FINAL NOTICE

To:
Wheatcroft Fox & Company

Of:
Newhall House
204-206 Newhall Street
Birmingham
West Midlands
B3 1SH

FRN:
172764

Date:
29 June 2011


TAKE NOTICE: The Financial Services Authority of 25 The North Colonnade, Canary

Wharf, London E14 5HS (“the FSA”) gives Wheatcroft Fox & Company final notice

about the issue of a public censure

1.
THE ACTION

1.1.
The FSA gave Wheatcroft Fox & Company (“Wheatcroft Fox”) a Decision Notice on

29 June 2011 which notified it that, for the reasons listed below and pursuant to

section 205 of the Financial Services and Markets Act 2000 (“the Act”), the FSA has

decided to issue a public censure of Wheatcroft Fox. This public censure is for failing

to comply with Principles 3 and 9 of the FSA’s Principles for Businesses (“the

Principles”), between 1 June 2004 and 30 May 2009 (“the relevant period”) and

Principle 11 from 31 August 2010.

1.2.
Were it not for the financial position of the partners of Wheatcroft Fox, the FSA

would have imposed a financial penalty of £45,000 in respect of the breaches

identified.

1.3.
Wheatcroft Fox has agreed that it will not be referring the matter to the Upper

Tribunal (Tax and Chancery Chamber).

1.4.
Accordingly, for the reasons set out below, the FSA issues this public statement of

Wheatcroft Fox’s misconduct.

2.
REASONS FOR THE ACTION

2.1.
On the basis of the facts and matters described below, the FSA issues a public censure

of Wheatcroft Fox in respect of breaches of Principles 3, 9 and 11. These breaches

relate to failings in the adequacy of Wheatcroft Fox’s systems and controls and failing

to ensure that it demonstrated the suitability of its advice. They also relate to its

failure to deal openly and co-operatively with the FSA.

2.2.
In summary, Wheatcroft Fox failed to:

(1)
record sufficient information about its customers’ personal and financial

circumstances for assessing the suitability of its recommendations, in

contravention of Principle 9;

(2)
demonstrate that it had conducted adequate research into alternative products

and providers, in contravention of Principle 9;

(3)
issue suitability reports, which contained sufficient detail to enable customers

to make an informed decision, in contravention of Principle 9;

(4)
demonstrate that it had taken reasonable care to ensure the suitability of its

advice to customers, in contravention of Principle 9;

(5)
ensure that its systems and controls were adequate to demonstrate and monitor

the suitability of the advice it gave to customers and ensure compliance with

regulatory requirements and standards, in contravention of Principle 3; and

(6)
comply adequately or at all with the requirement notice imposed by the FSA

under section 166 of the Act, in contravention of Principle 11.

3

2.3.
The FSA regards these failings as serious because:

(1)
a number of these failings related to pension products, which the FSA has

publicised as being a high risk product;

(2)
in 2006, Wheatcroft Fox’s external compliance consultant first identified

failings in the sales and advice processes and brought these to the firm’s

attention. Despite this, and the fact that the external compliance consultant

raised similar concerns in subsequent years, there is little evidence that

Wheatcroft Fox made substantive changes to its procedures as a result;

(3)
Wheatcroft Fox could not demonstrate the suitability of its recommendations;

(4)
Wheatcroft Fox could not demonstrate that it provided its customers with

adequate information to ensure that they were in a position to make an

informed decision; and

(5)
Wheatcroft Fox has failed to address adequately the potential consumer

detriment that may arise from its inability to demonstrate the suitability of its

advice and its failure to comply with the requirement notice imposed by the

FSA under section 166 of the Act.

2.4.
As a result of the failings described at paragraph 2.2(1) to 2.2(5) above, Wheatcroft

Fox exposed customers to the risk of receiving unsuitable advice.

2.5.
The FSA has taken into account the fact that, although the customer files did not

include sufficient “know your customer” (“KYC”) information, Wheatcroft Fox was

able to demonstrate knowledge of its customers’ personal and financial

circumstances, which the FSA regards as a mitigating factor.

2.6.
Subject to paragraph 1.2 above, were it not for the breach of Principle 11, which the

FSA considers to be an aggravating factor in this case and sufficiently serious to

warrant an increase in the financial penalty, the FSA would have imposed on

Wheatcroft Fox a financial penalty of £30,000.

3.
RELEVANT STATUTORY AND REGULATORY PROVISIONS

3.1.
The relevant statutory provisions and regulatory requirements are set out at Annex A

to this Final Notice.

4.
FACTS AND MATTERS RELIED ON

4.1.
Wheatcroft Fox is a small independent financial adviser based in Birmingham. Until

31 March 2010, the majority of its business comprised the provision of investment

advice, but it also conducted some insurance intermediary business. Wheatcroft Fox

has been authorised since 1 December 2001 and, until 31 March 2010, was permitted

by the FSA to carry on the following regulated activities:

(1)
advising on pension transfers and pension opt outs;

(2)
advising on investments (except on pension transfers and pension opt outs);

(3)
agreeing to carry on a regulated activity;

(4)
arranging (bringing about) deals in investments;

(5)
assisting in the administration and performance of a contract of insurance; and

(6)
making arrangements with a view to transactions in investments.

4.2.
Wheatcroft Fox has two partners who are its sole customer advisers.

4.3.
The FSA carried out a Treating Customers Fairly (“TCF”) assessment of Wheatcroft

Fox, as part of the FSA’s assessment programme for small firms in October 2008 and

identified concerns regarding the adequacy of Wheatcroft Fox’s systems and controls

and its ability to demonstrate that it was treating its customers fairly. The FSA

conducted a TCF follow up visit in November 2008 in the course of which Wheatcroft

Fox’s partners were interviewed and a sample of customer files were reviewed.

4.4.
Following the TCF assessment and follow up visit, the FSA conducted an

investigation into Wheatcroft Fox to review its compliance with relevant regulatory

requirements and standards in connection with its business during the relevant period.

4.5.
As a result of this investigation, the FSA identified deficiencies in Wheatcroft Fox’s

systems and controls and advice and sales processes, including a number of failings in

relation to the recording of KYC information, suitability of advice and

communications with its clients.

Failure to demonstrate suitability of advice

4.6.
As part of its investigation, the FSA reviewed 32 of Wheatcroft Fox’s investment

sales, including investment bonds and personal pension plans. Of these sales, 6

recommendations were made after the FSA’s visit in November 2008. The FSA

identified that Wheatcroft Fox had significant failings in its advice and sales

processes which led to customers being put at risk of receiving unsuitable advice.

Wheatcroft Fox was unable to demonstrate that it had taken reasonable care to ensure

the suitability of its advice. Specifically, Wheatcroft Fox failed to:

(1)
demonstrate that it had obtained and recorded sufficient personal and financial

information
about
its
customers
to
assess
the
suitability
of
its

recommendations to enter into investment contracts. In 30 of the 32 sales

reviewed by the FSA there was insufficient information held on the customer

file (such as limited KYC information), or incomplete or non-existent fact

finds, to justify the recommendations made. In particular;

(a)
there was no fact find on the customer files in five sales;

(b)
in 17 out of 32 sales reviewed, the customer files only contained

historic and/or limited or incomplete fact finds or blank fact finds,

which were signed by the customer; and

(c)
in 6 out of 32 sales reviewed, there were specific issues relating to the

timing of the completion of the fact find on the customer files. For

example, in one sale Wheatcroft Fox gathered information about the

customer’s personal and financial circumstances, and obtained the

customer’s signature on the customer agreement, after the application

form for the investment had been completed and the suitability letter,

including the recommendation, had been issued; and

(d)
in 21 out of 32 sales reviewed, the customer file did not clearly and

fully identify the customers’ investment objectives, either because there

was no fact find on the file relevant to the transaction reviewed or

because the objectives detailed on the fact find were inadequate and not

sufficiently tailored to the individual customer.

(2)
demonstrate that it had adequately assessed and described the customer’s

attitude to risk. In 16 of the 32 sales reviewed, the fact find did not include an

assessment of the customers’ attitude to risk. In 22 of the sales, there was no

description of the rating or examples of the type of product falling within each

category;

(3)
demonstrate that it had undertaken adequate or independent product research

to support its recommendations. In 16 of the 32 sales reviewed there was no

evidence of research into alternative products or providers;

(4)
communicate with clients in a way that was clear, fair and not misleading. In

17 of the 32 sales reviewed, Wheatcroft Fox issued suitability reports which

contained insufficient detail to enable customers to make an informed

decision. For example, they were not individually tailored to the particular

customer, nor did they adequately explain why, having regard to the

customer’s personal and financial circumstances, Wheatcroft Fox had

concluded that the recommended investment was suitable for that customer.

In addition, suitability reports did not include appropriate risk warnings in 18

of the 32 sales reviewed;

(5)
demonstrate that it had provided adequate information relating to alternative

products or providers to customers. In 26 of the 32 sales reviewed, the

suitability reports for customers either did not include, or contained limited

information about, alternative products and providers and the reason for

discounting them; and

(6)
demonstrate that it had explained the main consequences, including costs,

charges and risks, associated with its recommendations. In 18 of the 32 sales

reviewed, the suitability reports did not contain sufficient detail of the costs

and charges associated with the advice.

4.7.
By failing to record sufficient and accurate information about its customers and the

product research conducted, and by providing inadequate suitability reports,

Wheatcroft Fox could not demonstrate that its recommendations were made on the

basis of an adequate assessment of customers’ needs and circumstances. Wheatcroft

Fox has therefore failed to take reasonable care to ensure the suitability of its advice,

in breach of Principle 9.

Systems and controls

4.8.
Wheatcroft Fox did not have adequate and appropriate systems and controls,

compliance arrangements and risk management systems over its business to ensure it

complied with regulatory requirements and standards. Specifically, Wheatcroft Fox;

7

(1)
had significant failings in its advice and sales processes which led to

customers being put at risk of receiving unsuitable advice; and

(2)
failed to implement an adequate process for monitoring the quality and

suitability of its advice.

4.9.
The FSA reviewed 32 investment sales relating to 22 customers and identified

significant failings in the advice and sales process, as detailed in paragraphs 4.6 and

4.7 above. Wheatcroft Fox failed to;

(1)
demonstrate that it had obtained and retained sufficient personal and financial

information to demonstrate the suitability of its recommendations;

(2)
demonstrate that it had conducted an adequate assessment of customers’

attitude to risk;

(3)
demonstrate that it had conducted research into alternative products or

providers;

(4)
demonstrate that it had explained the main consequences, including costs,

charges and risks, associated with its recommendations; and

(5)
issue suitability reports containing adequate information about alternative

products and providers and the reason for discounting them and sufficient

detail to enable customers to make an informed decision.

4.10. Wheatcroft Fox’s TCF action plans for the period between July 2006 and June 2009

identified that, although its advisers gathered information about customers’ personal

and financial circumstances, this was not always evidenced on the customer files.

Wheatcroft Fox’s annual compliance review for the period from August 2007 to July

2008, completed by its external compliance consultant, identified that customer files

did not always contain an up-to-date fact find and emphasised the importance of

Wheatcroft Fox being able to demonstrate that it had gathered and retained sufficient

KYC information. There was no evidence to demonstrate that Wheatcroft Fox took

any steps to address this issue after it was brought to its attention.

4.11. Wheatcroft Fox failed to implement an adequate process for monitoring the quality

and suitability of advice. In all 32 sales reviewed, there was no evidence that advice

had been reviewed or monitored by Wheatcroft Fox. The compliance plans for the

period from January 2006 to December 2009 stated that an external compliance

consultant would check a 10% sample of customer files and that Wheatcroft Fox’s

own compliance officer would also conduct a sample file check. However, there was

no evidence on the files to demonstrate that Wheatcroft Fox had conducted its own

internal checks on the quality and suitability of its advice and had instead relied

heavily on its external compliance consultant in this respect.

4.12. By failing to take reasonable steps to establish and implement effective compliance

procedures and sales processes over its business, Wheatcroft Fox failed to control its

business with adequate and appropriate systems and controls, compliance

arrangements and risk management systems, in breach of Principle 3.

Failure to co-operate

4.13. On 30 March 2010, the FSA advised Wheatcroft Fox that, in accordance with section

166 of the Act, it would be issuing a notice requiring Wheatcroft Fox to appoint a

skilled person to conduct a review of its past business (“the section 166 requirement

notice”). The FSA also invited Wheatcroft Fox voluntarily to vary its Part IV

permission to cease to accept all new regulated business and retain sufficient funds to

meet the costs of the section 166 requirement notice and any redress payable to

consumers.

4.14. On 31 March 2010, Wheatcroft Fox applied to the FSA voluntarily to vary its Part IV

permission to the effect that:

(1)
it would cease to accept all new regulated business for which it had Part IV

permission with immediate effect; and

(2)
it would retain sufficient funds (to be reviewed on an ongoing basis but

initially not less than £50,000) to meet the costs of the section 166 skilled

persons’ report imposed by the FSA to review past regulated sales and any

redress payable to clients identified by the skilled person as ones which may

have suffered loss.

4.15. On 31 March 2010, the FSA sent Wheatcroft Fox a draft section 166 requirement

notice setting out the terms of the review of past regulated sales and asked for

comments in respect of the proposed timescales for carrying out the required review,

together with the names of three nominees to be considered for the appointment as

skilled person to conduct the review of past regulated sales. Despite repeated

requests, Wheatcroft Fox did not provide this information or comments on the

proposed timescales.

4.16. Wheatcroft Fox’s application voluntarily to vary its Part IV permission was accepted

by the FSA with effect from 31 March 2010, on terms broadly the same as those set

out in paragraph 4.14 above.

4.17. In the absence of Wheatcroft Fox providing the information requested by the FSA in

relation to the draft section 166 requirement notice, the FSA formally imposed the

section 166 requirement notice on Wheatcroft Fox on 31 August 2010. Despite the

imposition of the section 166 requirement notice, Wheatcroft Fox failed to provide the

information requested by the FSA and stated that it did not have the funds available to

meet the cost of a past business review under the section 166 requirement notice.

4.18. By failing to comply with the section 166 requirement notice Wheatcroft Fox failed to

deal with its regulator in an open and cooperative way, and disclose to the FSA

appropriately anything relating to it of which the FSA would reasonably expect

notice, in breach of Principle 11.

5.
ANALYSIS OF THE BREACHES

5.1.
By reason of the facts and matters referred to in paragraphs 4.6(1) to 4.6(6) above, the

FSA considers that Wheatcroft Fox failed to take reasonable care to ensure the

suitability of its advice to its customers in breach of Principle 9 and the associated

Conduct of Business rules listed in Annex A. Specifically, Wheatcroft Fox failed to

demonstrate that it obtained and retained sufficient personal and financial information

about its customers and undertook adequate or independent product research.

Wheatcroft Fox also failed to ensure that suitability reports were clear, fair and not

misleading and that they explained the suitability, as well as the main consequences

and risks, of its recommendations.

5.2.
By reason of the facts and matters referred to in paragraphs 4.8 to 4.11 above, the

FSA considers that Wheatcroft Fox failed to take reasonable care to organise and

control its affairs responsibly and effectively, with adequate risk management systems

in breach of Principle 3 and the associated Conduct of Business rules listed in Annex

A. Specifically, Wheatcroft Fox failed to maintain adequate systems, processes and

controls to demonstrate and monitor the suitability of the advice it gave to customers

and ensure compliance with regulatory requirements and standards.

5.3.
By reason of the facts and matters referred to in paragraphs 4.13 to 4.17 above, the

FSA considers that Wheatcroft Fox failed to deal with its regulator in an open and co-

operative way and disclose to the FSA appropriately anything relating to the firm of

which the FSA would reasonably expect notice in breach of Principle 11.

Specifically, Wheatcroft Fox failed to comply with the section 166 requirement notice

imposed on it.

6.
ANALYSIS OF THE SANCTION

6.1.
The FSA's policy in relation to the imposition of a public censure is set out in Chapter

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

FSA Handbook. DEPP sets out the factors that may be of particular relevance in

determining whether it is appropriate to issue a public censure rather than impose a

financial penalty. The criteria are not exhaustive and all relevant circumstances of the

case will be taken into consideration. Relevant extracts from DEPP are set out in

6.2.
In addition, the FSA has had regard to the corresponding provisions of Chapter 13 of

the Enforcement Manual (“ENF”) in force during the relevant period until 27 August

2007 and Chapter 7 of the Enforcement Guide (“EG”), in force thereafter.

6.3.
In determining whether a financial penalty or a public censure is appropriate the FSA

is required to consider all the relevant circumstances of a case.

6.4.
The factors in this case would ordinarily merit the imposition of a financial penalty.

However, the FSA considers that, in accordance with DEPP 6.4.2(8)G, there are

exceptional circumstances under which conduct by a firm which would ordinarily

attract a financial penalty, may be dealt with by way of a public censure. In this case,

there is verifiable evidence that the partners of Wheatcroft Fox have insufficient

resources to pay a financial penalty, such that the application of the FSA’s policy on

serious financial hardship (set out in DEPP 6.5D) would result in the financial penalty

being reduced to zero. Wheatcroft Fox’s breaches are such that the FSA would have

otherwise imposed a financial penalty of £45,000.

6.5.
The principal purpose of a public censure is to promote high standards of regulatory

conduct by deterring firms which have committed breaches from committing further

breaches, and helping to deter other firms from committing similar breaches, as well

as demonstrating generally the benefits of compliant behaviour. A public censure is a

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

6.6.
The FSA considers that a public censure, rather than a financial penalty, is

appropriate.

6.7.
Additionally, DEPP 6.4.2 sets out a list of factors that may be of relevance in

determining whether to issue a public censure or a financial penalty. The factors are

not exhaustive and the FSA will consider all the relevant circumstances of the case.

The FSA considers that the following factors are particularly relevant in this case.

Deterrence (DEPP 6.4.2G(1))

6.8.
In determining whether to publish a statement of Wheatcroft Fox’s misconduct, the

FSA has had regard to the need to ensure those who are authorised persons must act in

accordance with regulatory requirements and standards. The FSA considers that a

public censure should be imposed to demonstrate to Wheatcroft Fox and others the

seriousness with which the FSA regards its behaviour.

The seriousness of the breach in question (DEPP 6.4.2G(3))

6.9.
In determining the appropriate sanction, the FSA has had regard to the seriousness of

the breaches, including the nature of the requirements breached, the duration and

frequency of the breaches, whether the breaches revealed serious failings in

Wheatcroft Fox's systems and controls and the number of customers who were

affected and/or placed at risk of loss.

6.10. Wheatcroft Fox’s failings covered the period from 1 June 2004 to 30 May 2009 and

from 31 August 2010 and are viewed as being serious because Wheatcroft Fox:

(1)
could not demonstrate the suitability of its recommendations;

(2)
could not demonstrate that it provided customers with adequate information in

respect of its recommendations to ensure that they were in a position to make

an informed decision;

(3)
failed to ensure that it had adequate systems and controls to ensure compliance

with regulatory standards and requirements;

(4)
failed to make any substantive changes to its procedures despite being made

aware by its external compliance consultant of failings in the sales and advice

processes at Wheatcroft Fox; and

(5)
failed to address adequately the potential consumer detriment that may arise

from its inability to demonstrate the suitability of its advice and its failure to

comply with the requirement notice imposed by the FSA under section 166 of

the Act.

Conduct following the breach (DEPP 6.4.2G(5))

6.11. While Wheatcroft Fox has taken some steps to rectify its shortcomings, the remedial

action has not been sufficient to address fully the failings that have been identified.

On 31 March 2010, Wheatcroft Fox applied voluntarily to vary its Part IV permission

to the effect that it would cease all new regulated business with immediate effect. By

agreeing to vary Wheatcroft Fox’s Part IV permission, Wheatcroft Fox has allayed the

FSA’s immediate concern that it might pose an ongoing risk to consumers.

Previous action taken by the FSA (DEPP 6.4.2G(7))

6.12. In determining the appropriate sanction, the FSA has taken into account sanctions

imposed by the FSA on other authorised persons for similar behaviour. This was

considered alongside the deterrent purpose for which the FSA imposes sanctions.

The financial impact on the person concerned (DEPP 6.4.2G(8))

6.13. Wheatcroft Fox has breached Principle 3, 9 and 11. The breaches are serious and the

FSA would have imposed a financial penalty of £45,000 on Wheatcroft Fox as a

result. However, the partners in Wheatcroft Fox have provided verifiable evidence

that imposing such a financial penalty would cause them serious financial hardship.

Under these exceptional circumstances, the FSA has decided to publish a statement of

Wheatcroft Fox’s misconduct and censure it publicly instead.

7.
CONCLUSION

7.1
On the basis of the facts and matters described above, the FSA issues a public censure

of Wheatcroft Fox for failing to comply with Principle 3, Principle 9 and Principle 11.

8.
DECISION MAKERS

8.1
The decision which gave rise to the obligation to give this notice was made on behalf

of the FSA by the Settlement Decision Makers.

9.
IMPORTANT

9.1.
This Final Notice is given to Wheatcroft Fox in accordance with section 390 of the

Act.

9.2.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of information

about the matter to which this notice relates. Under those provisions, the FSA must

publish such information about the matter to which this notice relates as the FSA

considers appropriate. The information may be published in such manner as the FSA

considers appropriate. However, the FSA may not publish information if such

publication would, in the opinion of the FSA, be unfair to Wheatcroft Fox or

prejudicial to the interests of consumers.

9.3.
The FSA intends to publish such information about the matter to which this Final

Notice relates as it considers appropriate.

9.4.
For more information concerning this matter generally, Wheatcroft Fox should

contact Rachel West of the Enforcement and Financial Crime Division at the FSA

(direct line: 0207 066 0142 / fax: 0207 066 0143).

……………………………………………………
Tom Spender
Head of Department
FSA Enforcement and Financial Crime Division


ANNEX A

RELEVANT STATUTORY PROVISIONS, REGULATORY REQUIREMENTS

AND GUIDANCE

1.
Statutory provisions

1.1.
The FSA’s regulatory objectives are set out in section 2(2) of the Act and include

market confidence, public awareness, the protection of consumers and the reduction

of financial crime.

1.2.
Section 138 of the Act provides that the FSA may make such rules applying to

authorised persons as appear to it to be necessary or expedient for the purpose of

protecting consumers.

1.3.
The FSA has the power, pursuant to section 205 of the Act, to issue a public censure

where it considers an authorised person has contravened a requirement imposed on

him by or under the Act.

2.
Relevant Handbook provisions

2.1.
In exercising its power to issue a public censure, the FSA must have regard to

relevant provisions in the FSA Handbook of rules and guidance (“the FSA

Handbook”). The main provisions relevant to the action specified above are set out

below.

Principles for Businesses

2.2.
Under the FSA’s rule-making powers as referred to above, the FSA has published in

the FSA Handbook the Principles for Businesses (“Principles”) which apply either in

whole, or in part, to all authorised persons.

2.3.
The Principles are a general statement of the fundamental obligations of firms under

the regulatory system and reflect the FSA’s regulatory objectives. A firm may be

liable to disciplinary sanction where it is in breach of the Principles.

2.4.
The Principles relevant to this matter are:

(1)
Principle 3 (management and control) which states that “a firm must take

reasonable care to organise and control its affairs responsibly and effectively,

with adequate risk management systems.”

(2)
Principle 9 (customers: relationships of trust) which states that “a firm must

take reasonable care to ensure the suitability of its advice and discretionary

decisions for any customer who is entitled to rely upon its judgment.”

(3)
Principle 11 (relations with regulators) which states that “a firm must deal with

its regulators in an open and co-operative way and must disclose to the FSA

appropriately anything relating to the firm of which the FSA would reasonably

expect notice.”

Conduct of Business Rules

2.5.
Guidance on the Conduct of Business Rules is set out in the Conduct of Business

manuals of the FSA handbook.

Conduct of Business

2.6.
Conduct of Business Rules (“COB”) applied to firms until 31 October 2007.

2.7.
COB 5.2.5R requires that before a firm gives a personal recommendation concerning

a designated investment to a private customer, it must take reasonable steps to ensure

that it is in possession of sufficient personal and financial information about that

customer relevant to the services that the firm has agreed to provide.

2.8.
COB 5.2.9R requires that a firm must make and retain a record of a private customer’s

personal and financial circumstances that it has obtained in satisfying COB 5.2.5R.

2.9.
COB 5.2.12R requires a firm to provide the client with a statement of his demands

and needs if he makes a recommendation of a life policy or arranges for the client to

enter into a life policy. Unless the client asks for such a statement to be made orally

(or if immediate cover is required) the statement of demands and needs must be in

writing and made as soon as practicable, and in any event, before the conclusion of

the contract for the life policy.

2.10. COB 5.3.5R requires that a firm must take reasonable steps to ensure that a personal

recommendation concerning a designated investment to a private customer is suitable

for the client.

2.11. COB 5.3.16R requires that the suitability letter must: (1) explain why the firm has

concluded that the transaction is suitable for the customer, having regard to his

personal and financial circumstances, (2) contain a summary of the main

consequences and any possible disadvantages of the transaction, and (3) in the case of

a personal pension scheme which is not a stakeholder pension scheme, explain the

reasons why the firm considers the personal pension scheme to be at least as suitable

as a stakeholder pension scheme.

2.12. COB 5.3.18R requires that in the case of a pension contract or stakeholder scheme,

where the cancellation rules require notification of the right to cancel, a firm must

provide a suitability letter no later than the fourteenth day after the contract is

concluded, and in any other case, when, or as soon as possible after, the transaction is

effected.

2.13. COB 5.3.21R requires that if a firm makes a recommendation about a pension transfer

or pension opt out by an individual who is not a pension transfer specialist it must

have established procedures for checking, amongst other things, the merits of the

proposed transaction and the suitability of the recommendation.

2.14. COB 5.4.3R requires that a firm must not, amongst other things, make a personal

recommendation of a transaction to a private customer unless it has taken reasonable

steps to ensure that the private customer understands the nature of the risks involved.

2.15. COB 5.7.3R requires that before a firm conducts investment business with a private

customer it must disclose in writing the basis or amount of its charges for conducting

that business and the nature or amount of any other income receivable by it.

2.16. COB 5.7.5R requires that when a firm recommends or arranges the sale of a packaged

product the firm must disclose to the customer in cash terms any commission

receivable by it in connection with the transaction.

Conduct of Business Sourcebook

2.17. Conduct of Business Sourcebook (“COBS”) applied to firms, with effect from 1

2.18. COBS 4.2.1R requires a firm to ensure that a communication is fair, clear and not

misleading.

2.19. COBS 4.5.2R requires that information is accurate and, in particular, does not

emphasise any potential benefits of an investment without also giving a fair and

prominent indication of any relevant risks.

2.20. COBS 4.5.6R requires that if information compares investments a firm must ensure

that the comparison is meaningful and presented in a fair and balanced way.

2.21. COBS 9.2.1R requires that a firm must take reasonable steps to ensure that a personal

recommendation or decision to trade, is suitable for its client.

2.22. COBS 9.2.2R requires that a firm must obtain from the client such information as is

necessary for the firm to understand the essential facts about him.

2.23. COBS 9.2.6R requires that if a firm does not obtain the necessary information to

assess suitability it must not make a personal recommendation to the client.

2.24. COBS 9.4.1R requires that a firm must provide a suitability report to a retail client if

the firm makes a personal recommendation to the client and the client buys, sells,

surrenders, converts or cancels rights under, or suspends contributions to, a personal

pension scheme or a stakeholder pension scheme or elects to make income

withdrawals or enters into a pension transfer or pension opt-out.

3.
Other relevant regulatory provisions

3.1.
In exercising its power to issue a public censure, the FSA must also have regard to

relevant regulatory provisions and guidance. The guidance that the FSA considers

relevant to this case is set out below.

Decision Procedure and Penalties Manual (“DEPP”)

3.2.
The FSA's policy in relation to the issue of public censures is set out in Chapter 6 of

DEPP, which forms part of the FSA Handbook. The principal purpose of issuing a

public censure is to promote high standards of regulatory conduct by deterring

persons who have committed breaches from committing further breaches, helping to

deter other persons from committing similar breaches and demonstrating generally the

benefits of compliant behaviour.

3.3.
DEPP 6.4.1G(1) provides that the FSA will consider all the relevant circumstances of

a case when deciding whether to impose a penalty or issue a public censure.

3.4.
DEPP 6.4.2G sets out a non-exhaustive list of factors that may be relevant to

determining whether it is appropriate to issue a public censure. The following factors

are relevant to this case

Deterrence: DEPP 6.4.2G(1)

3.5.
When determining whether to issue a public censure, the FSA will have regard to the

principal purpose for which it imposes sanctions, namely to promote high standards of

regulatory and/or market conduct by deterring persons who have committed breaches

from committing further breaches and helping to deter other persons from committing

similar breaches, as well as demonstrating generally the benefits of compliant

business.

The seriousness of the breach in question: DEPP 6.4.2G(3)

3.6.
The FSA will consider the seriousness of the breach in relation to the nature of the

rule, requirement or provision breached, which can include considerations such as the

duration and frequency of the breach, whether the breach revealed serious or systemic

weaknesses in the person’s procedures or of the management systems or internal

controls relating to all or part of a person’s business and the loss or risk of loss caused

to consumers, investors or other market users.

Conduct following the breach: DEPP 6.4.2G(5)

3.7.
The FSA may take into account the degree of co-operation the person showed during

the investigation of the breach by the FSA.

Previous action taken by the FSA: DEPP 6.4.2G(7)

3.8.
The FSA seeks to apply a consistent approach to determining the appropriate level of

penalty. The FSA may take into account previous decisions made in relation to similar

misconduct.

The financial impact on the person concerned: DEPP 6.4.2G(8)

3.9.
In exceptional circumstances, if the person concerned has inadequate means to pay

the level of financial penalty which their breaches would otherwise attract this may be

a factor in favour of a lower penalty or a public statement. Examples of circumstances

where this might be appropriate include whether the person concerned has provided

verifiable evidence that they would suffer serious financial hardship if the FSA

imposed a financial penalty