FINAL NOTICE

IRN:


TDP00009



1.
ACTION

1.1.
For the reasons given in this notice, the Authority hereby:

(a)
imposes on Mr Philip a financial penalty of £60,000; and

(b)
makes an order prohibiting Mr Philip from having any direct responsibility

for client and/or insurer money in relation to any regulated activity carried

on by any authorised person, exempt person or exempt professional firm.

1.2.
The prohibition will take effect from the date of this Final Notice.

1.3.
Mr Philip agreed to settle at an early stage of the Authority’s investigation. He

therefore qualified for a 30% (Stage 1) discount under the Authority’s executive

settlement procedures. Were it not for this discount, the Authority would have

imposed a financial penalty of £85,817.97 on Mr Philip.

2.
SUMMARY OF REASONS

2.1.
The Authority has decided to take action against Mr Philip for breaches of

Statement of Principle 6 whilst performing the significant influence controlled

function of CF1 (Director) at TUGL during the period from 23 August 2010 to 29

June 2012 (the “Relevant Period”).

2.2.
In summary, the Authority considers that Mr Philip failed to exercise due skill,

care and diligence in managing the business of TUGL for which he was

responsible in his controlled function, in breach of Statement of Principle 6, in

that he:

(a)
instructed and/or approved withdrawals of money from TUGL’s central

client and insurer money accounts without following TUGL’s processes and

procedures for making such withdrawals. This resulted in TUGL not being

able to accurately assess the level of the monies held and ultimately

resulted in client and insurer money calculations overstating the client and

insurer money resource by £5 million and £5.5 million respectively;

(b)
failed to pay due regard to established client and insurer money processes

at TUGL by failing to adhere to those processes;

(c)
failed to adequately identify the risks created by his departure from the

established client and insurer money processes; and

(d)
failed to take adequate steps to ensure and/or failed to assure himself that

those risks were appropriately managed.

2.3.
As a consequence of these matters, the Authority considers that Mr Philip failed

to exercise due skill, care and diligence in managing the business for which he

was responsible in his controlled function.

2.4.
By virtue of the breaches outlined above, the Authority considers that Mr Philip

has failed to meet minimum regulatory standards in terms of competence and

capability and that he is not a fit and proper person to have direct responsibility

for client and/or insurer money.

2.5.
The Authority considers Mr Philip’s failings to be serious for the following

(a)
the Authority places a great deal of emphasis on the responsibilities of

senior management as it is senior managers who are responsible for

standards and conduct of the businesses they run;

(b)
Mr Philip, who was responsible for oversight of TUGL’s Central Finance

Department, repeatedly failed to follow established client and insurer

money processes designed to ensure regulatory compliance;

(c)
as TUGL’s CMO, Mr Philip ought to have appreciated the risks associated

with such a failure to adhere to client and insurer money processes;

(d)
Mr Philip’s actions and failings resulted in TUGL not being able to

accurately assess the level of the monies held and ultimately resulted in

client and insurer money calculations overstating the client and insurer

money resource by £5 million and £5.5 million respectively and exposed

insurers to the risk of loss in the event of TUGL becoming insolvent;

(e)
Mr Philip’s failings caused TUGL to breach regulatory requirements and

standards throughout the Relevant Period; and

(f)
Mr Philip’s conduct fell below the standard which would have been

reasonable in all the circumstances.

2.6.
In making the findings above against Mr Philip, the FCA considers the following

factors are relevant:

(a)
Whilst Mr Philip was the most senior individual and the main decision-

maker to have been directly involved in the failings, there were other

individuals at the Firm who carried out roles relevant to the failings and Mr

Philip relied on those individuals to some extent; and

(b)
Mr Philip did not deliberately or recklessly breach regulatory provisions and

no findings of dishonesty or lack of integrity are being made in relation to

him.

2.7.
Notwithstanding these matters, the Authority considers that Mr Philip’s conduct

was not sufficient to discharge his regulatory obligations.

2.8.
The Authority has therefore decided to impose a financial penalty on Mr Philip in

the amount of £60,000 pursuant to section 66 of the Financial Services and

Markets Act 2000 (the “Act”) and make a partial prohibition order pursuant to

section 56 of the Act.

2.9.
The action supports the Authority’s operational objectives of securing an

appropriate degree of protection for consumers, protecting and enhancing the

integrity of the UK financial system and is consistent with the importance placed

by the Authority on the accountability of senior management in the operation of

their business.

3.
DEFINITIONS

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

“Business Units” means insurance intermediary firms acquired by TUGL;

“the Act” means the Financial Services and Markets Act 2000 (as amended);

“APER” means the Authority’s Statements of Principle and Code of Practice for
Approved Persons issued under section 64 of the Act;

“the Authority” means the body corporate previously known as the Financial
Services Authority and renamed on 1 April 2013 as the Financial Conduct
Authority;

“CASS” means the Client Assets Sourcebook contained in the Authority’s
Handbook;

“CASS Rules” means the rules contained in CASS;

“Central Finance Department” means TUGL’s central finance function consisting
of sub teams including the treasury team and finance team;

“Central Sweep Accounts” means the five central client and insurer money
sweep accounts operated by TUGL during the Relevant Period;

“Central Transfers” means eight transfers from the Central Sweep Accounts
made between August 2010 and January 2011;

“CF1” means the Authority’s controlled function of Director;

“Client Money Manual” means the Group Finance and Operations Policy and its
Client Money Procedures Manual which together detailed the client money
policies and procedures applicable to TUGL during the Relevant Period;

“CMO” means Client Money Officer

“DEPP” means the Authority’s Decision Procedures and Penalties Manual;

“EG” means the Authority’s Enforcement Guide;

“Firm” means TUGL;

“FIT” means the part of the Authority’s Handbook entitled “The Fit and Proper
Test for Approved Persons”;

“Handbook” means the Authority’s Handbook of Rules and Guidance;

“Mr Philip” means Timothy Duncan Philip;

“Relevant Period” means 23 August 2010 to 29 June 2012;

“Statement of Principle” means the statements of principle set out in APER;

“Towergate Group” means the Towergate group of companies;

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

“TUGL” means Towergate Underwriting Group Limited.

4.
FACTS AND MATTERS

4.1.
TUGL is an insurance intermediary. It is part of the Towergate Group, which is

one of the largest general insurance networks in the United Kingdom. TUGL was

incorporated on 31 July 2000, has been authorised and regulated by the

Authority since 14 January 2005 and is permitted to hold and control client

money in relation to its insurance mediation activities.

4.2.
The principal activities of TUGL in the Relevant Period were the provision of

insurance intermediary services. In the course of its business, TUGL arranged

insurance cover for clients and received a payment in respect of each policy. A

portion of the payment received was retained by TUGL as commission for its role

in the transaction, whilst the remaining portion was payable to the insurer

underwriting the relevant policy as a premium. TUGL held payments received

from clients either as insurer money or as client money depending on the

underlying contract in place with the insurer underwriting the policy. Where

TUGL held money as an agent of an insurer, the monies could be held as insurer

money in a separate account or held with client money provided that the insurer

agreed to any claim on that money being subordinated to claims by a client. In

the Relevant Period, TUGL held a substantial majority of payments received

from clients as agent of an insurer, a proportion of which was held in insurer

trust accounts and the remaining proportion held with client money in client

non-statutory trust accounts. Insurer money that was held with client money

was subject to the same rules as for client money.

Client and insurer money responsibility at TUGL

4.3.
Mr Philip, a chartered accountant, was approved to hold the controlled function

of CF1 (Director) at TUGL from 27 October 2005 to 29 June 2012, when he left

the Firm. As a CF1 of TUGL and the Finance Director of an intermediate parent

company of TUGL, he was responsible for the day to day management of TUGL’s

Central Finance Department during the Relevant Period.

4.4.
In addition to his general oversight responsibilities as CF1 and Finance Director,

Mr Philip also had specific responsibility for TUGL’s client money arrangements

and its compliance with the Authority’s CASS Rules and was TUGL’s CMO

throughout the Relevant Period. However, Mr Philip was not responsible for the

design or development of TUGL’s risk management framework.

4.5.
His responsibilities included, but were not limited to: the management of client

and insurer money activities centrally; oversight of local and regional client and

insurer money activities; management and oversight of the Central Finance

Department; and ensuring that accounting records were maintained in a way

that allowed the ultimate production of true and fair financial statements. He

was also responsible for managing TUGL’s short term cash resources.

4.6.
In addition to his responsibilities at TUGL, Mr Philip also had significant

responsibilities for the wider Towergate Group. These additional responsibilities

(which included leading on a major re-financing project) led to significant

management stretch on Mr Philip’s part during the Relevant Period.

TUGL’s client and insurer money controls

4.7.
Following the classification of insurance mediation as a regulated activity from

14 January 2005, TUGL was required to comply with the CASS Rules and

specifically those contained in Chapter 5 of CASS which apply to firms that

receive or hold client money in the course of, or in connection with, insurance

mediation activity. TUGL was also required to comply with Principle 10 of the

Authority’s Principles for Businesses which require firms to arrange adequate

protection for clients’ assets for which they are responsible.

4.8.
Throughout the Relevant Period, TUGL operated through a large number of

separate Business Units, which all formed part of the same legal entity, but

operated their own client or insurer money and office bank accounts within the

TUGL legal entity. TUGL’s client money processes and procedures were designed

around its relatively complex legal structure. Its client money policies during the

Relevant Period were set out in its Client Money Manual, which had been

developed by external consultants in collaboration with Mr Philip and other

persons within TUGL and the Towergate Group. Given Mr Philip’s involvement in

the Client Money Manual’s development and his client money responsibilities, it

is reasonable to expect him to have been aware of its provisions.

Banking (sweep) arrangements

4.9.
TUGL’s client money processes and procedures had been designed around its

business model. To facilitate cash management, TUGL had in place an

automated daily process, performed by the bank, whereby cleared funds in the

client and insurer money bank accounts of the Business Units were transferred,

or “swept”, into central client and insurer money bank accounts (“Central Sweep

Accounts”). At the relevant time, TUGL operated five Central Sweep Accounts.

4.10.
The sweep arrangement meant that although client and insurer money

calculations were performed by the individual Business Units, in accordance with

the processes and procedures set out in the Client Money Manual, the majority

of client, insurer and office money was in fact held centrally in separate client,

insurer and office money accounts following the daily sweep process.

Client money calculations

4.11.
The CASS Rules require an insurance intermediary firm to perform client money

calculations at least every 25 business days by checking whether its client

money resource (the amount of client money held separately in appropriate

accounts) was at least equal to the client money requirement (the amount of

money the Business Unit had to hold separately to meet its obligations to

clients). Any shortfall identified from the client money calculation is required to

be paid into a client bank account by the close of business on the day the client

money calculation is performed. Likewise any excess is required to be withdrawn

within the same time period (subject to certain exceptions).

4.12.
In practice, client money calculations were performed by TUGL Business Units

monthly on the first working day of the month using a prescribed template. The

client money calculation worked out the Business Unit’s client money resource

and the client money requirement and then compared one with the other. When

calculating its client money resource, a Business Unit principally relied on the

nominal sweep account balance (which is the figure recorded in its ledgers as

having been swept into Central Sweep Accounts and to which the Business Unit

is entitled) rather than rely on the actual cash balance since the actual client

money was held centrally.

4.13.
On a monthly basis, Business Units sent their client money calculations to

TUGL’s Central Finance Department to undertake a review of Business Units’

compliance with prescribed processes including checking that reconciliations

were performed as required and identify potential issues when they arose. The

Central Finance Department collated all the client money calculations received

from the Business Units on a central spreadsheet.

Reconciliation

4.14.
As required by the CASS Rules, an insurance intermediary firm must within 10

days of performing the client money calculation, reconcile the balance on each

client bank account as recorded by the firm with the balance on that account as

set out in the statement or other form of confirmation used by the bank with

which that money is held. During the Relevant Period TUGL performed this

reconciliation at Business Unit level. It compared the relevant Business Unit’s

ledger balance against the balance in the Business Unit’s client money account

as shown on the bank statement for that account. Because of the sweep

arrangement, both would typically show nil when the reconciliation was

performed.

4.15.
TUGL’s client money process did not include an effective reconciliation which

was necessary to ensure overall compliance with the CASS Rules. In this regard,

one significant system weakness was that TUGL did not perform an effective

reconciliation between the aggregated Business Unit ledger balances, in which

the Business Units recorded their entitlement to the funds held in the Central

Sweep Accounts, and the cash actually held in those Central Sweep Accounts.

Insurer money

4.16.
Whilst insurer money held in an insurer non-statutory trust account is not

subject to the provisions of the CASS Rules, Principle 3 of the Principles for

Businesses requires firms to take reasonable care to organise and control their

affairs responsibly and effectively, with adequate risk management systems. The

systems and controls established by TUGL required Business Units handling

insurer money to follow processes which effectively mirrored the client money

processes described above.

Mid-month calculations

4.17.
On occasion, in addition to the calculations carried out on the first working day

of the month, TUGL would carry out mid-month client and insurer money

calculations in order to meet businesses expenses. This was done to identify

whether it was possible to withdraw commission due to TUGL mid-month rather

than on the first working day of the month. During the Relevant Period, the

process in place for mid-month calculations was in essence the same as the

process carried out on the first working day of the month; the Central Finance

Department would request individual Business Units within TUGL to prepare a

client or insurer money calculation and transfer any surplus identified to its own

local office account, which, where attached to a sweep account, would then be

swept to the Central Sweep Accounts overnight.

The Central Transfers

4.18.
Mr Philip left TUGL in June 2012. The following year, TUGL embarked on a

comprehensive client money improvement programme. That programme

included a review of the existing client and insurer money control environment

at TUGL, during which a potential shortfall of several million pounds was

identified in the client and insurer money accounts. Further investigation

revealed that the bulk of the shortfall had been caused by eight transfers from

TUGL’s Central Sweep Accounts.

4.19.
On four separate occasions in August 2010, November 2010, December 2010

and January 2011, round sums totalling £10.5 million were transferred from

TUGL’s Central Sweep Accounts to the office account of an intermediate parent

company of TUGL for the purpose of meeting business expenses. Details of

these Central Transfers are set out in the table below:

Date
Client money transfer
Insurer money transfer

24/08/2010
£1,500,000
£1,500,000

22/11/2010
£1,000,000
£1,000,000

22/12/2010
£1,000,000
£1,500,000

20/01/2011
£1,500,000
£1,500,000

Total
£5,000,000
£5,500,000

4.20.
The Central Transfers were based on an analysis of all the Business Units’ client

and insurer money calculations on an aggregated basis. On this aggregated

basis, the analysis indicated that, whilst Business Units had removed

commission from the Central Sweep Accounts to the extent that cash was

available, some had been unable to transfer the full amount specified by the

client and insurer money calculations at the time they were performed. The

analysis of the individual TUGL Business Units’ client and insurer money

calculations therefore indicated perceived surpluses that had not been removed

which, when looked at on an aggregated basis, could be removed from the

Central Sweep Accounts as commission belonging to TUGL.

4.21.
This aggregated calculation and analysis was conceived and first prepared by Mr

Philip and formed the basis of the eight Central Transfers. Mr Philip also gave

instructions to staff in the Central Finance Department on how to account for the

Central Transfers. Having personally prepared the aggregated calculation and

analysis to support the transfers in August and November 2010 himself, he

instructed staff in the Central Finance Department to perform calculations for

subsequent transfers in line with the template he had created, which they did.

Subsequent aggregated calculations consequently prepared to support the

transfers in December 2010 and January 2011 were reviewed and approved by

Mr Philip.

4.22.
Based on Mr Philip’s instructions and/or approvals as mentioned above, funds

were transferred out of the Central Sweep Accounts as commission due and

owed to TUGL.

4.23.
TUGL’s client money processes and procedures did not make provision for, or

envisage, either an aggregated calculation or central withdrawals. Central

withdrawals based on an aggregated calculation represented a significant

departure from TUGL’s established processes and procedures.

4.24.
Notwithstanding the fact that existing processes and procedures provided for the

client and insurer money calculations and transfer of commission due to TUGL to

be performed at Business Unit level, round sums were withdrawn from the

Central Sweep Accounts on the four occasions identified above. Following each

of the Central Transfers, the sums removed from the Central Sweep Accounts

were not allocated back to individual Business Units, nor reflected in aggregated

calculations performed in subsequent months. As a result, those Business Units

whose perceived client and insurer surplus cash had been withdrawn were not

aware of the Central Transfers and as a consequence subsequent monthly client

and insurer money calculations prepared by individual Business Units did not

recognise that surpluses had been previously withdrawn from the Central Sweep

Accounts. Likewise, as the aggregated calculations did not reflect these

transfers, TUGL consequently overstated the funds available in the Central

Sweep Accounts for subsequent Central Transfers.

4.25.
This departure from TUGL’s existing processes and procedures, coupled with the

failure to properly consider the potential implications of the Central Transfers

and take appropriate steps to mitigate the risks so created, resulted in TUGL not

being able to assess accurately the level of the monies held and ultimately

resulted in client and insurer money calculations overstating the client and

insurer money resource by £5 million and £5.5 million respectively.

4.26.
The decision to depart from established processes and procedures was taken by

Mr Philip. This departure created a significant risk that CASS Rules would be

breached and insurer money left unprotected unless additional steps were taken

to address its implications.

4.27.
Mr Philip failed to recognise the need to reflect the Central Transfers in

subsequent client and insurer money calculations and/or failed to take

appropriate steps to address the implications including the CASS compliance

risks created by the Central Transfers.

4.28.
Having instructed and authorised the Central Transfers, Mr Philip took no further

steps to assure himself that the risks associated with such a significant

departure from established processes had been adequately addressed. This

allowed the risks to crystallise and caused a shortfall in the client and insurer

money resource which persisted throughout the duration of the Relevant Period.

5.
FAILINGS

5.1.
The regulatory provisions relevant to this Final Notice are set out in the Annex to

this Notice.

5.2.
Based on the facts and matters described above, and for the reasons set out

below, the Authority considers that in the Relevant Period Mr Philip breached

Statement of Principle 6.

5.3.
Statement of Principle 6 in force at the Relevant Time required an approved

person performing a significant influence function to exercise due skill, care and

diligence in managing the business of the firm for which he is responsible in his

controlled function.

5.4.
Mr Philip breached Statement of Principle 6 by failing to exercise due skill, care

and diligence whilst acting as a CF1 who had client and insurer money

responsibilities at TUGL. In particular, he:

(a)
instructed and/or approved withdrawals of money from TUGL’s Central

Sweep Accounts and by doing so, failed to follow TUGL’s processes and

procedures for making withdrawals from client and insurer money

accounts, which resulted in TUGL not being able to assess accurately the

level of the monies held and ultimately resulted in client and insurer

money calculations overstating the client and insurer money resource by

£5 million and £5.5 million respectively;

(b)
failed to pay due regard to established client and insurer money processes

at TUGL by failing to adhere to those processes;

(c)
failed to adequately identify the risks created by his departure from the

established client and insurer money processes; and

(d)
failed to take adequate steps to ensure that those risks were appropriately

managed and/or failed to assure himself that those risks had been

appropriately managed.

Fit and Proper test for Approved Persons

5.5.
The Authority further considers that in failing to act with due skill, care and

diligence in the manner described above, Mr Philip has demonstrated that he is

not competent and capable of having direct responsibility for client and/or

insurer money in relation to any regulated activity carried on by any authorised

person, exempt person or exempt professional firm.

5.6.
Significant influence function holders in positions where they hold responsibility

for client and insurer money are a part of the regulatory system and perform an

important role in protecting not only client but also insurer money. Mr Philip’s

conduct has shown that he lacks an appropriate level of understanding of the

importance of adhering to agreed processes and procedures put in place to

protect client and insurer money. As such, he does not have the requisite levels

of competence and capability required to be fit and proper to have direct

responsibility for client and insurer money.

6.
SANCTION

6.1.
The Authority has considered the disciplinary and other options available to it

and has concluded that a financial penalty in conjunction with a partial

prohibition is the appropriate sanction in the circumstances of this particular

case.

6.2.
The Authority has decided to impose a financial penalty on Mr Philip for

breaching Statement of Principle 6. As his misconduct took place after 6 March

2010, the Authority’s new penalty regime applies.

6.3.
The principal purpose of a financial penalty is to promote high standards of

regulatory conduct by deterring persons who have committed breaches from

committing further breaches, helping to deter other persons from committing

similar breaches and to encourage generally compliant behaviour.

6.4.
In determining whether a financial penalty is appropriate, the Authority is

required to consider all the relevant circumstances of a case. A financial penalty

is an appropriate sanction in this case, given the nature of the breach and the

need to send out a deterrent message.

6.5.
The Authority’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 Authority

applies a five-step framework to determine the appropriate level of financial

penalty. DEPP 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.

6.6.
Pursuant to DEPP 6.5B.1G, at Step 1 the Authority seeks to deprive an individual

of the financial benefit derived directly from the breach where it is practicable to

quantify this.

6.7.
The Authority has not identified any financial benefit that Mr Philip derived

directly from the breaches referred to in this Notice. The Step 1 figure is

therefore nil.

Step 2: Seriousness of breach

6.8.
Pursuant to DEPP 6.5B.2G, at Step 2 the Authority determines a figure that

reflects the seriousness of the breach. That figure is based on a percentage of

the individual’s relevant income. The individual’s relevant income is the gross

amount of all benefits received by the individual from the employment in

connection with which the breach occurred, and for the period of the breach.

6.9.
The period of Mr Philip’s breach was from 23 August 2010 to 29 June 2012. The

Authority considers Mr Philip’s relevant income for this period to be

6.10.
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%. 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 individuals in

non-market abuse cases there are the following five levels:

Level 1 – 0%

Level 2 – 10%

Level 3 – 20%

Level 4 – 30%

Level 5 – 40%

6.11.
In assessing the seriousness level, the Authority takes into account various

factors which reflect the impact and nature of the breach, and whether it was

committed deliberately or recklessly. The Authority considers that the following

factors are relevant:

Impact of the breach

6.12.
Had TUGL become insolvent during the Relevant Period, the Central Transfers

would have given rise to a risk of loss to other market users.

Nature of the breach

6.13.
Mr Philip’s breach was ongoing from the date of his instructions and

authorisation of the first Central Transfer and was not rectified before he

departed TUGL on 29 June 2012. Mr Philip was an experienced industry

professional, having qualified as a chartered accountant in 1987, and holding

senior positions in the industry since at least 2002. He held a senior position

within TUGL as CMO; he was also the Finance Director of TUGL’s intermediate

parent company, with responsibility for TUGL’s Central Finance Department.

Because of the position he held, he was able to authorise the Central Transfers.

As CMO, he was responsible for ensuring that TUGL complied with the CASS

Rules. Mr Philip failed to adequately discharge his responsibilities and his actions

directly caused TUGL to breach the CASS Rules.

Whether the breach was deliberate of reckless

6.14.
There is no evidence to suggest that Mr Philip’s breach was deliberate or

reckless, but it was negligent in that he failed to exercise the care and attention

required in the circumstances. His actions exposed insurers to the risk of loss in

the event of TUGL becoming insolvent. His actions also caused TUGL to breach

regulatory requirements and standards throughout the Relevant Period.

6.15.
There is no evidence that Mr Philip directly or indirectly profited or avoided a

loss as a result of his breaches.

6.16.
Taking all of these factors into account, the Authority considers that seriousness

of the breach to be level 2 and so the Step 2 figure is 10% of £817,314.06.

6.17.
The Step 2 figure is therefore £81,731.40.

Step 3: mitigating and aggravating factors

6.18.
Pursuant to DEPP 6.5B.3G, at Step 3 the Authority may increase or decrease the

amount of the financial penalty arrived at after Step 2 (but not including any

amount disgorged at Step 1) to take into account factors which aggravate or

mitigate the breach.

6.19.
The Authority considers that the following factor aggravates the breach:

(a)
The Authority issued Final Notices to other firms and individuals for failures

in respect of Principle 10 and the CASS Rules and the concerns raised in

them about the protection of client money.

6.20.
The Authority considers that there are no mitigating factors.

6.21.
Having taken into account this aggravating factor, the Authority considers that

the step 2 figure should be increased by 5%.

6.22.
The Step 3 figure is therefore £85,817.97.

Step 4: adjustment for deterrence

6.23.
Pursuant to DEPP 6.5B.4G, if the Authority considers the figure arrived at after

Step 3 is insufficient to deter the individual who committed the breach, or

others, from committing further or similar breaches, then the Authority may

increase the penalty.

6.24.
The Authority considers that the step 3 figure of £85,817.97 represents a

sufficient deterrent to Mr Philip and others, and so has not increased the penalty

at Step 4.

6.25.
The Step 4 figure is therefore £85,817.97.

Step 5: settlement discount

6.26.
Pursuant to DEPP 6.5B.5G if the Authority and the individual 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

Authority and the individual reached agreement.

6.27.
Mr Philip agreed to settle at Stage 1 of the settlement process, a 30% discount

therefore applied and the Step 5 figure is £60,000.

6.28.
The Authority has therefore decided to impose a total financial penalty of

£85,817.97 (reduced to £60,000 as settlement was reached and agreed at

Stage 1 of the settlement process) on Mr Philip for breaching Statement of

Principle 6.

Partial prohibition

6.29.
The Authority considers it is appropriate and proportionate in all the

circumstances to prohibit Mr Philip from having any direct responsibility for

client and/or insurer money in relation to any regulated activity carried on by

any authorised person, exempt person or exempt professional firm.

6.30.
The Authority has had regard to the guidance in Chapter 9 of EG in proposing

this partial prohibition. The relevant provisions of EG are set out in the Annex to

this notice.

6.31.
Given the nature and seriousness of the failings outlined above, Mr Philip’s

conduct demonstrated a serious lack of competence such that he is not fit and

proper to have direct responsibility for client and insurer money.

6.32.
It is appropriate and proportionate in all the circumstances to impose the

prohibition order on Mr Philip in the terms set out above.

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 must be paid in 24 instalments by Mr Philip to the

Authority, as follows:

(a)
£2,500 to be paid on the 1st of each month following the date of the Final

Notice.

If the financial penalty is not paid

7.4.
If all or any of the financial penalty is outstanding on the day after the due date

for payment, the Authority may recover the outstanding amount as a debt owed

by Mr Philip and due to the Authority.

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 Authority must publish such information about the matter to

which this notice relates as the Authority considers appropriate. The information

may be published in such manner as the Authority considers appropriate.

However, the Authority may not publish information if such publication would, in

the opinion of the Authority, be unfair to you or prejudicial to the interests of

consumers or detrimental to the stability of the UK financial system.

7.6.
The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

Authority contacts

7.7.
For more information concerning this matter generally, contact Steve Page

(direct line: 020 7066 1420; email steve.page@fca.org.uk) of the Enforcement

and Market Oversight Division of the Authority.

Rebecca Irving
Financial Conduct Authority
Enforcement and Market Oversight Division



RELEVANT STATUTORY PROVISIONS, REGULATORY REQUIREMENTS AND
AUTHORITY GUIDANCE

RELEVANT STATUTORY PROVISIONS

Statutory objectives

1.
The Authority’s operational objectives are set out in section 1B(3) of the Act. In

relation to this case, the most relevant operational objective is the consumer

protection objective.

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.

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 activities.

RELEVANT REGULATORY PROVISIONS, GUIDANCE AND POLICY

Statements of Principle and Code of Practice for Approved Persons

4.
The Authority’s Statements of Principles and Code of Practice for Approved Persons

(“APER”) have been issued under section 64 of the Act.

5.
APER 3.1.4G states:

“An approved person will only be in breach of a Statement of Principle where he is
personally culpable. Personal culpability arises where an approved person’s
conduct was deliberate or where the approved person’s standard of conduct was
below that which would be reasonable in all the circumstances.”

Statement of Principle 6 (due skill, care and diligence)

6.
During the Relevant Period, Statement of Principle 6 stated:

“An approved person performing a significant influence function must exercise due
skill, care and diligence in managing the business of the firm for which he is
responsible in his controlled function.”

7.
APER sets out descriptions of conduct which, in the opinion of the Authority, do 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 of Principle.

8.
Relevant factors to be taken into account in determining whether or not the

conduct of an approved person performing a significant influence function complies

with Statement of Principles 5 to 7 are set out in APER 3.3.1E and include:

“(1) whether he exercised reasonable care when considering the
information available to him;

(2) whether he reached a reasonable conclusion which he acted on;

(3) the nature, scale and complexity of the firm’s business;

(4) his role and responsibility as an approved person performing a
significant influence function;

(5) the knowledge he had, or should have had, of regulatory concerns, if
any, arising in the business under this control.”


9.
APER 4.6 gives some examples of conduct which the Authority considers not to

comply with Statement of Principle 6. These include:

(a)
permitting transactions without a sufficient understanding of the risks

involved;

(b)
inadequately monitoring … unusual transactions or business practices;

(c)
delegating authority for dealing with an issue or a part of the business to an

individual without reasonable grounds for believing that the delegate had

the necessary capacity, competence, knowledge, seniority or skill to deal

with the issue or to take authority for dealing with part of the business;

(d)
failing to take reasonable steps to maintain an appropriate level of

understanding about an issue or part of the business that he has delegated

to an individual;

(e)
disregarding an issue or part of the business once it has been delegated;

(f)
failing to supervise and monitor adequately the individual to whom

responsibility for dealing with an issue has been delegated.

The Fit and Proper Test for Approved Persons

10.
The part of the 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.

11.
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

include the person’s competence and capability.

The Enforcement Guide

12.
The Enforcement Guide (EG) sets out the Authority’s approach to exercising its

main enforcement powers under the Act.

13.
Chapter 7 of EG sets out the Authority’s approach to exercising its power to impose

a financial penalty.

14.
Chapter 9 of EG sets out the Authority’s policy in relation to prohibition orders.

15.
EG 9.1 states that the Authority may exercise this power where it considers that, to

achieve any of its statutory objectives, it is appropriate either to prevent an

individual from performing any function in relation to regulated activities or to

restrict the functions which he may perform.

Decision Procedure and Penalties Manual

16.
Chapter 6 of the Decision Procedure and Penalties Manual (DEPP) sets out the

Authority’s statement of policy with respect to the imposition of financial penalties

under the Act. In respect of conduct occurring on or after 6 March 2010, the

Authority applies a five-step framework to determine the appropriate level of

financial penalty. DEPP 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.

17.
The relevant sections of DEPP are set out in the body of this Notice.