1

FINAL NOTICE

1.
ACTION

1.1.
For the reasons given in this Final Notice, the Authority hereby imposes a financial

penalty of £230,037 on Timothy Haywood (comprising of disgorgement of

£22,437 and a penal element of £207,600) pursuant to section 206 of the Act in

respect of breaches of Statement of Principle 7 of the Authority’s Statements of

Principle and Code of Practice for Approved Persons (“Statement of Principle 7”)

between 20 October 2016 and 3 November 2017 (“Investments Relevant Period”)

and breaches of Statement of Principle 2 of the Authority’s Statements of Principle

and Code of Practice for Approved Persons (“Statement of Principle 2”) between

29 March 2017 and 8 January 2018 (“GE Relevant Period”) (together “the

Relevant Periods”).

1.2.
Mr Haywood agreed to settle at an early stage of the Authority’s investigation. He

therefore qualified for a 30% discount under the Authority’s executive settlement

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

financial penalty of £319,044 on Mr Haywood (comprising of disgorgement of

£22,437 and a penal element of £296,607).

2.
SUMMARY OF REASONS

2.1.
During the Relevant Periods, Mr Haywood was an Investment Director and

Business Unit Head of the Absolute Return and Long Only team (the “ARLO Team”)

at GIML, a London based asset management firm. As of June 2018, GIML

managed approximately £43.7 billion of assets.

2.2.
Asset managers act as agents for their customers, making investment decisions

in financial markets on their behalf. Confidence that asset managers will conduct

themselves properly when acting on behalf of customers is central to the

relationship of trust between the industry and its customers. When making

investment decisions for customers, asset managers should not let conflicts of

interest interfere with their obligations to customers. The Authority has stressed

the importance of asset managers managing conflicts of interest effectively,

including by way of a Dear CEO letter in November 2012.

2.3.
As head of the ARLO Team, Mr Haywood was responsible for the overall

investment management of 26 funds and mandates during the Relevant Periods.

Each fund or mandate typically had at least two Investment Directors as co-

investment managers. Mr Haywood was a GIML Board member and held the CF1

(director) and CF30 (customer) controlled functions.

2.4.
During the Investments Relevant Period, Mr Haywood failed to take reasonable

steps in respect of two Greensill-related investments to ensure that GIML

complied with relevant regulatory rules requiring that conflicts of interest are

managed fairly.

2.5.
During the GE Relevant Period, Mr Haywood failed to act with due skill, care and

diligence by breaching the Gifts and Entertainment Policy in operation at GIML

(the “GE Policy”).

2.6.
As a consequence, Mr Haywood breached Statement of Principle 2 and Statement

of Principle 7.

Statement of Principle 7

2.7.
Statement of Principle 7 requires an approved person performing an accountable

higher management function to take reasonable steps to ensure that the business

of the firm for which they are responsible in their accountable function complies

with the relevant requirements and standards of the regulatory system.

3


2.8.
GIML commenced a business relationship with Greensill in 2014, pursuant to

which Mr Haywood invested client monies in GIML-managed funds into Greensill

originated assets as well as managing the day-to-day relationship between GIML

and Greensill. During the Investments Relevant Period, Mr Haywood was a

designated co-investment manager for the 21 GIML-managed funds that invested

in Greensill originated assets. As of February 2018, Mr Haywood had invested over

£1.5 billion of client monies in GIML-managed funds into Greensill originated

assets. No Greensill-related asset defaulted on any payment of interest or capital

to GIML-managed funds during the Relevant Periods.

2.9.
During the Investments Relevant Period, Mr Haywood failed to take reasonable

steps to ensure that GIML fairly managed conflicts of interest issues arising from

two Greensill-related investments - the Laufer 1 investment and the SCF Fund.

2.10.
In October 2016, GIML financed an entity owned by Greensill, Laufer Limited

(“Laufer”), using approximately £110 million of client monies in GIML-managed

funds (the “Laufer 1” investment). Mr Haywood was both a co-investment

manager at GIML with responsibility for the investment into Laufer 1 and managed

the day-to-day relationship between GIML and Greensill. As such, he was central

to the negotiation and decision making for this investment.

2.11.
The Laufer 1 investment created a conflict between the interests of GIML and its

clients as GIML may have been incentivised to financially assist its business

partner Greensill rather than necessarily act in the best interests of its clients.

This conflict was exacerbated by Greensill offering, unsolicited, three potential

incentives to GIML in connection with the GAM and Greensill business relationship,

which raised conflict of interest issues between GIML and its clients. These

comprised: a ‘fee ramp’ (guaranteeing the amounts GIML would earn from its

management of specific supply chain finance funds); an ‘equity warrant’ over

Greensill shares; and a ‘first and last look’ arrangement (which allowed GIML the

first opportunity to launch further funds investing in Greensill originated assets).

These potential incentives would have provided benefits to GIML in return for

investing customers’ monies into Laufer 1. These represented clear and serious

conflict of interest issues but none of them were ultimately taken up by GIML.

2.12.
However, Mr Haywood failed to take reasonable steps to ensure that GIML fairly

managed the conflicts of interest issues as, in respect of each, he:

2.12.1. failed to make a written record of the conflict of interest issue or how he

had dealt with it;

2.12.2. failed to escalate the conflict of interest issue specifically and explicitly to

his line manager or the Conflicts of Interest Officer (the “COI Officer”);

and

2.12.3. invested client monies in GIML-managed funds into the Laufer 1

investment without first checking or ensuring that the conflict of interest

issues had been properly addressed.

2.13.
One document, signed by Greensill directors and provided to Mr Haywood as one

of four emailed attachments on the day he invested client monies in GIML-

managed funds into the Laufer 1 investment, made reference to a fee ramp

arrangement, which offered payment to GIML in consideration for the investment.

Mr Haywood failed to identify or object to this fee ramp arrangement before the

Laufer 1 investment was made. He objected to the terms of the letter shortly after

the completion of the Laufer 1 transaction on the grounds that he considered it

incorrect. Greensill subsequently reissued the letter to remove reference to the

Laufer 1 investment.

2.14.
Given that he was the head of the ARLO Team, a co-investment manager and

managed the ongoing day-to-day relationship between GIML and Greensill and

given the issues raised above, Mr Haywood should have documented the due

diligence he carried out and prepared a recorded credit analysis of Laufer,

Greensill and the Greensill Group. Mr Haywood did not do this.

2.15.
In the circumstances, it was especially incumbent upon Mr Haywood to take all

reasonable steps to ensure that GIML complied with the COI Policies and its

regulatory requirements in respect of fairly managing conflicts of interest and that

it documented and recorded how it had addressed any conflict of interest issues

to comply with its COI Policies. As described above, Mr Haywood failed to do so.

He thereby breached Statement of Principle 7.

2.16.
The SCF Fund was a co-branded fund launched by GIML and Greensill in 2016

with two share classes (the A and B classes). Mr Haywood was both a co-portfolio

manager of the SCF Fund and managed the relationship between GIML and

Greensill.

2.17.
A further class of the SCF Fund, the C class, was launched in July 2017 for the

benefit of a customer, Company B. GIML used approximately £423 million of client

monies in GIML-managed funds as the initial purchasers of asset backed securities

linked to Company B’s receivables with the intention that it would deliver a

financial return to those clients. The C class subsequently purchased these

securities from the initial purchasers (“B Cross Trades”). This comprised ‘cross

trading’ and was expressly identified within GIML’s policies as a category of

activity which could lead to a conflict of interest between customers. The B Cross

Trades presented a potential conflict for GIML between the interests of one of its

clients, Company B, and its other clients.

2.18.
In the circumstances of this arrangement, greater consideration should have been

given as to whether this potential conflict should have been escalated in

accordance with the Conflicts of Interest policy. The Authority considers that it

should have been. Mr Haywood did not escalate the potential conflict of interest

to his line manager or the COI Officer (as required by the Conflicts of Interest

Policy) or to the COI Committee, the GIML Board of Directors or Compliance.

2.19.
For the reasons set out above, Mr Haywood breached Statement of Principle 7.

2.20.
In addition, Mr Haywood failed to verify that all of the B Cross Trades were:

2.20.1. in compliance with the Cross Trade Policy and delivered a financial benefit

to the initial purchaser; and

2.20.2. correctly tagged on GAM’s order management system and that an

adequate rationale for the B Cross Trades was recorded on this system.

2.21.
As a result, loss was suffered in 19 trades because there was a failure to apply

the correct price: the prices used were stale prices, being ones from earlier trading

days. The cumulative loss was USD 26,181 for which GIML compensated the

relevant funds in full.

2.22.
Mr Haywood failed in respect of the conflicts of interest issues arising out of the

Laufer 1 investment and SCF Fund as described above, despite his seniority and

the fact that as a GIML Board member he was responsible for setting an

appropriate tone to GIML staff.

2.23.
Statement of Principle 2 requires an approved person to act with due skill, care

and diligence in carrying out his accountable functions.

2.24.
As an employee, Mr Haywood was required to comply with GIML’s policy on gifts

and entertainment (the “GE Policy”). The purpose of the GE Policy was to ensure

that staff did not offer or accept any gift or entertainment which might create or

give the appearance of a conflict between their own interests and the duties owed

to clients.

2.25.
However, Mr Haywood failed, on certain occasions, to act with due skill, care and

diligence during the GE Relevant Period as, in breach of the GE Policy, he:

2.25.1. failed to obtain prior approval travelling on a Greensill employee or

associate’s private aircraft for business trips to various destinations

relating to investments in Greensill originated assets;

2.25.2. failed to obtain prior approval for attendance at three dinners;

2.25.3. travelled on a Greensill employee’s aircraft for a personal trip to Sardinia,

valued at £15,000. The GE Policy stated that no contribution should be

made by the donor of entertainment to air travel or overnight expenses;

and

2.25.4. failed to record the above items in a timely fashion on GAM’s regulatory

compliance software platform. These items had a total value of £22,437.

2.26.
The entertainment received from Greensill or in connection with investments in

Greensill originated assets occurred at a time when GIML-managed funds were

making investments in Greensill originated assets. As such, there was a risk that

Mr Haywood may have been incentivised to invest GIML-managed funds in

Greensill originated assets for personal interest rather than necessarily act in the

best interests of GIML’s clients. The correct disclosure and approval – or refusal

– of gifts and entertainment is extremely important because gifts and

entertainment have the potential to create conflicts of interest and influence

decisions such as investment decisions. While the Authority has not found that

investment decisions were made in this case because of the gifts and

entertainment, the risk of influence and conflict is one that remains.

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2.27.
Given his seniority and role it was especially incumbent upon Mr Haywood to act

with due skill, care and diligence by ensuring that he acted in accordance with the

GE Policy. Mr Haywood failed to do so.

2.28.
The Authority therefore has decided to impose a financial penalty on Mr Haywood

of £230,037 pursuant to section 206 of the Act for breaches of Statements of

Principles 2 and 7.

2.29.
Mr Haywood agreed to resolve this matter and 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 £319,044 in

respect of these breaches.

3.
DEFINITIONS

3.1.
The definitions below are used in this Notice:

”the Act” means the Financial Services and Markets Act 2000;

“the ARLO Team” means the Absolute Return and Long Only team;

“the Authority” means the body corporate previously known as the Financial

Services Authority and renamed on 1 April 2013 as the Financial Conduct

Authority;

“the COI Committee” means the Conflicts of Interest Committee, a GAM (UK)

Limited committee established by a resolution of the GAM (UK) Limited Board of

Directors on 6 December 2012;

“the COI Policy 1” means the UK Conflicts of Interest Policy in force at GAM (UK)

Limited, GAM International Management Limited, GAM London Limited and GAM

Sterling Management Limited from 1 February 2013 and updated on 25 February

2016;

“the COI Policy 2” means the UK Conflicts of Interest Policy in force at GAM (UK)

Limited, GAM International Management Limited, GAM London Limited and GAM

Sterling Management Limited from 1 February 2013 and updated on 10 February

2017;

“the COI Policy 3” means the UK Conflicts of Interest Policy in force at GAM (UK)

Limited, GAM International Management Limited, GAM London Limited and GAM

Sterling Management Limited from 1 February 2013 and updated on 3 January

2018;

“the COI Policies” means the Conflict of Interest Policies 1, 2 and 3;

“Compliance” means the Compliance function of GAM UK Group;

“GAM” means the companies within the GAM Group;

“GAM UK Group” means GAM (UK) Limited and its subsidiaries, GAM International

Management Limited, GAM London Limited and GAM Sterling Management

Limited;

“GIML” means GAM International Management Limited;

“Greensill” means Greensill Capital (UK) Ltd;

“the Investments Relevant Period” means the period from 20 October 2016 to 3

November 2017;

“the GE Relevant Period” means the period from 29 March 2017 to 8 January

2018;

“the Relevant Periods” means both the Investments Relevant Period and GE

Relevant Period, together the period from 20 October 2016 to 8 January 2018;

and

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

4.
FACTS AND MATTERS

Background to GAM International Management Limited

4.1.
GIML is a London-based asset management firm. It is a subsidiary of GAM (UK)

Limited which is a UK subsidiary of GAM Holding AG.0F Since 1 December 2001,

GIML has been authorised by the Authority to carry out specified regulated

activities.1F As of 30 June 2018, GIML managed approximately £43.7 billion of

assets.2F

4.2.
During the Relevant Periods, GAM had a number of in-house investment teams,3F

each headed by an individual who reported to the Group CEO. Each head was also

an active investor and described by GAM as having “the freedom to invest without

having to conform to a single ‘house style’ and to follow his or her own, individual

investment philosophy and process”.4F The investment teams were organised in

accordance with the investment strategies pursued and the types of assets in

which they specialised.

4.3.
The fixed income teams were based in London, New York and Zurich. The Absolute

Return and Long Only team (the “ARLO Team”), was a fixed income team which

operated in London and New York during the Relevant Periods.5F

4.4.
The ARLO Team managed multiple funds or mandates in which GIML was either

the investment manager or delegated investment manager.6F As at 30 June 2018,

the ARLO Team had approximately £8.4 billion of assets under management.7F

4.5.
The ARLO Team was heavily comprised of senior members of staff, including a

number of Investment Directors and Investment Managers.8F Investment Directors

were either the head of an investment team or a very senior member of that

team.9F Investment Managers were just below Investment Directors in seniority.10F

Timothy Haywood’s Roles and Responsibilities

4.6.
Mr Haywood was an Investment Director at GIML and the head of the ARLO Team.1F

He was also a director of the Board of GIML12F and held the CF1 (director) and CF30

(customer) controlled functions in the period 7 August 2012 to 31 July 2018.13F Mr

Haywood held no management positions in any other part of GAM.

4.7.
As head of the ARLO Team, Mr Haywood had various responsibilities. He was

responsible for the team’s investment strategies14F, the allocation to Investment

Directors within the ARLO Team of capital for funds or mandates15F and assisting in

the assessment of his team’s training and competence.16F All members of the ARLO

Team reported to Mr Haywood either directly or indirectly, with a number of the

team’s senior members reporting directly to him.17F

4.8.
In his capacity as a line manager and in accordance with the COI Policies, Mr

Haywood was a person to whom his direct reports could escalate conflicts of

interest. In circumstances where the value8F of any gifts and entertainment,

provided to or received by his reports exceeded GIML’s prescribed limits, he was

responsible for pre-approving the matter, which then also required the approval

4.9.
As head of the ARLO Team, Mr Haywood was responsible for the overall

investment management of 26 funds and mandates during the Relevant Periods.20F

Each fund or mandate, typically, had at least two Investment Directors as co-

investment managers. The co-investment managers had responsibility for

managing the inflows and outflows to and from these funds and mandates,

managing the money committed to them by customers and assisting in their

marketing and client service.21F

4.10.
On 7 August 2012, Mr Haywood was appointed as a director of the GIML Board.2F

His role was to provide first line representation for the fixed income teams and

ensure that the Board was properly appraised of performance, asset flows,

prospects and team stability within the fixed income space.23F

4.11.
Mr Haywood was one of two investment managers on the GIML Board. During the

Relevant Periods, he was the only investment manager on the GIML Board who

managed fixed income strategies and therefore had both exposure to conflicts in

the fixed income space and an awareness of the extent to which the Board was

cognisant of them.24F

Governance and control structures at GIML

4.12.
Investment Directors and Investment Managers were given autonomy to identify

and undertake investments within their specialism, with GAM documentation

stating that:

“investment managers enjoy a high degree of autonomy, which goes hand in hand

with full responsibility for investment performance.”29F

4.13.
Mr Haywood and the heads of the other investment teams had a direct reporting

line to the GAM CEO who was their line manager. Mr Haywood did not report to

the GAM CEO for approval for investment or portfolio decisions.25F This was

consistent with the investment management philosophy at GAM. Accordingly, the

GAM CEO did not make or oversee investment decisions for the ARLO Team or

any of the other investment teams.26F

4.14.
During the Relevant Periods, GIML did not have a documented procedure or set

of requirements in respect of the authorisation of decisions to invest or the

approval and operational processes used to enter an investment into its systems.27F

4.15.
Further, GIML did not have a documented policy, set of requirements, or guidance

setting out the nature or extent of due diligence that should be conducted before

an investment was undertaken.28F This was left at the discretion of investment

professionals at GIML.

4.16.
Whilst GIML had a number of pre-trade and post trade controls30F coded into its

order management system, they were not directed at identifying conflicts of

interest. Mr Haywood was aware that GIML’s order management system did not

have a dedicated section or facility in order to record or address conflicts of

interest.31F It was therefore particularly important for Mr Haywood to ensure that he

had considered whether there were any conflicts of interest arising from a

potential investment and, where appropriate, make a record of such

considerations and escalate any such conflicts of interest for consideration prior

to undertaking any investments.

Conflicts of interest framework at GIML

4.17.
During the Relevant Periods, GIML had various systems and controls in place in

order to identify, manage and review conflicts of interest, including those set out

at paragraphs 4.18 to 4.26 below.32F

Conflicts of Interest Policies

4.18.
There were three conflict of interest policies in operation at GIML during the

Relevant Periods (“COI Policies”).3F

4.19.
The COI Policies specified that the GAM UK Group was reliant on employees to

exercise sound judgement, seek advice where appropriate and disclose activities

that were considered to constitute or potentially constitute a conflict of interest.34F

4.20.
The COI Policies set out the following:

4.20.1. Examples of the types of circumstances in which conflicts of interest may

arise, including from personal account dealing and the receipt or giving

of gifts and entertainment.35F

4.20.2. The procedure to be followed to address conflicts of interest.36F

4.20.3. The responsibilities of individuals and bodies tasked with assisting in the

management of conflicts. They consisted principally of the Boards of

Directors of each of the companies within GAM UK Group, including GIML,37F

the COI Committee, the Conflicts of Interest Officer (“COI Officer”) and

Compliance.

4.21.
Mr Haywood annually attested to having read and understood the UK Compliance

Manual and to have acted in full compliance with it and all other applicable GAM

policies and procedures, including the COI Policies.38F Accordingly, he was aware of

and understood the content of the COI Policies.39F He considered them to be a key

part of fund management in order to segregate the interests of employees and

clients.40F He was aware of the reliance the COI Policies placed on employees to be

proactive in declaring conflicts of interests and attested to his responsibility as a

GIML employee to disclose any conflicts of interest.41F

The Board of Directors of the companies within GAM UK Group

4.22.
The GIML Board, of which Mr Haywood was a member, had a number of

responsibilities. These included:

4.22.1. Setting the appropriate tone and overseeing the implementation of the

conflicts of interest framework, including overseeing the identification

and management of conflicts of interest within GAM UK Group.42F

4.22.2. Reviewing and discussing conflicts of interest that have arisen.43F

4.22.3. Reviewing the COI Policies.4F

4.22.4. Ensuring that conflicts of interest procedures were compliant with

regulatory standards.45F

Conflicts of Interest Committee

4.23.
The COI Committee was an integral component of GIML’s systems and controls

to identify and address any conflicts of interest. It did not meet, however, between

November 2014 and October 2017.

4.24.
Mr Haywood was aware of the role of the COI Committee and that its remit

included investments undertaken within the ARLO Team.46F During the Investments

Relevant Period, he did not directly engage with the COI Committee in relation to

the conflicts of interest that are the subject matter of this notice.47F

4.25.
The COI Officer was the main initial escalation point for a UK employee of a known

or suspected conflict of interest.48F

4.26.
Mr Haywood was aware of the role and identity of the COI Officer.49F He was also

aware that as an alternative to raising conflicts of interest with the COI Officer,

the COI Policies envisaged that employees could raise potential or actual conflicts

with their line manager. Mr Haywood did not escalate to the COI Officer the

conflicts of interest that are the subject matter of this notice.

Gifts and Entertainment Policies

4.27.
GAM’s Local Policy on UK Gifts and Entertainment, effective from 3 June 2016,

(the “GE Policy”) was in operation during the GE Relevant Period. It was applicable

to GIML and other UK based GAM entities.50F

4.28.
The purpose of the GE Policy was to ensure that GAM staff did not offer or accept

any gift or entertainment which might create or give the appearance of a conflict

between their own interests and the duties owed to clients.51F Mr Haywood failed,

on certain occasions, to act in accordance with the GE Policy during the GE

Relevant Period. This is addressed in further detail at paragraphs 4.83 to 4.86

below.

GIML relationship with Greensill

4.29.
Greensill is a wholly owned subsidiary of Greensill Capital Pty Limited, an

Australian incorporated company (“Greensill Pty”). Greensill offers companies a

range of finance solutions including supply chain finance (“SCF”).

52F

4.30.
SCF is a form of short-term credit provided to corporate buyers of goods and

services. The SCF provider purchases or extinguishes receivables owed by a

corporate buyer (“obligor”) at a discount from the obligor’s supplier(s). The

provider then collects the full value of the receivables from the obligor at a later

date.53F

4.31.
GIML’s relationship with Greensill commenced in late November 2014, with Mr

Haywood subsequently becoming the principal point of contact at GIML for

4.32.
In early October 2015, an investment structure was agreed between GIML and

Greensill, such as to permit GIML access to Greensill SCF assets and for Greensill

to access GAM’s short term cash balances.5F Consideration was given as to the

question of whether there were any conflicts of interest that needed to be

managed or addressed prior to this arrangement being entered into. Mr Haywood

disclosed his own personal relationship with a senior member of the Greensill

Board. This matter was considered and it was concluded that it did not require

any further action prior to the signing of the joint venture agreement.

4.33.
Pursuant to this agreement, Mr Haywood began investing in Greensill SCF assets.

On or around 22 October 2015, Mr Haywood invested in Greensill originated assets

on behalf of certain sub-funds of the GAM Absolute Return Bond Funds, which was

a fund managed by GIML.56F

4.34.
In June 2016, GAM and Greensill launched the co-branded GAM Greensill Supply

Chain Finance Fund (“SCF Fund”). GAM appointed GIML as the investment

manager for the SCF Fund.57F The decision to launch the fund was taken by GAM.

GIML was aware that the GAM Absolute Return Bond Funds under the

management of Mr Haywood were investing in Greensill originated assets. Mr

Haywood was a designated co-portfolio manager for the SCF Fund58F and was listed

as a member of key personnel in promotional documentation.59F Despite full

knowledge within GIML of Mr Haywood’s multiple roles, GIML’s conflicts of interest

framework was not engaged in order to consider whether they presented a conflict

of interest.

4.35.
In September 2016, Mr Haywood invested USD 18 million in Greensill originated

assets on behalf of GIML-managed funds.60F

4.36.
During the Relevant Periods, 21 GIML-managed funds and mandates invested

directly or indirectly in Greensill originated assets.61F Mr Haywood was a designated

co-investment manager for all of these funds and mandates and was responsible

for these investments.62F The funds included the GAM Multibond fund and its sub

funds63F, the GAM Absolute Return Bond Master Fund64F and the GAM Greensill Supply

4.37.
At the end of the Relevant Periods, as of February 2018, GAM funds net

investment in Greensill originated assets was approximately £1.53 billion. No

Greensill-related asset defaulted on any payment of interest or capital to GIML-

managed funds during the Relevant Periods.6F

4.38.
On 20 October 2016, GIML-managed funds bought a series of 1-year notes issued

by Laufer Limited (“Laufer”), a 100% owned subsidiary of a Greensill entity,

Greensill Capital Pty limited (“Greensill Pty”).67F This investment (“Laufer 1”) was

distinguishable from previous investments in Greensill originated assets in that it

provided direct financing to a Greensill owned entity.

4.39.
The initial Laufer 1 investment consisted of a purchase of four EUR denominated

notes for a total of EUR 46,770,55468F and five USD denominated notes for a total

of USD 84,006,665.69F Prior to the Laufer 1 investment, GAM had already invested

approximately £43.4 million in Greensill originated assets.70F Following this

investment, as at 20 October 2016, GAM had invested a net amount of

approximately £153.7 million in Greensill originated assets.71F

4.40.
The Laufer 1 notes purchased in October 2016 all matured and were redeemed in

October 2017 and then ‘rolled over’ into eight new EUR denominated notes and

six new USD denominated notes (with similar yields). One of the notes was sold

on 23 January 2018. The remaining notes were then sold on 25 July 2018.72F

4.41.
In March 2017, five Laufer 1 notes totalling USD 56 million were purchased by

GIML funds with a yield of around 5.58% to 5.63%, although these trades had

different maturity dates, all of more than one year, that ranged between

September 2017 and March 2021. One of these notes matured and was redeemed

(with no ‘roll over’) in September 2017. One of these notes matured and was

redeemed (with no ‘roll over’) in March 2018. The remaining notes were then sold

on 25 July 2018.73F

4.42.
Three further notes were purchased between 22 and 24 March 2017 totalling USD

177,187,500 and all were sold on 1 June 2017. On 3 November 2017, a note of

USD 10,766,699 was purchased and was then sold on 25 July 2018.74F

4.43.
Mr Haywood was a designated co-investment manager for the GIML funds which

invested in the Laufer 1 notes and managed the negotiations and investment

decisions in regards to it.75F Further, he managed the ongoing day-to-day

relationship between GIML and Greensill during the Relevant Periods.76F He did not

manage the relationship between Greensill and GAM at a corporate level. Mr

Haywood sought to arrange a meeting between GAM senior management and

Greensill, to facilitate engagement between them in advance of the Laufer

transaction.

4.44.
The provision of financing to a Greensill-owned entity (Laufer) created a conflict

of interest for GIML, in light of GAM’s broader relationship with Greensill. The

investment by GIML-managed client funds in Laufer 1 had the effect of directly

refinancing Greensill’s debts, and on more favourable terms. It was therefore

financially beneficial to Greensill, reducing Greensill’s interest payments on its

debts from 10% to approximately 5%.7F This created a conflict of interest between

the interests of GIML and those of the clients who held assets in those funds

investing in Laufer 1, on the basis that GIML was also in a pre-existing joint

venture business relationship with Greensill. In light of this, reduced debt costs

for Greensill was potentially of benefit to GIML.78F

4.45.
As a result of there being a potential benefit to GIML itself in supporting the

financial health of Greensill, there was an incentive for GIML to invest its clients’

funds in Laufer 1 for its own benefit, rather than necessarily for the benefit of its

clients.79F

4.46.
In light of the above, the Laufer 1 investment created a conflict of interest

between GIML and its clients that needed to be identified and appropriately

managed. Despite his responsibilities as an Investment Director, Mr Haywood:

4.46.1. did not make a written record of the conflict of interest or how he had

dealt with it;80F

4.46.2. failed to escalate the conflict of interest specifically and explicitly to his

line manager or the COI Officer;81F and

4.46.3. invested client funds in the Laufer 1 investment without first checking or

ensuring that the conflict of interest had been considered by the COI

Officer and/or COI Committee and that they were content for the

investment to proceed.82F

4.47.
Despite full knowledge within GIML of Mr Haywood’s multiple roles, GAM’s conflicts

of interest framework was not engaged to manage any actual or perceived issues

arising from Mr Haywood’s dual roles as co-investment manager and the key

individual managing the day-to-day GIML relationship with Greensill.

4.48.
The due diligence carried out by Mr Haywood in respect of the Laufer 1

investment, consisted principally of an undocumented consideration of Greensill’s

management accounts and Mr Haywood’s experience of working with Greensill

and his knowledge of the business and how it was developing.83F There was no

documented guidance or rule at GIML as to the level of due diligence that was

required prior to purchase and it was left to the fund manager to determine what

was appropriate. There was no procedure at GIML that required a recorded credit

analysis to be prepared. Mr Haywood did not prepare a recorded credit analysis

of Laufer, Greensill or the Greensill Group.84F

4.49.
In addition to the above, documentation produced by Greensill at the time of the

investment contained three additional features to the Laufer 1 transaction which

gave rise to further conflict of interest issues. These are set out below.

4.50.
During 2016, and before and after the investment in Laufer 1, GAM Senior

Management had expressed their disappointment to Mr Haywood at the rate of

growth of assets under management of the co-branded SCF funds.

4.51.
During the course of the discussions between Mr Haywood and Greensill leading

up to the Laufer 1 investment, a draft Laufer term sheet sent to Mr Haywood by

Greensill, dated 14 October 2016, made reference to a “fee ramp” arrangement.

It stated as follows:

“where the total assets under management of “Vodafund” [a supply chain finance

fund co-branded between GAM and Greensill] and any similar fund managed by

GIML is less than US$1 billion on 31 March 2017, GCUK will pay an annual fee of

US$1.25MM (payable quarterly in arears in instalments of $312,500) as an

additional asset management fee for each of the next 4 years.”85F

4.52.
This unsolicited proposed fee ramp arrangement offered by Greensill created a

conflict of interest between GIML and its clients, as the arrangement was stated

to be for the benefit of GIML and not its clients and led to a risk that GIML may

have been incentivised to invest client funds in the Laufer notes to serve its own

interests as opposed to that of its clients.

4.53.
On 20 October 2016, the same day as the GIML-managed funds invested into

Laufer 1, Mr Haywood received an email from a representative of Greensill, titled

“Laufer – closing,” attaching various documents including a Laufer Commitment

letter (the “Commitment Letter”), a legal opinion concerning the Laufer 1

transaction and a letter dated 20 October 2016 (“Fee Ramp Letter 1”).86F Fee Ramp

Letter 1, similarly to the draft term sheet referenced at paragraph 4.51 above,

set out an undertaking by Greensill to pay additional annual fees to GIML if the

assets under management in one of the SCF funds did not reach USD 1 billion on

31 March 2017. This was expressed to be in consideration for GIML paying into

the Laufer bonds fund. This letter was signed by a representative of Greensill but

not countersigned by GIML.87F After the Laufer 1 investment was made, Mr Haywood

objected to the terms of the letter since it, in his view, incorrectly stated that the

fee ramp was in consideration of the Laufer 1 investment.

4.54.
Accordingly, on 25 October 2016, 5 days after the Laufer 1 investment by GIML

funds had been executed, a revised Fee Ramp letter (“Fee Ramp Letter 2”) was

sent by Greensill to GIML which removed wording stating that the potential fee

ramp payments were in consideration of the GIML investment in Laufer.8F This letter

was to replace Fee Ramp Letter 1.

4.55.
On 8 June 2017, both Mr Haywood and Greensill signed a fee ramp letter (“Signed

Fee Ramp Letter”) which stated that the terms of the fee ramp arrangement were

amended from those expressed in Fee Ramp Letter 1, so that Greensill would pay

additional annual fees to GIML if the assets under management in one of the SCF

funds did not reach USD 1 billion by 30 September 2017 as opposed to by 31

March 2017.89F No other terms within Fee Ramp Letter 1 were amended in the

Signed Fee Ramp Letter and Fee Ramp Letter 2 was not referred to. Accordingly,

the fee ramp arrangement in the signed Fee Ramp Letter was expressed to be in

consideration for the GIML purchase of Laufer notes.90F This was later identified as

an administrative error as Fee Ramp Letter 2 was to replace Fee Ramp Letter 1.

4.56.
At the time the Laufer 1 investment was made on 20 October 2016, there was a

lack of clarity in the documentation about whether the fee ramp was in

consideration of Laufer 1. This created a conflict of interest. During the Laufer 1

negotiations, draft term sheets prepared by Greensill linked the fee ramp

arrangement to the Laufer 1 purchase and, although reference to the fee ramp

arrangement was removed from the Commitment Letter, Fee Ramp Letter 1 was

attached to the email titled ‘Laufer – closing’. Despite this, Mr Haywood failed

immediately to check the documentation provided to him by Greensill to ensure

that the fee ramp arrangement was not expressed as being in consideration for

the investment of GIML client funds into the Laufer 1 investment. The Signed Fee

Ramp Letter, as detailed in paragraph 4.55 above, made reference to Fee Ramp

Letter 1, which expressed the fee ramp arrangement to be in consideration of the

Laufer 1 transaction. This was not identified in a timely manner.

Option to Purchase Equity Warrant

4.57.
An equity warrant is a financial instrument under which a company grants a

contractual right (but not an obligation) to a third party to subscribe for a specified

class of shares in that company.91F

4.58.
On 14 October 2016, a representative of Greensill provided Mr Haywood with a

draft term sheet, which presented an offer of an option to purchase an equity

warrant over Greensill shares. The draft term sheet also included the following

wording: “Prior [to] 31 March 2018 if [GIML] or one of the funds under its

management pays an exercise fee of USD$15MM to the Company, the Company

will grant a warrant.”92F

4.59.
On 20 October 2016, Mr Haywood was told by a representative of Greensill that

its shareholders had consented to the issue of an equity warrant to GIML and that

Greensill was accordingly authorised to issue the equity warrant to GIML in

exchange for the USD 15 million exercise fee at any time before 31 March 2018.

This offer was not included in the Commitment Letter, but a separate document

confirming this consent was attached to the ‘Laufer – closing’ email.93F

4.60.
The option to purchase the equity warrant appeared to be of benefit to GAM itself.

The fixed income funds managed by GIML and which invested into Laufer 1 would

not have benefited from the ability to make an equity investment. In the event

that the option to purchase the equity warrant formed part of or was a condition

of the investment by GIML fixed income funds in the Laufer 1 notes, it would have

created a conflict of interest between GIML and its clients94F as it led to the risk that

GIML may have been incentivised to invest client funds in the Laufer 1 Notes in

order to serve its own interests as opposed to that of its investing clients.

4.61.
The option to purchase the equity warrant was not referred to in the Commitment

Letter,95F however both the draft term sheet (referenced at paragraph 4.58 above)

and a shareholder consent document did link the equity warrant to Laufer 1.96F The

lack of clarity in the documentation about whether the equity warrant formed a

part of or was a condition of the Laufer 1 investment created a conflict of interest.

No payment was ever made to purchase the equity warrant.

First and Last Look Provision

4.62.
The draft term sheet for Laufer 1, dated 14 October 2016, made reference to a

first and last look arrangement, giving GAM the right to match any other proposal

to launch another SCF fund (of a type similar to the “Vodafund”). It stated as

“For so long as any Note remains outstanding GAM shall have the right to first

look and propose and last look to match (both in terms of economics and other

benefits) any proposal (i) to establish a third party fund of the nature of

“Vodafund”; and (ii) to make a primary equity investment in the Company where

the amount sought to be raised is $50MM or more.”97F

4.63.
In the event that the first and last look provision formed part of or was a condition

of the investment by GIML-managed funds in the Laufer 1 notes, it would have

created a conflict of interest between GIML and its clients. This provision was for

the benefit of GIML as opposed to its clients and may have encouraged GIML to

invest client funds in the Laufer notes to further GIML’s interests as opposed to

that of its clients.

4.64.
The first and last look provision was not reflected in the Commitment Letter or

the ‘Laufer closing’ email on 20 October 2016. However:

4.64.1. It was referred to in the previous draft Laufer term sheet.

4.64.2. The lack of clarity in the documentation about whether the first and last

look provision formed a part of or was a condition of the Laufer 1

investment had created a potential conflict of interest.

Awareness of Conflicts of Interest in the Laufer Transaction

4.65.
The fact of the Laufer transaction and details pertaining to the date and amounts

of the investment were recorded in GAM’s order management system.98F This did

not result in GIML engaging the conflicts of interest framework to address any

conflicts of interest arising from the investment. Mr Haywood presented a copy of

Fee Ramp Letter 2 to his line manager on 27 October 2016, which was after the

transaction had taken place. Fee Ramp Letter 2, which did not make any reference

to the investment in Laufer 1, was subsequently provided to GAM’s legal

4.65.1. did not clearly and explicitly raise any of the conflict of interest issues

with his line manager;10F

4.65.2. did not make any record of the conflicts of interest issues and how he

had dealt with them;101F and

4.65.3. proceeded with the investment of client funds in Laufer 1 without first

checking or ensuring that the COI Officer and/or COI Committee had

considered the conflict of interest issues and were content for the

investment to proceed.102F

4.66.
Mr Haywood was the Investment Director and a designated co-investment

manager responsible for the decision to invest GIML client funds into Laufer 1,

while also being the key individual at GIML managing the day-to-day relationships

with Greensill. Therefore, it was especially incumbent upon Mr Haywood to take

all reasonable steps to ensure that GIML complied with the COI Policies and its

regulatory requirements in respect of fairly managing conflicts of interest.

Class C of the SCF Fund

4.67.
The SCF Fund was a co-branded fund launched by GAM and Greensill in June

4.68.
At the time of the launch of the SCF Fund, in June 2016, it consisted of two share

classes, the A class and the B class.104F The A class consisted of voting shares and

was entirely owned by Greensill.105F The B class consisted of non-voting shares106F and

was for ordinary investors in the fund. Within the B class, there were separate

currency-based subclasses (known as “sleeves”) for EUR, USD, AUD and £.107F

4.69.
Mr Haywood was instrumental in the setting up of the SCF Fund and its

subsequent operation. He was a designated co-portfolio manager for the SCF

Fund,108F was the principal point of contact for Greensill at GIML during the

Investments Relevant Period and was listed in promotional documentation for the

SCF Fund as a member of key personnel for the fund.109F

4.70.
On 11 July 2017, a further class of the SCF Fund, the C class, was formally

launched.10F. In the period between the initial launch of the SCF Fund in June 2016

and the launch of the C class, Mr Haywood undertook investments in six different

Greensill originated assets on behalf of GIML-managed funds.1F At the time of the

launch of the C class of the SCF Fund, GIML had a close business relationship with

Greensill to the extent that GIML’s net investment in Greensill originated assets

was approximately £758.1 million.12F

4.71.
The C class was created in part to enable an overseas company, Company B, to

invest in the SCF Fund. Company B stipulated, as a condition of their participation

in the SCF fund, that they would only invest in their own receivables as they did

not wish to be exposed to third party credit risk. In order to accommodate this,

the C class was designed to invest exclusively in notes backed by Company B’s

receivables (“Company B’s Receivables”), subject to each of these receivables

being insured, with Company B as the end investor.13F

4.72.
The C class consisted of a single sleeve of USD denominated non-voting shares.14F

It was initially populated through the use of cross trades, which were defined

within GAM policy documentation as inter-fund transfers.15F

4.73.
Between July 2017 and November 2017, the C class of the SCF Fund acquired

approximately USD 1.2 billion of Company B’s Receivables.16F Approximately half of

these receivables were procured for the C class through cross trades involving

GIML-managed funds and the B class of the SCF Fund. More specifically, between

12 July and 31 August 2017, approximately USD 552 million of Company B’s

Receivables were initially purchased by a combination of the £ and USD sleeves

of the B class of the SCF Fund, the GAM Greensill Supply Chain Finance Plus Fund,

and the GAM Absolute Return Bond Master Fund.17F The C class purchased Company

B’s Receivables from these initial purchasers, typically one or two days later (“B

Cross Trades”).18F

4.74.
Mr Haywood, another member of the ARLO Team and members of the operations

and product approval teams were aware of and involved in the B Cross Trades,

with Mr Haywood overseeing one of the first sets of B Cross Trades.19F

4.75.
Cross Trading was identified within the COI Policies as a category of activity which

could lead to a conflict of interest.120F

4.76.
During the Investments Relevant Period, GAM had a cross trade policy (the “Cross

Trade Policy”) in operation. It set out a number of conditions for the use of cross

trades. These conditions were directed at ensuring that the interests of the

purchasing and selling funds were both served, thus avoiding conflicts of interest.

The Cross Trade Policy stated that “Inter-fund transfers should only be used where

no fund would be disadvantaged, the trade is in the best interests of all funds

concerned and consistent with best execution and the investment policies of each

respective fund”.121F Further, in relation to Fixed Income Funds, the Cross Trade

Policy stated that “the rationale for the trade should be recorded in [GAM’s order

management system] and the reason tag should be completed to identify

‘crossing securities between customers’”.12F Additionally, the Cross Trade Policy

stated that it was the fund manager’s responsibility to ensure compliance with the

Cross Trade Policy.123F

4.77.
The C class operated for the benefit of Company B through, at times, the usage

of funds managed on behalf of other GIML clients as the initial purchasers. Whilst

this was done with the intention that the initial purchasers would receive a

financial return, it presented a potential conflict for GIML between the interests of

one of its clients, Company B, and its other clients who invested in GIML-managed

funds which were used to make the initial purchases of Company B’s Receivables.

4.78.
In the circumstances of this arrangement, greater consideration should have been

given as to whether this created a potential conflict of interest. The Authority

considers that the potential conflict between the interests of one of GIML’s clients,

Company B, and other GIML clients should have been escalated. Mr Haywood did

not escalate the matter to his line manager or the COI Officer (as required by the

COI Policies) or to the COI Committee, the GIML Board of Directors or Compliance.127F

4.79.
In addition to the above, Mr Haywood failed to verify that all of the B Cross Trades

4.79.1. correctly tagged as cross trades on GAM’s order management system and

that an adequate rationale for the B Cross Trades was recorded on this

system. These steps would assist in the identification and consideration

of conflicts of interest; and126F

4.79.2. in compliance with the Cross Trade Policy and delivered a financial benefit

to the initial purchaser.125F

4.80.
Given his role as co-portfolio manager for the SCF Fund, Mr Haywood was

responsible for identifying any conflicts of interest arising from the operation of

the C class of the SCF Fund and ensuring compliance with the Cross Trade Policy.124F

4.81.
In total, there were 24 trades in which GIML-managed funds operated as the initial

purchaser of Company B’s Receivables before they were sold to the C class of the

SCF Fund. Loss was suffered in relation to 19 of those trades, most of which

concerned instances in which the B class of the SCF Fund was the initial purchaser.128F

No GIML-managed fund which operated as the initial purchaser profited from

these trades.129F This is because there was a failure to apply the correct price in the

cross trades: the prices used were stale prices, being ones from earlier trading

days. The result of this was that the initial purchasing funds did not receive a

benefit for holding Company B’s Receivables. Mr Haywood failed to check that the

prices achieved in these trades had indeed been the ones that should have been

used.

4.82.
The cumulative loss suffered by GIML-managed funds which operated as the

primary purchaser in the B Cross Trades totalled USD 26,181, reflecting the

interest accrued on the notes and associated hedging costs during the period for

which they were held.130F Subsequently, these GIML-managed funds were

compensated in full by GIML for the losses incurred.131F

Gifts and Entertainment132F

4.83.
On 8 January 2018, Mr Haywood submitted his annual employee compliance

certification for the year ending 31 December 2017. In it, he confirmed that he

had read and understood the GE Policy and that during 2017 he had declared (on

GAM’s regulatory compliance software platform and in accordance with applicable

company policies) all relevant gifts and entertainment given and received during

the course of his employment.13F Further, he confirmed that at all times during 2017

he had acted in full compliance with company policies and procedures, including

the requirements in respect of gift and entertainment.134F

4.84.
These attestations were inaccurate. After a GIML internal investigation was

opened, Mr Haywood disclosed, in a letter dated 26 February 2018 (“GE Letter”),

seven instances of the receipt of previously undeclared entertainment totalling

£22,437.14 in the period 29 March 2017 to 21 November 2017.135F Six of the seven

instances of undeclared entertainment totalled approximately £22,322.60 and

were attributable to entertainment either received from Greensill or in connection

with visits to investments in Greensill originated assets.136F Three of the instances

related to flights taken in connection with Mr Haywood’s duties as an investment

manager including visits to assets which the funds he managed held. His

previously undeclared entertainment received included:138F

4.84.1. The use of a Greensill employee’s private plane for a personal trip,

involving a return flight to Sardinia, valued at £15,000 (“Sardinia Flight”).139F

4.84.2. The use of a Greensill employee and associate’s private aircraft for

business trips to various destinations relating to investments in Greensill

originated assets.

4.84.3. Attendance at a charity dinner at Buckingham Palace on the invitation of

an employee at Greensill.

4.85.
The receipt of the previously undisclosed entertainment was in breach of the GE

Policy and COI Policy 2 in the following respects:

4.85.1. These policies required that employees seek prior approval from both

their line manager and Compliance for the receipt of entertainment

valued over £100.140F Mr Haywood failed to do this in respect of seven

instances of entertainment received in 2017, six of which related to

entertainment from Greensill or in connection with investments in

Greensill originated assets.141F

4.85.2. The GE Policy stated that no contribution should be made by the donor

of entertainment to air travel or overnight expenses.14F However, Mr

Haywood received entertainment in the form of the Sardinia Flight.

4.85.3. The GE Policy required all gifts and entertainment received to be recorded

on GAM’s regulatory compliance software platform.145F Mr Haywood did not

do this in a timely fashion, with the entries recorded subsequent to the

GE Letter and after his (incorrect) affirmation in his annual compliance

certification that he had declared all gifts and entertainment received.

4.86.
Mr Haywood was the subject of GIML disciplinary proceedings on account of his

failure to follow the pre-approval process for the entertainment disclosed in the

GE Letter.146F Mr Haywood accepted that he had failed to follow the GE Policy147F and

received a written warning.148F The correct disclosure and approval – or refusal – of

gifts and entertainment is extremely important because gifts and entertainment

have the potential to create conflicts of interest and influence decisions such as

investment decisions. While the Authority has not found that investment decisions

were made in this case because of the gifts and entertainment, the risk of

influence and conflict is one that remains.

5.
FAILINGS

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

5.2.
As described in further detail below, the Authority considers that Mr Haywood

breached Statement of Principle 7 and Statement of Principle 2.

Statement of Principle 7

5.3.
Statement of Principle 7 requires an approved person, when performing an

accountable higher management function, to take reasonable steps to ensure that

the business of the firm for which they are responsible, in their accountable

function, complies with the relevant requirements and standards of the regulatory

system.

5.4.
In breach of Statement of Principle 7, Mr Haywood failed to take reasonable steps

to ensure that GIML complied with the relevant regulatory rules requiring that

conflicts of interest were managed fairly in respect of the Laufer 1 investment and

the SCF Fund.

Laufer 1 investment

5.5.
GIML’s investment of client funds to finance an entity, Laufer, owned by a business

partner, Greensill, presented a conflict between the interests of GIML and its

clients. This presented an incentive for GIML to finance its business partner

Greensill, through investing client funds in Laufer, for its own benefit as opposed

to its clients.

5.6.
In addition, documentation received from Greensill and produced at the time of

the Laufer 1 investment contained three potential incentives to GIML in connection

with the GAM and Greensill business relationship. None of them were ultimately

taken up by GIML, but they raised conflict of interest issues between GIML and its

clients. These potential incentives were: a ‘fee ramp’ (guaranteeing the amounts

GIML would earn from its management of specific supply chain finance funds); an

‘equity warrant’ over Greensill shares; and a ‘first and last look’ arrangement

(which allowed GIML the first opportunity to launch further Greensill funds).

5.7.
Mr Haywood failed to take reasonable steps to ensure that GIML fairly managed

the conflicts of interest issues as, in respect of each, he:

5.7.1.
failed to make a written record of the conflict of interest issue or how he

had dealt with it;

5.7.2.
failed to escalate the conflict of interest issue specifically and explicitly to

his line manager or the COI Officer; and

5.7.3.
invested client monies in GIML-managed funds into the Laufer 1

investment without first checking or ensuring that the conflict of interest

issues had been properly addressed.

5.8.
Further, Mr Haywood failed to identify or object to the fee ramp arrangement

before the Laufer 1 investment was made. He objected to the terms of the letter

shortly after the completion of the Laufer 1 transaction on the grounds that he

considered it incorrect and Greensill reissued the letter to remove reference to

the Laufer 1 investment.

5.9.
Given he was the head of the ARLO Team, a co-investment manager and managed

the ongoing day-to-day relationship between GIML and Greensill and given the

issues referred to above, Mr Haywood should have documented the due diligence

he carried out and prepared a recorded credit analysis of Laufer, Greensill and the

Greensill Group. Mr Haywood did not do this.

5.10.
In the circumstances, it was especially incumbent upon Mr Haywood to take all

reasonable steps to ensure that GIML complied with the COI Policies and its

regulatory requirements in respect of fairly managing conflicts of interest and that

it documented and recorded how it had addressed any conflict of interest issues

to comply with its COI Policies. As described above, Mr Haywood failed to do so.

5.11.
The C class of the SCF Fund was created for the benefit of Company B. GIML-

managed funds acted as the initial purchasers of Company B’s Receivables with

the intention that they would receive a financial return. The proceeds of these

transactions were used to subscribe to C class shares. The C class then purchased

the securities from the initial purchasers. This presented a potential conflict for

GIML between the interests of one of its clients, Company B, and its other clients.

5.12.
In the circumstances of this arrangement, greater consideration should have been

given as to whether this matter should have been escalated as prescribed in the

Conflicts of Interest policy. The Authority considers that the matter should have

been escalated. Mr Haywood did not escalate the matter to his line manager or

the COI Officer (as required by the COI Policies) or to the COI Committee, the

GIML Board of Directors or Compliance. Mr Haywood failed in respect of the

conflicts of interest issues arising out of the Laufer 1 investment and SCF Fund as

described above, despite his seniority and the fact that as a GIML Board member

he was responsible for setting an appropriate tone to GIML staff.

5.13.
In addition, Mr Haywood failed to verify that all of the B Cross Trades were:

5.13.1. in compliance with the Cross Trade Policy and delivered a financial benefit

to the initial purchaser; and

5.13.2. correctly tagged on GAM’s order management system and that an

adequate rationale for the B Cross Trades was recorded on this system.

5.14.
As a result, loss was suffered in 19 trades. The cumulative loss was USD 26,181

reflecting the interest accrued on the notes and associated hedging costs during

the period for which they were held. GIML compensated the relevant funds in full

for the loss incurred.

5.15.
Statement of Principle 2 requires an approved person to act with due skill, care

and diligence in carrying out his accountable functions.

5.16.
In breach of Statement of Principle 2, Mr Haywood:

5.16.1. failed to obtain prior approval for travelling on a Greensill employee or

associate’s private aircraft for business trips to various destinations

relating to investments in Greensill originated assets;

5.16.2. failed to obtain prior approval for attendance at three dinners;

5.16.3. travelled on a Greensill employee’s aircraft for a personal trip to Sardinia,

valued at £15,000. The GE Policy stated that no contribution should made

by the donor of entertainment to air travel or overnight expenses; and

5.16.4. failed to record the above items in a timely fashion on GAM’s regulatory

compliance software platform. These items had a total value of £22,437.

5.17.
The entertainment received from Greensill or in connection with investments in

Greensill originated assets was received at a time when GIML-managed funds

were making investments in Greensill originated assets. As such, there was a risk

that Mr Haywood may have been incentivised to invest GIML-managed funds in

Greensill originated assets for personal interest rather than necessarily act in the

best interests of GIML’s clients. The correct disclosure and approval – or refusal

– of gifts and entertainment is extremely important because gifts and

entertainment have the potential to create conflicts of interest and influence

decisions such as investment decisions. While the Authority has not found that

investment decisions were made in this case because of the gifts and

entertainment, the risk of influence and conflict is one that remains.

5.18.
Given his seniority and role it was especially incumbent upon Mr Haywood to act

with due skill, care and diligence by ensuring that he acted in accordance with the

GE Policy. Mr Haywood failed to do so.

6.
SANCTION

6.1.
The Authority’s policy for imposing financial penalties is set out in Chapter 6 of

the Authority’s Decision Procedure & Penalties Manual (“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.

Step 1: disgorgement

6.2.
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.

6.3.
The seven instances of gifts and entertainment that Mr Haywood received, in

breach of Statement of Principle 2, have a total value of £22,437.14.

6.4.
The Step 1 figure is therefore £22,437.

Step 2: the seriousness of the breach

6.5.
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 from the employment in connection with which the breach

occurred and for the period of the breach.

6.6.
The period of Mr Haywood’s breaches of Statement of Principles 2 and 7 is 20

October 2016 to 8 January 2018. During the Relevant Periods, Mr Haywood’s

relevant income was £1,483,037.149F

6.7.
In deciding on the percentage of the revenue 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 there are the

following five levels:

Level 1 – 0%

Level 2 – 10%

Level 3 – 20%

Level 4 – 30%

Level 5 – 40%

30

6.8.
In assessing the seriousness level, the Authority takes into account the factors

identified in DEPP 6.5B.2G. Of these, the Authority considers the following to be

relevant:

6.8.1.
The importance of effective management of conflicts of interest to the fair

treatment of the clients of asset managers.

6.8.2.
The breaches were carried out on a number of occasions across the

Relevant Periods.

6.8.3.
Mr Haywood was an experienced industry professional and held a senior

position at GIML, as a Board director, head of a business unit and a

designated fund manager.

6.8.4.
The breaches were committed negligently, and the Authority has not

found that they were committed recklessly, intentionally or with the

intention of personal gain.

6.9.
Taking all these factors into account, the Authority considers the seriousness of

the breach to be level 3 (20%).

6.10.
The Step 2 figure is therefore £296,607.

Step 3: mitigating and aggravating factors

6.11.
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 to be disgorged as set out in Step 1, to take into account factors which

aggravate or mitigate the breach.

6.12.
The Authority has not identified any such factors. The Step 2 figure is therefore

£296,607.

Step 4: adjustment for deterrence

6.13.
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.

6.14.
The Authority considers that the Step 3 figure of £296,607 represents a sufficient

deterrent to Mr Haywood and others and so has not increased the Step 3 figure.

6.15.
The Step 4 figure is therefore £296,607.

Step 5: settlement discount

6.16.
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. The settlement discount does not apply to the

disgorgement of any benefit calculated at Step 1.

6.17.
The Authority and Mr Haywood reached agreement at Stage 1 and so a 30%

discount applies to the Step 4 figure. The Step 5 figure is therefore £207,600.

6.18.
The Authority therefore imposes on Mr Haywood a penalty of £230,037,

comprising disgorgement of £22,437 and a penal element of £207,600.

7.
PROCEDURAL MATTERS

7.1.
This Notice is given to Mr Haywood under section 206, and in accordance with,

section 390 of the Act.

7.2.
The following statutory rights are important.

Decision Maker

7.3.
The decision which gave rise to the obligation to give this Notice was made by the

Settlement Decision Makers.

Manner and time for payment

7.4.
The financial penalty must be paid in full by Mr Haywood to the Authority no later

than 12 April 2022.

If the financial penalty is not paid

7.5.
If all or any of the financial penalty is outstanding on 13 April 2022, the Authority

may recover the outstanding amount as a debt owed by Haywood and due to the

Authority.

7.6.
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.

7.7.
The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

Authority contacts

7.8.
For more information concerning this matter generally, contact Stephen Robinson

at the Authority (direct line: 020 7066 1338/email: Stephen.Robinson@fca.org.uk).

Enforcement and Market Oversight Division, Financial Conduct

ANNEX A

RELEVANT STATUTORY AND REGULATORY PROVISIONS

1.
STATUTORY PROVISIONS

Section 66 of the Act

1.1.
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.

Misconduct includes failure, while an approved person, to comply with a statement

of principle issued under section 64 of the Act. The action that may be taken by

the Authority pursuant to section 66 of the Act includes the imposition of a penalty

on the approved person of such amount as it considers appropriate

Section 1B(1) of the Act

1.2.
Section 1B(1) of the Act provides that in discharging its general functions, the

Authority must, so far as it is reasonably possible, act in a way which is compatible

with its strategic objective and advances one or more of its operational objectives.

The Authority’s strategic objective is to ensure that the relevant markets function

well (Section 1B(2) of the Act) and its operational objectives include securing an

appropriate degree of protection for consumers. (Section 1C of the Act).

2.
REGULATORY PROVISIONS

2.1.
In exercising its power to issue a financial penalty, the Authority must have regard

to guidance published in the Handbook of rules and guidance (“Handbook”) and

in the regulatory guides such as the Enforcement Guide (“EG”). The relevant main

considerations in relation to the action specified above are set out below.

2.2.
The Statement of Principles are a general statement of the fundamental

obligations of approved persons under the regulatory system and are set out in

the Handbook. They derive their authority from the Act’s rule-making powers and

reflect the Authority’s regulatory objectives.

2.3.
Statement of Principle 2 provides that “An approved person must act with due

skill, care and diligence in carrying out his accountable functions”.

2.4.
Statement of Principle 7 provides that “An approved person performing

an accountable higher management function must take reasonable steps to

ensure that the business of the APER employer for which they are responsible in

their accountable function complies with the relevant requirements and standards

of the regulatory system”.

The Decision, Procedure and Penalties Manual (“DEPP”)

2.5.
Chapter 6 of DEPP sets out the Authority’s statement of policy with respect to the

imposition and amount of financial penalties under the Act and can be accessed

The Enforcement Guide

2.6.
The Authority’s approach to financial penalties is set out in Chapter 7 of EG and

can be accessed here: