The Financial Services Authority (“FSA”) has today issued a Final notice in respect of Mr Michael Lee Thommes.
The Final Notice states that a prohibition order (the “Order”) will take effect from today. The Order prohibits Mr Thommes from performing any controlled function, involving the exercise of significant influence in relation to any regulated activity carried on by an authorised person, exempt person or exempt professional firm.
The FSA originally determined it appropriate to issue the Order in July 2011. However, on 12th August 2011, Mr Thommes referred the FSA Decision Notice to the Upper Tribunal (Tax & Chancery Chamber) (the “Tribunal”). The Tribunal issued its decision on 12th December 2012. The Tribunal upheld the original determination made by the FSA.
Mr Thommes is a former director of a Dorset based mortgage broker called General Finance Centre Limited (the “Company”). The Company went into liquidation in 2008 and was subsequently dissolved. Mr Thommes was the Managing Director of the Company as well as the majority shareholder. He held the controlled functions of Director (CF1) and the Apportionment and Oversight Function (CF8). These are both significant influence functions.
The FSA investigation arose from a whistle-blower report in 2006 which, (although the allegations made by the whistle-blower were not relied upon in this case), subsequently led to a visit to the Company by the supervision department of the FSA. This visit highlighted a number of problems within the Company and these were outlined to the Company by way of letters dated (among others) 20th April 2006 and 28th June 2006. Mr Thommes failed to act on the issues identified within these letters.
In 2008 the FSA was contacted by a second whistle-blower who alleged that the Company was misleading customers about the fees it charged.
By way of its Decision Notice of July 2011, the FSA alleged that (among other things) Mr Thommes failed to properly establish controls which prevented the Company from being used as a vehicle for mortgage fraud. Following inspection of customer files it was clear to the FSA that there were serious inconsistencies and discrepancies in application forms when it came to income, occupation and other personal information from mortgage applicants. These discrepancies were not picked up on by employees at the Company, there were no explanations on file and control checks carried out were inadequate and failed to identify the issues. Following review of customer files the FSA also determined that the Company failed to ensure that the Company’s charging structure was fair to customers and overall the fee structure lacked transparency. Mr Thommes was responsible for regulatory compliance and oversight at the Company and as such thee matters fall within his remit.
The FSA concluded that, whilst there is no allegation that Mr Thommes committed mortgage fraud, he is not a fit and proper person to carry out any controlled function involving the exercise of significant influence in respect of regulated activities.
The Tribunal proceedings
Mr Thommes challenged the Prohibition Order on the grounds that:
- Adequate systems and controls were established and maintained at the Company;
- The possibility that the systems and controls might have not prevented potentially fraudulent mortgage applications being made does not support or justify the FSA’s findings; and
- In any event, the Order is disproportionate.
Having considered the evidence provided by the FSA, hearing evidence from Mr Thommes and considering client files seized from the Company, the Tribunal disagreed with Mr Thommes’s challenges and upheld the decision made by the FSA.
The Tribunal made it clear that in order for the FSA to take such action, as has been deemed appropriate in this case, it is not necessary for there to be any specific allegation or evidence of mortgage fraud or for any potential victim to come forward. The Tribunal stated that “It is enough if the [FSA] demonstrates obvious discrepancies in the client files that had not been identified by Mr Thommes or [the Company] where those discrepancies show a risk that [the Company] was being used as a vehicle for fraud.” Mr Thommes, among other things, did not exercise “appropriate oversight over the systems to identify the risk of financial fraud”.
As such, the Tribunal concluded that the FSA has established its case that Mr Thommes fails to meet the minimum standards required in terms of competence and capability and is, therefore, not a fit and proper person to carry out any controlled function involving the exercise of significant influence. The Tribunal, whilst acknowledging that Mr Thommes’s honesty, integrity, reputation and financial soundness were not in question, determined that these were not factors to be considered when determining the appropriate penalty.
The Order is a partial prohibition in that it limits Mr Thommes from exercising any significant influence functions. It does not prevent him from working in the regulated financial services sector. As such, the Tribunal determined that the Order was appropriate and proportionate.