The Financial Services and Markets Tribunal (the Tribunal) has upheld the FSA's refusal of a sole trader mortgage broker’s application for Part IV permission on the grounds of repeated failure to file an RMAR. The Tribunal commented that the threshold for compliance has to be high and that the FSA cannot afforcd to drop its guard. Each return must contain up to date information without which the FSA cannot carry out its regulatory function. The Tribunal also seems to have had concerns about the applicant’s ability to understand FSA requirements and doubts about his reading ability.
View Mr Tarlochan Singh trading as Oceans Mortgages and FSA, 8 April 2010
Following a Court of Appeal decision imposing a penalty of £954,770 on the solicitors firm Fox Hayes, the Tribunal was asked to consider which of the firm’s partners were, as a matter of law, liable. During the period to which the penalty related there had been a sequence of partnerships, each composed of different partners.
During the investigation the firm had transferred its business to a new LLP. However, the Decision Notice issued by the FSA was addressed to the old partnership which was still an authorised entity as authorisation had not been cancelled by the FSA. The Tribunal concluded that the FSA could impose a penalty on the old partnership, notwithstanding the fact that it had been dissolved and ceased to carry on business. Under s206 of the Financial Services and Markets Act 2000 (FSMA), the penalty is directed at the contravention by the authorised person and authorisation and its regulatory consequences “stick with a firm” until the FSA releases it.
The authorisation did not pass to the LLP under s32 FSMA as the successor to the business because the LLP was a body corporate rather than a successor firm and it had only conducted the proceedings on behalf of the old firm’s partners.
The Tribunal concluded that it was the partners at the time of the contraventions (being those who were entitled to a share in the profits) who were liable for the penalty. Further, liability was not confined to the assets of the partnership but extended to the assets and resources of individual partners.
View Fox Hayes and FSA, 30 March 2010
A former executive director of the Royal Bank of Scotland Group plc and former chairman of global markets has agreed with the FSA that he will not perform any significant influence function or undertake any further full time employment in the financial services industry. The FSA indicated that it had been its intention to seek to prohibit him, believing that he would not meets its SIF approval standards. However, the FSA has not made any findings of regulatory breach against him and he has made no admissions. He is not prevented from performing part time consultancy work which does not involve performing significant influence functions.
View FSA statement on Johnny Cameron, 18 May 2010
The recent Atlantic Law Tribunal decision addresses some interesting issues including a reckless lack of integrity (and failures to heed warning signs) and also the 2 year time limit under section 66 FSMA. The Tribunal also seems to have endorsed a recent FSA approach in relation to financial hardship which involves any hardship being outweighed by other factors such as the need for public recognition of breaches.
The Tribunal has upheld a prohibition and withdrawal of approval and imposed a £200,000 fine on a solicitor in connection with his approval of investment advertisements issued by Spanish stockbroking firms. He had breached Statement of Principle 1 and had been knowingly concerned in breaches by his firm. He had failed to take reasonable steps to ensure that they were clear, fair and not misleading, and could not reasonably have concluded that the firms would deal with UK consumers in an honest and reliable way. The Tribunal also imposed a £200,000 fine on the solicitor's firm for breaches of Principle 1.
This was a boiler room case. The Spanish firms targeted individuals who owned shares and offered free research reports on the companies concerned. Anyone accepting the report authorised the company to make telephone contact which was used to conduct high pressure selling of high-risk illiquid shares. The promotions were not clear, fair and not misleading because they disguised the true purpose of the communication (which was, as must have been "blindingly obvious", to gain access to investors for sales purposes).
The firm’s efforts to satisfy itself about the bona fides of its clients or the authority of those purporting to represent them were inadequate and cursory. The files contained Spanish incorporation documents but passport checks were superficial, no references were obtained or visits made.
Financial promotions continued to be approved despite developments which should have constituted warnings about the activities of the Spanish firms including complaints, press reports and FSA alerts which included reference to those with whom the firm was dealing.
The Tribunal found that the solicitor acted recklessly: “He knowlingly took very obvious risks, he ignored the clearest warning signs”. The Tribunal noted the guidance on integrity in Hoodless and Blackwell and concluded that a person may lack integrity even if dishonesty is not established. The Tribunal concluded “It follows inevitably from the seriousness of what we have found to be Mr Greystoke's reckless conduct that he lacked integrity”.
In relation to the financial penalty, an interesting limitation point was considered by the Tribunal. Under s66(4) FSMA a financial penalty may not be imposed unless a warning notice is issued within 2 years of the FSA knowing of the misconduct. The warning notices were issued in September 2008 and the FSA considered that the firm may have failed to comply with rules from December 2005. However, the Tribunal found that there was no limitation issue noting that the investigation commenced in November 2006 which was less than 2 years before the warning notice and the FSA would not have acquired the requisite knowledge for some time after that. The FSA obtained copies of some documents in September 2006 but other papers were not available until October 2007 and interviews took place in June 2008 (para 103).
In relation to the size of the penalty, the solicitor gave evidence that he had no source of income other than his wife and no detailed knowledge of her financial position. The Tribunal noted that the solicitor's wife was not obliged to disclose her means to the Tribunal and that it had no verifiable evidence regarding financial circumstances. However, the Tribunal commented that the fact that the purpose of a penalty is not to bring about insolvency does not mean that a penalty should not be fixed which has that result. Although the case was not as bad as Fox Hayes (in which a £750,000 fine was imposed) in some respects (eg no commissions or deposits were received); it was worse in others (eg the experience and sophistication of those involved was greater). Overall the Tribunal considered that the need for the seriousness of the breaches to be publicly recognised outweighed the potential consequences for individuals and decided not to vary the penalty imposed by the RDC.