adequately the basis of investment
decisions made on clients’ files and the investment advice given. As set out at
paragraphs 4.20 to 4.26 below, compliance reviews showed that throughout the
Relevant Period investment managers did not record the basis of investment advice
given or investment decisions made on the client file, but relied heavily on their

7

personal knowledge and familiarity with their clients to support portfolio decisions
and recommendations.

4.18. Even where the firm did have documented procedures, there were instances of
investment managers failing to comply with these basic requirements, such as the
investment risk categorisations in Savoy’s standard client agreement form. In one
case, the investment manager adopted an investment risk categorisation methodology
based on that used at his previous firm, rather than that of Savoy.

4.19. Savoy’s compliance monitoring was originally carried out by its own compliance
function, and then from March 2010 by Ashcourt Rowan’s Group Compliance
function. Prior to the Relevant Period, Savoy conducted reviews of investment
managers’ client files, but not for portfolio suitability. These reviews ceased in March
2010 and between 1 May 2010 and 30 June 2011, a third party was engaged to assist
with Group Compliance’s monitoring activities (“the external compliance provider”).
The monitoring was then undertaken by Group Compliance. Since the introduction of
the Group Compliance function in March 2010, there has been significant staff
turnover, with four senior compliance staff members leaving the firm.

4.20. During the Relevant Period, five separate reviews of suitability were completed either
by the external compliance provider or Group Compliance, by sampling a number of
client files to review. The reports were produced in August and October 2010, April
2011 and (for two reports) November 2011. These reviews covered areas including
documentation, file quality, portfolio management, disclosure and suitability, grading
each file on a scorecard and, in the case of the final three reviews, providing an
overall grade for the review. The results were provided to Savoy’s senior
management.

4.21. In total, these reviews covered, across the Relevant Period, 62 files and 18 advisers.
Only 10 of these advisers had more than one file reviewed, with five out of eight
compliance reviews planned for 2011 cancelled.

4.22. The reports documented that 50% of files reviewed were graded by Group
Compliance or the external compliance resource provider as either “unsatisfactory –
dangerous breaches” or “seriously deficient – retraining/remedial action needed”. Of
the later three reports produced by Group Compliance which had an overall grading,
two were graded as “significant improvement needed”.

4.23. These reports did not show a consistent improvement in “pass rates” for Savoy’s
client files. Rather, the types of issues raised were broadly similar across the reports.
They included the following comments:

(1)
“there was little evidence in the files reviewed of up to date information and
this makes demonstration of suitability difficult...The standard company fact
find is generally inadequate as although it records some key information, it is
often too broad based…When information is contained, it is often accepted at
face value without reference to other source information.”

(2)
“although there were no examples of definite unsuitable advice or
management decisions identified there was often insufficient information or
rationale to confirm suitability… In most advisory cases there was no
evidence of the advice at all and very little rationale for discretionary
decisions”

(3)
“there were a relatively large number of cases…where the precise nature of
the accounts…was unclear due to conflicting documentation or account
categorisations”

(4)
“there is a distinct lack of factfind information despite assurances from SIM in
the past that a KYC exercise was well underway”

(5)
“[the reviewer] was advised that SIM was weak in the area of documenting the
rationale for advice and discretionary decisions. This admission was borne
out in the files with a significant majority of files contain little or no rationale
for investment decisions. This lack of information means that suitability cannot
be clearly determined…In connection with the lack of rationale, there was no
real supporting evidence to justify any rationale that was given”

4.24. As Group Compliance’s report of April 2011 stated:

“These findings and their extent are similar to those reported in 2010 by [the external
compliance provider]. It is understood that the business and compliance are aware of
these failings and are currently considering how they should be addressed, for
example, through the setting of policy and procedures with the attendant training of
these to fund managers. At the time of monitoring there has not been sufficient
progress in delivering and establishing these policies with the attendant systems and
controls and standards for fund managers.

However, the delay in implementation of these revised policies whilst unwelcome does
not negate the fact that a proportion of files currently do not meet regulatory
expectations that fund managers as Approved Person should be adhering to.”

4.25. Savoy established a Suitability Working Group in April 2011 to identify weaknesses
in the investment management suitability and risk profiling process, develop a
suitability framework for KYC and client risk assessment and change the firm’s
systems and controls around the suitability of the firm’s investment advice and
discretionary decisions for its clients. This group issued minimum standards for client
file content in August 2011, for immediate introduction, and had undertaken an
extensive review and rewrite of the Suitability and Appropriateness Policy, Procedure
and Guidance. These steps were in addition to the annual KYC refresh requirement
introduced in March 2011, as set out in the firm’s Compliance Manual.

4.26. When issues on client files were reported by Group Compliance to senior managers,
they were not always progressed on a timely basis. For example, some issues took
over eight months to resolve. The Savoy Board was aware of ongoing issues. Skilled
Person B also identified instances, in a sample of cases, where such issues had been
closed off on the firm’s outstanding actions database, but which did not appear to
have been satisfactorily addressed.

Unsuitable investment advice

4.27. Skilled Person B reviewed a sample of 52 files drawn from Savoy’s discretionary and
managed advisory clients between November 2011 and January 2012. This was after
Savoy’s KYC refresh project had been completed and after its Suitability Working
Group had been created. Skilled Person B attempted to assess suitability from the
client files. From those files, Skilled Person B could not adequately judge whether or
not the advice given was suitable for 23 clients (44%) and had to obtain additional
information from investment managers and clients. When it did obtain this, Skilled
Person B found that 12 (23%) of these files were at high risk of unsuitability, for the
following reasons:

(1)
poor quality KYC information obtained from clients, with key information
including outgoings and liabilities, ability to withstand loss, details of income
and assets missing;

(2)
categorisation of clients’ assets or income was vague and open to wide
margins of error. There were examples of both gross income and net worth
being widely categorised, between £0 and £50,000 and £0 and £500,000
respectively;

(3)
there was out of date fact find information, which was not relevant to the
client’s current financial circumstances or investment objectives, with failures
to update annually this information, as required from March 2011 by the firm’s
Compliance Manual;

(4)
some investment managers used an risk categorisation methodology that was
not recognised by Savoy and inappropriately conflicted with the firm’s own
client risk profiling documentation;

(5)
investment allocations were made that did not accord with the client’s
expectations and / or match the client’s ATR, with no clear rationale for this
recorded on the client’s file;

(6)
there was no clear rationale recorded for investment allocations on
discretionary management client files; and

(7)
there was a heavy concentration in a small number of securities and / or a lack
of diversification within discretionary and managed advisory client portfolios,
with no clear rationale recorded on file that this was suitable for the client.

4.28. The above findings of Skilled Person B were broadly consistent with the findings
identified by Savoy’s Compliance Monitoring reports referred to at paragraph 4.23
above. It was also consistent with the need for Savoy to improve its KYC
information, which should have been resolved following the KYC refresh project
launched in March 2009 and referred to at paragraph 4.7 above.

4.29. Skilled Person B found that a further 33 files (63%) were at low risk of unsuitability
but had some of the documentation failings outlined above, for example, client files
that failed to provide clear evidence that valuations had been sent to clients or where
there was significant variation in the form and content of valuations sent to clients.

4.30. Skilled Person B found that few if any client files complied with Savoy’s internal
standards on client file content introduced in August 2011.

4.31. Skilled Person B then assessed whether redress was due for those clients at high risk
of unsuitability. By comparing the performance of these clients’ portfolios against a
relevant benchmark, Skilled Person B concluded that of the 12 files identified as high
risk of unsuitability, four clients should receive redress.

5.
FAILINGS

5.1.
The regulatory provisions relevant to this Final Notice are referred to in Annex A.

5.2.
During the Relevant Period, Savoy allowed its investment managers a high degree of
discretion in providing recommendations and portfolio management to its managed
advisory and discretionary clients. Savoy had limited front office controls over these
activities, increasing its reliance on other controls.

5.3.
However, in the context of these limited front office controls, the firm failed to take
reasonable care to ensure the suitability of its advice and portfolio management in
that:

(1)
there were continuing deficiencies identified in the firm’s client files,
including in the firm’s KYC documentation, its records of the basis of Savoy’s
relationship with its clients (for example, details of the type of service Savoy
was engaged to perform) and its rationale for investment decisions, despite
such deficiencies being identified in Compliance Monitoring reports and
persisting until at least the review by Skilled Person B that took place between
November 2011 and January 2012. Such deficiencies undermined the firm’s
ability to monitor and ensure the suitability of its investment managers’
decisions as it could not easily evidence what its clients’ needs and
requirements were and how its advice was supposed to meet those needs and
requirements;

(2)
where the firm put in place programmes to refresh its KYC information, these
programmes were not completed on a timely basis. The programme was
launched in March 2009, and the FSA was informed in November 2009 that
"all executives have issued update KYC to clients and will continue to update
as and when necessary", with the firm itself believing that the programme was
concluded at the end of June 2011. However, KYC deficiencies were still
being identified by Skilled Person B in December 2011;

(3)
the firm’s compliance monitoring for suitability was inadequate in terms of the
number of files reviewed and the frequency of review, particularly given the
serious deficiencies it was identifying from the reviews it did complete.
Savoy’s internal file checks ceased in March 2010 and only 62 files were
reviewed in the Relevant Period, with 44% of investment managers being
subject to only one review. This was despite 50% of files being found to be
“seriously deficient” or to have “dangerous breaches”; and

(4)
where deficiencies were found in client files, certain Savoy senior managers
failed to implement the remedial action required on a timely basis. Despite
being reported to the Savoy Board on a regular basis, these outstanding points
remained unresolved.

5.4.
The file review conducted by Skilled Person B identified 23% of client files reviewed
to be at high risk of unsuitability and there were failings of varying degrees of severity
in relation to a further 63% of the client files reviewed. In particular:

(1)
poor KYC information obtained from clients, with key information often
missing;

(2)
out-of-date and inadequate fact-find information, with failures to update this
information annually, as required by the firm’s own procedures;

(3)
some investment managers used an risk categorisation methodology that
inappropriately conflicted with the firm’s own client risk profiling
documentation;

(4)
investment allocations were made that did not accord with the client’s
expectations and / or match the client’s ATR, with no clear rationale for these
allocations recorded on the client file;

(5)
no clear rationale recorded for investment allocations made on discretionary
client files; and

(6)
a heavy concentration in a small number of securities and / or a lack of
diversification within discretionary and managed advisory client portfolios,
with no clear rationale recorded on file that this was suitable for the client.

5.5.
The high number of potentially unsuitable client files identified by Skilled Person B
demonstrates that Savoy failed to take reasonable care to ensure the suitability of its
advice and discretionary decisions for clients who were entitled to rely upon its
judgment, in breach of Principle 9 and the rules set out in COBS 9.2.1R, COBS
9.2.2R and COBS 9.2.3R.

6.
SANCTION

Financial penalty

6.1.
The FSA’s policy for imposing a financial penalty is set out in Chapter 6 of DEPP. In
respect of conduct occurring on or after 6 March 2010, the FSA applies a five-step
framework to determine the appropriate level of financial penalty. DEPP 6.5A sets
out the details of the five-step framework that applies in respect of financial penalties
imposed on firms.

Step 1: disgorgement

6.2.
Pursuant to DEPP 6.5A.1G, at Step 1 the FSA seeks to deprive a firm of the financial
benefit derived directly from the breach where it is practicable to quantify this.

6.3.
The FSA has not identified any financial benefit that Savoy derived directly from its
breaches. Step 1 is therefore £0.

Step 2: the seriousness of the breach

6.4.
Pursuant to DEPP 6.5A.2G, at Step 2 the FSA determines a figure that reflects the
seriousness of the breach. Where the amount of revenue generated by a firm from a
particular product line or business area is indicative of the harm or potential harm that
its breach may cause, that figure will be based on a percentage of the firm’s revenue
from the relevant products or business area.

6.5.
The FSA considers that the total revenue generated by Savoy during the period of the
breaches is indicative of the potential harm caused by its breaches. The FSA has
therefore determined a figure based on a percentage of Savoy’s relevant revenue. The
period of Savoy’s breaches was from April 2010, when its Group Compliance took
over and its previous file review programme ceased, to January 2012, when the last
file review by Skilled Person B occurred. The FSA considers Savoy’s relevant
revenue for this period to be £11.8 million.

6.6.
In deciding on the percentage of the relevant revenue that forms the basis of the Step 2
figure, the FSA considers the seriousness of the breach and chooses a percentage
between 0% and 20%. This range is divided into five fixed levels which represent, on
a sliding scale, the seriousness of the breach; the more serious the breach, the higher
the level. For penalties imposed on firms there are the following five levels:

Level 1 – 0%

Level 2 – 5%

Level 3 – 10%

Level 5 – 20%.

6.7.
In assessing the seriousness level, the FSA takes into account various factors which
reflect the impact and nature of the breach, and whether it was committed deliberately
or recklessly.

6.8.
The FSA considers the following factors to be relevant to the seriousness of the firm’s
breaches:

Impact of the breach

(1)
there was a risk of unsuitable sales to retail investors as 23% of the client files
reviewed were at a high risk of unsuitability;

(2)
however, Skilled Person B’s review of the actual financial impact of these
potentially unsuitable sale has concluded that four out of the 52 files reviewed
(8%) actually required financial redress;

Nature of the breach

(3)
the breaches revealed weaknesses in the firm’s procedures and internal
controls over part of the firm’s business. These weaknesses resulted from
inadequate client documentation and monitoring by the firm’s Compliance
function. These processes were particularly important as Savoy had limited or
no front office controls to ensure the suitability of investment advice to clients;

Whether the breach was deliberate and / or reckless

(4)
the firm did not commit the breaches intentionally;

(5)
the firm did not attempt to conceal the breaches; and

(6)
the firm did not act recklessly in failing to prevent the breaches.

6.9.
Taking all of these factors into account, the FSA considers the seriousness of the
breach to be level 2 and so the Step 2 figure is 5% of £11.8 million.

6.10. The figure at Step 2 is therefore £590,000.

Step 3: mitigating and aggravating factors

6.11. Pursuant to DEPP 6.5A.3G, at Step 3 the FSA may increase or decrease the amount of
the financial penalty arrived at after Step 2, but not including any amount to be
disgorged as set out in Step 1, to take into account factors which aggravate or mitigate
the breach.

6.12. The FSA considers that the following factors aggravate the breach:

(1)
the firm was aware of the breaches and of deficiencies in its client
documentation throughout the Relevant Period;

(2)
the breaches persisted for a period of 22 months; and

(3)
extensive guidance was issued by the FSA during the Relevant Period, which
emphasised to firms the importance of establishing the risk a customer is
willing and able to take and making a suitable recommendation. This material
was widely available and had been brought to the attention of all firms within
Savoy’s sector.

6.13. The FSA considers that the following factors mitigate the breach:

(1)
the firm has co-operated with the FSA during the investigation of the breach;

(2)
the firm has taken a number of steps, both on its own initiative and as
recommended by the skilled persons, to implement more robust systems and
controls to improve its client files;

(3)
the firm has spent approximately £611,000 in taking significant steps to
enhance its systems and controls and compliance around suitability and has
spent a further £1.5 million on a client relationship management system to
improve its KYC information and client monitoring reporting; and

(4)
the firm has voluntarily decided to implement a comprehensive past business
review of investment advice and has already agreed to provide redress in the
sum of £65,600 to four clients whose files were considered as part of the
suitability review conducted by Skilled Person B.

6.14. Having taken into account these aggravating and mitigation factors, the FSA considers
that these factors balance each other out and therefore that the Step 2 figure should not
be altered.

6.15. The figure at Step 3 remains £590,000.

Step 4: adjustment for deterrence

6.16. Pursuant to DEPP 6.5A.4G, if the FSA considers the figure arrived at after Step 3 is
insufficient to deter the firm who committed the breach, or others, from committing
further or similar breaches, then the FSA may increase the penalty.

6.17. The FSA considers that the Step 3 figure of £590,000 represents a sufficient deterrent
to Savoy and others, and so has not increased the penalty at Step 4.

6.18. The figure at Step 4 remains £590,000.

Step 5: settlement discount

6.19. Pursuant to DEPP 6.5A.5G, if the FSA and the firm on whom a penalty is to be
imposed agree the amount of the financial penalty and other terms, DEPP 6.7 provides
that the amount of the financial penalty which might otherwise have been payable will
be reduced to reflect the stage at which the FSA and the firm reached agreement. The
settlement discount does not apply to the disgorgement of any benefit calculated at
Step 1.

6.20. The FSA and Savoy reached agreement at Stage 1 and so a 30% discount applies to
the Step 4 figure.

6.21. The figure at Step 5 is therefore £412,000.

6.22. The FSA therefore imposes a total financial penalty of £412,000 on Savoy for
breaching Principles 3 and 9 and the relevant COBS rules.

7.
PROCEDURAL MATTERS

Decision maker

7.1.
The decision which gave rise to the obligation to give this 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.

Manner of and time for payment

7.3.
The financial penalty of £412,000 must be paid in two equal tranches of £206,00 by
Savoy to the FSA, the first tranche by no later than 26 November 2012, 14 days from
the date of the Final Notice and the second tranche by no later than 1 April 2013.

If the financial penalty is not paid

7.4.
If the first tranche of the financial penalty is outstanding on 27 November 2012 and /
or the second tranche of the financial penalty is outstanding on 2 April 2013, the FSA
may recover the outstanding amount as a debt owed by Savoy and due to the FSA.

7.5.
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 prejudicial to the
interests of consumers.

FSA contacts

7.6.
For more information concerning this matter generally, contact Stephen Robinson at
the FSA (direct line: 020 7066 1338 /fax: 020 7066 1339).

Head of Department
FSA Enforcement and Financial Crime Division

RELEVANT STATUTORY PROVISIONS, REGULATORY REQUIREMENTS AND
FSA GUIDANCE

1.
Statutory Provisions

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

1.2.
Section 206 of the Act provides:

“If the Authority considers that an authorised person has contravened a requirement
imposed on him by or under this Act,… it may impose on him a penalty, in respect of
the contravention, of such amount as it considers appropriate”.

1.3.
Savoy is an authorised person for the purposes of section 206 of the Act. The
requirements imposed on authorised persons include those set out in the FSA’s rules
and made under section 138 of the Act.

2.
Regulatory Provisions

2.1.
In exercising its power to issue a financial penalty, the FSA must have regard to the
relevant provisions in the FSA Handbook.

2.2.
In deciding on the action, the FSA has also had regard to guidance set out the in the
Regulatory Guides, in particular the Decision Procedure and Penalties Manual
(DEPP).

2.3.
The Principles are a general statement of the fundamental obligations of firms under
the regulatory system and are set out in the FSA Handbook. They derive their
authority from the FSA’s rule-making powers as set out the Act and reflect the FSA’s
regulatory objectives. The relevant Principles are as follows:

Principle 3 provides:

“A firm must take reasonable care to organise and control its affairs
responsibly and effectively, with adequate risk management systems.”

“A firm must take reasonable care to ensure the suitability of its advice and
discretionary decisions for any customer who is entitled to rely upon its
judgment.”

2.4.
The FSA’s Conduct of Business Sourcebook (COBS) applied to authorised firms with
effect from 1 November 2007.

2.5.
Chapter 9 of COBS sets out the FSA’s rules governing suitability (including basic
advice).

2.6.
COBS 9.2.1R provides:

(1) A firm must take reasonable steps to ensure that a personal
recommendation, or a decision to trade, is suitable for its client.

(2) When making the personal recommendation or managing his investments,
the firm must obtain the necessary information regarding the client's:

(a) knowledge and experience in the investment field relevant to the
specific type of designated investment or service;

(b) financial situation; and

(c) investment objectives;

so as to enable the firm to make the recommendation, or take the decision,
which is suitable for him.

2.7.
COBS 9.2.2R provides:

(1) A firm must obtain from the client such information as is necessary for the
firm to understand the essential facts about him and have a reasonable basis
for believing, giving due consideration to the nature and extent of the service
provided, that the specific transaction to be recommended, or entered into in
the course of managing:

(a) meets his investment objectives;

(b) is such that he is able financially to bear any related investment risks
consistent with his investment objectives; and

(c) is such that he has the necessary experience and knowledge in order
to understand the risks involved in the transaction or in the management
of his portfolio.

(2) The information regarding the investment objectives of a client must
include, where relevant, information on the length of time for which he wishes
to hold the investment, his preferences regarding risk taking, his risk profile,
and the purposes of the investment.

(3) The information regarding the financial situation of a client must include,
where relevant, information on the source and extent of his regular income,
his assets, including liquid assets, investments and real property, and his
regular financial commitments.

2.8.
COBS 9.2.3R provides:

The information regarding a client's knowledge and experience in the investment field
includes, to the extent appropriate to the nature of the client, the nature and extent of

the service to be provided and the type of product or transaction envisaged, including
their complexity and the risks involved, information on:

(1) the types of service, transaction and designated investment with which the
client is familiar;

(2) the nature, volume, frequency of the client's transactions in designated
investments and the period over which they have been carried out; and

(3) the level of education, profession or relevant former profession of the
client.

Decision Procedure and Penalties Manual (DEPP)

2.9.
Guidance on the imposition and amount of penalties is set out in Chapter 6 of DEPP.
Changes to DEPP were introduced on 6 March 2010. Given that the firm’s
misconduct occurred after that date, the FSA has had regard to the provisions of
DEPP in force after that date.

Enforcement Guide (EG)

2.10. The FSA’s approach to taking disciplinary action is set out in Chapter 2 of EG. The
FSA’s approach to financial penalties and public censures is set out in Chapter 7 of
EG.

2.11. EG 7.1 states that the effective and proportionate use of the FSA’s powers to enforce
the requirements of the Act, the rules and the Statements of Principles for Approved
Persons will play an important role in the FSA’s pursuit of its regulatory objectives.
Imposing financial penalties and public censures shows that the FSA is upholding
regulatory standards and helps to maintain market confidence and deter financial
crime. An increased public awareness of regulatory standards also contributes to the
protection of consumers.