Andrew Mark Thomas Page & Ors. v The Financial Conduct Authority

As previously mentioned, each of the Firms adopted a business model which involved the adoption of the Pension Review and Advice Process through which recommendations were made for customers of the Firms to switch their personal pensions into SIPPs where the underlying investments were one or more of the Products. We set out below the structure and main features of the Products together with an assessment as to whether the Products could be regarded as “low risk” as contended by the Applicants.

HCA advised customers to invest in the Loan Notes. FPL advised customers to invest in the Loan Notes and, from November 2014, the Liquid Assets Bonds. BHIM advised customers to invest in the Bonds (including the Liquid Assets Bonds).

AIGO was the issuer of the Loan Notes. AIGO was a protected cell company incorporated in Mauritius in April 2013. The effect of being a protected cell company was that AIGO could establish a number of separate cells each of which would be treated as a ring-fenced pool of assets and liabilities. AIGO had four cells, AIGO Commercial Property Fund (“the Commercial Property Fund”); AIGO UK Residential Property Fund (“the Residential Property Fund”); AIGO Natural Resources Fund (the “Natural Resources Fund); and AIGO Equity Fund (the “Equity Fund”). The first three of the Cells mentioned above were established in July 2013 and the Equity Fund was established on 14 April 2014.

Although not disclosed in the AIGO IM, Mr Stephen confirmed in his evidence that he was the owner of 100% of the equity capital of all of the Cells and that he sold all of his shares in these entities in March 2016.

Initially, AIGO had two Mauritius based directors. From their description in the AIGO IM those directors appeared to be local Mauritius lawyers and had no relevant expertise as regards the investments that the Cells proposed to make. Subsequently, on 11 February 2014, Mr Stephen was also appointed as a director.

In accordance with Mauritian regulatory requirements, AIGO had to appoint a locally-based investment manager. That was Fidelis Global Asset Management Limited who received a fee for acting in that capacity. It is not clear what in substance this company did in relation to any of the Cells. The AIGO IM does not indicate that the investment manager had any relevant expertise in relation to the assets in which AIGO intended to invest. Mr Stephen denied that the investment manager played no direct role on the investment side. He said the process was that the investment manager produced a recommendation as regards investments to the board of AIGO and that it was mostly HJL who produced a recommendation to the investment manager, alongside ideas brought by the investment manager themselves in relation to natural resources.

We do not regard that as a credible explanation as to what actually happened in practice. As we have said, there is no evidence of any expertise on the part of the directors of AIGO or the investment manager in relation to investment matters such that they could provide any meaningful input into the process. Although not identified in the AIGO IM as having been formally appointed as either investment advisor or sub-investment manager, our conclusion is that in practice all decisions regarding investments were taken by HJL, particularly through Mr Stephen, and he was the only director who appeared to have any relevant experience. As we find later that expertise did not cover all of the areas in which AIGO intended to invest.

The AIGO IM states that “AIGO is regulated in Mauritius as an Expert Fund” and so was only available to an Expert Investor, defined as an investor “who makes an initial investment for his/her own account of no less than US$100,000 or its equivalent in any other currency”. It is therefore clear that this was not a fund that could lawfully be promoted directly to retail investors because, as the AIGO IM makes clear, an Expert Fund was exempt from most ongoing obligations and regulations of the Mauritian authorities on public collective investment schemes. As was common ground, a large number of those who switched their pensions into SIPPs investing in the Loan Notes held pension schemes whose value was considerably less than the equivalent of US $ 100,000.

The AIGO IM records that AIGO had been advised (presumably by Howard Kennedy LLP who are disclosed in the AIGO IM as having given advice on UK regulatory matters) that it was not considered to be a deposit-taker and that the monies raised through the issue of the Loan Notes did not give rise to any collective investment scheme. It is assumed (although not explicitly stated in the AIGO IM) that the Loan Notes were debentures for the purposes of FSMA, notwithstanding the fact that they were constituted through a Master Loan Agreement entered into between a SIPP Provider and the relevant cell of AIGO, the interests in which would be allocated by the relevant SIPP Provider to those investors for whom it acted as SIPP Provider according to the value of the amount that each had invested. Therefore, the SIPP Provider lent the proceeds of the aggregate of the funds transferred to it as a result of the relevant pension switches to the relevant Cell under the terms of the Master Loan Agreement and would allocate the benefit of the Master Loan Agreement to the investors according to the amount each investor provided, the resulting interests constituting the Loan Notes.

Accordingly, since the Loan Notes were debentures, those who arranged transactions in those debentures would need to be authorised by the Authority if the activities concerned took place in the United Kingdom and any financial promotion (which would include the AIGO IM) would have to be issued or approved by an authorised person unless a relevant exemption applied. The only wording in the AIGO IM which deals with these issues is a statement to the effect that in relation to the promotion of the Lending Scheme (that is the entering into by the SIPP Provider of the Master Loan Agreement and the allocation of interests in that arrangement to the underlying investors) the AIGO IM is an exempt financial promotion in accordance with Article 16 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, in reliance upon the fact that HJL (as the promoter of AIGO) is an introducer appointed representative of various FCA authorised investment firms.

However, COBS 4.3 provides that a firm is required to comply with the Authority’s financial promotion rules in relation to a financial promotion communicated by its appointed representative even where the financial promotion does not require approval because of the exemption in Article 16 referred to above. Therefore, in order for the AIGO IM to have been lawfully distributed to customers of the Firms, the relevant Firm would need to have ensured that the AIGO IM complied with the Authority’s detailed financial promotion rules. Where HJL distributed the AIGO IM on behalf of FPL as its introducer appointed representative, that responsibility would have fallen on FPL, and where it was distributed on behalf of HCA that responsibility would have fallen on HCA. We have seen no evidence that either FPL or HCA took any responsibility in ensuring that the AIGO IM did comply with the financial promotion rules, although, as we find later, we are not satisfied that any of the Firms gave instructions that as a matter of course the AIGO IM should be sent to customers who were recommended to invest in the Loan Notes.

The Loan Notes were not listed or traded on any investment exchange. The AIGO IM disclosed that there was limited protection under the UK regulatory system for investors in the Loan Notes. In particular, it was stated that HJL was not regulated in the UK by the Authority and that there was no recourse to the Financial Ombudsmen Scheme or the FSCS in respect of the Loan Notes. The only regulation of AIGO and its service providers was the limited regulation provided by the Mauritian authorities in respect of an Expert Fund. As we have seen, however, investors did have recourse to the FSCS where they were given unsuitable advice by a firm authorised by the Authority to invest in the Loan Notes.

The AIGO IM gave details of three Cells, the Residential Property Fund, the Commercial Property Fund and the Natural Resources Fund and described an initial offer of up to £20m of Loan Notes by each of those Cells. AIGO had the ability to establish further Cells, and, on 14 April 2014, it established the Equity Fund. No supplemental Information Memorandum appears to have been produced in relation to the £20m Loan Notes subsequently offered by the Equity Fund.

The Loan Notes were constituted under Master Loan Agreements dated 12 December 2013 (for the Residential Property Fund, the Commercial Property Fund and the Natural Resources Fund) and 19 September 2014 (for the Equity Fund) entered into by AIGO on behalf of each Cell and the SIPP Provider, Guinness Mahon, who was appointed as trustee according to the terms of the master trust deed and rules governing the GM SIPP. Each investor entered into a Supplemental Deed relating to their individual SIPP arrangement.

All the Loan Notes had an 8% coupon payable annually in arrears and a 10 year maturity. However, at its discretion, AIGO’s Board could extend the maturity date of the Residential Property Fund, the Commercial Property Fund and the Natural Resources Fund Loan Notes by up to 12 months if it was of the view that insufficient assets were realisable to repay them. As we have not seen a supplementary Information Memorandum for the Equity Fund, it is unclear whether the Board had the same facility to extend the Equity Fund Loan Notes in the same manner.

The Residential Property Fund, the Commercial Property Fund and the Natural Resources Fund Loan Notes contained a provision for a bonus (expressed as an addition to the coupon) which would be announced on the fifth anniversary of their issue, but only paid on maturity of the Loan Notes.

The AIGO IM stated that the proceeds of the Loan Notes would be used by the Cells to make loans and investments in accordance with their various investment strategies, as described below. The AIGO IM states that the Residential Property Fund, the Commercial Property Fund and the Natural Resources Fund could implement their strategy by purchasing assets directly; providing equity or debt capital (including on a mezzanine level and bridge financing) to other entities; or through any other investment method. The Loan Notes were not secured against any of the assets (in whatever form) of the Cells.   

The intention was for the Cells to repay the principal of the Loan Notes and service the coupons payable from the successful implementation of their various investment strategies. However, the AIGO IM states that it was intended that each Cell would have the benefit of a contract of insurance which, should such Cell become incapable of meeting its financial obligations at the end of the term of the Master Loan Agreement or if it became insolvent before that time, would ensure that all the principal monies advanced under that agreement would be repaid. In the event, insurance was only put in place for the Residential Property Fund and the Commercial Property Fund so there was no insurance in respect of the obligation to repay the principal under the Loan Notes for the Natural Resources Fund or the Equity Fund. This was a clear breach of the terms of the Master Loan Agreements for those Cells.

The insurance was to be provided by a captive insurance company, AOB Insurance, which had been incorporated in Nevis around 30 December 2013 with share capital amounting to £1,000. A separate Statutory Fund was to be set up to insure each Cell. On 28 January 2014 the first Statutory Fund was established, that in respect of the Residential Property Fund. This was capitalised by £60,000 preference shares purchased by AIGO. Mr Smith, adopting the evidence of Mr Gardner in this regard, notes that UK insurers are subject to significantly higher base capital requirements and that the minimum capital requirement in the UK would have been Eur2.5m.

The Statutory Fund for the Commercial Property Fund was established at some point later in 2014.

The only source of funding for the Statutory Funds was an annual premium paid by AIGO and accordingly there is a provision in each Master Loan Agreement stating that this premium would be paid by the individual Cells. The Cells therefore had to generate sufficient income to make these payments, in addition to interest payments on the Loan Notes and on-going costs, or the insurance would not be available.

The Master Loan Agreements made it clear that the insurance was to cover any shortfall between the realisable value of the Cell’s assets and the amount of the loan. This is also the methodology by which the insurance premiums were calculated and can be seen by the fact that, by 31 December 2014, the total assets of the Residential Property Statutory Fund were approximately £135,000 compared to £19.4 million outstanding in loans to the Residential Property Fund.

Accordingly, as Mr Smith’s evidence demonstrates, based on his reading of the relevant Nevis legislation and the available material on the website of the Nevis Financial Services Regulatory Commission, in respect of the Residential Property Fund only assets of its Statutory Fund would be available to meet any claims made in respect of that Cell. As Mr Smith observed, effectively the Cell was insuring itself with only a minimal premium set-aside, representing as little as 1.5% of the funds potentially at risk, from which various costs and fees were also being deducted.

It is also important to note that the insurance contracts that were issued were for the benefit of AIGO itself rather than the lender under the Master Loan Agreement. Accordingly, only AIGO’s Board had the capacity to claim under them and, without any independent scrutiny, would also administer any pay outs to lenders.

The AIGO IM provided that if an investor wanted to redeem their investment in the Loan Notes prior to the maturity date then a minimum of 12 months’ notice in writing was required. This would also be subject to the Board’s discretion; repayment not being permitted if it was considered that it would cause harm to the business or investment portfolio.

By April 2014, the HCA Fact Sheets, referred to below, had been changed and now stated that disinvestment could be requested at any time and that monies were “contractually required to be returned” within a maximum of 30 days. This was apparently as a result of an addendum (dated 13 March 2014) to the Residential Property Fund, the Commercial Property Fund and the Natural Resources Fund Master Loan Agreements which provided for investors to request that their interest be transferred, assigned or sold with 30 days’ notice. The validity of this addendum has been questioned as it was signed by Mr Stephen on behalf of both AIGO and Guinness Mahon and Guinness Mahon, in a letter to the Authority dated 24 February 2016, have said that they were unaware that Mr Stephen had the authority to sign on their behalf. In any event, this addendum only related to investors who had been advised by HCA.

Further, it is not clear on what basis AIGO would be able to arrange for the transfer of an investor’s interest, how that interest would be valued or who the potential purchaser might be.

The AIGO IM warned that the Loan Notes represent “only a part of the current financial arrangements of the various Cells” and that there is, or may be, other financial obligations which may rank in priority to the Loan Notes. However, despite the significance of this statement, no information is provided about the existence or not of any such obligations.

The AIGO IM further identifies as a risk that the Residential Property Fund and Commercial Property Fund had the ability to raise further debt as part of their investment strategy which would “increase the risk profile” and “amplify losses in the event of a decline on asset values”. There appears to be no limit on new debt that could be raised either in terms of amount or security position.

The investment strategy of the Residential Property Fund is described in the AIGO IM as the purchase of “distressed” residential properties largely from the sale of repossessed properties. It was stated that the Cell would work in conjunction with Kazai, a UK based company that specialised in the purchase of such property. It was envisaged that the Cell would loan money to Kazai, the proceeds of which would be used by Kazai to purchase property for not more than 80% of market value and which it would aim to re-sell within 3 months for approximately 90% of market value. The loan from the Cell to Kazai would be secured by a floating charge with a covenant that the loan would not exceed the total market value of Kazai’s assets. The loan carried 15% interest in the first year and then 9% per annum thereafter. The loan was not amortised, leaving the prospect of how Kazai intended to repay the loans at the end of the term unclear e.g., whether by a gradual disposal of its assets or by the refinancing of the loan.

As regards the investment expertise available to the Residential Property Fund, the AIGO IM describes the management team as being the sole director of Kazai, Elliott Castle, and Mr Stephen. Kazai was a newly formed company. The description of Mr Stephen’s experience does not indicate that he had any significant experience of the UK residential property market. As regards Mr Castle, his experience in the distressed property market came from his role as the founder of WeBuyAnyHome.com, a company established in 2010 and which had a turnover of £3 million.

In practice the Residential Property Fund deviated from this strategy. Its balance sheet shows that by the end of its first year of operation (31 December 2014), the Residential Property Fund had loaned approximately 55% of its funds to three other entities – Stark Enterprises (a property company established by Mark Stephen), White & Co Property Partners (“WCPP”) and an entity simply described as “EMC”. None of these entities are described in the AGO IM as potential partners for the Residential Property Fund. By the end of the second year, the balance sheet shows that about 68% of loans were made to either Stark or WCPP.

By 31 March 2016, the Residential Property Fund had further increased the proportion of its funds lent to Stark and WCPP, which now amounted to about 76% of its lending, the remainder being lent to Kazai.

The investment strategy of the Commercial Property Fund is described as predominantly being the purchase and leaseback of commercial property and the purchase of UK “distressed” commercial property. The latter was to be purchased at 20-80% market value with either a re-sale within 30 days at approximately 90% market value or work being undertaken to improve the property’s value. The UK property market would be the main focus, but overseas property could also be held with the intention, but not obligation, to hedge the resulting currency risk.

As regards the expertise available to the Commercial Property Fund, the emphasis is put on Mr Stephen’s experience since he became involved in the property investment market in 2000. According to the AIGO IM, that experience was largely obtained by involvement in residential property investments in Australia and commercial developments in China, Croatia, and Egypt but no mention is made of relevant experience in the UK property market.

The AIGO IM stated that the Commercial Property Fund could make its property investments in a variety of ways but in practice it did not appear to make any direct property purchases, instead, it lent money to Stark. By the end of the first year of operation (31 December 2014), the balance sheet shows that over £9 million had been lent by the Cell to Stark which had yet to be invested in property and was held in cash. By the end of the second year, the Cell’s balance sheet shows that only approximately £1 million had been lent to Stark but approximately £22 million had been lent on the security of a debenture to a Hong Kong based entity called Universe, which had not been referred to in the AIGO IM. There is little information available about the properties that were invested in. Mr Stephen’s evidence was that £14 million had been invested in a development in Bristol and £2-3million in a development in Chertsey as development rather than trading assets, but we have nothing to corroborate that so will make no finding on that point.

Natural resources are described in the AIGO IM as “stocks of materials that exist in the natural environment that are both scarce and economically useful in production or consumption, either in their raw state or after a minimal amount of processing”. The main product groups open to investment by the Natural Resources Fund included forestry products, fuels, ores and other minerals, non-ferrous metals, energy and agricultural products, the aim being to purchase securities in “advantaged producers” i.e. low cost producers of a given commodity run by capable management teams. The AIGO IM said that the Natural Resources Fund would seek to purchase these securities when “it is believed that the price reflects a limited possibility of permanent capital impairment”, presumably meaning when it was relatively low.

The AIGO IM said that the Natural Resources Fund intended to diversify its investments to avoid over-concentration of exposure with not more than 25% of its assets being held in any one project. A range of other desired investment criteria is given including a minimum IRR of 24%; that demand for the resource be expected to grow by 50% over 10 years; and that there was existing demand for 100% of the current output of the resource. As with the Commercial Property Fund, it was the intention, but not obligation, to hedge any currency exposure.

As regards the expertise available to the Natural Resources Fund, the management team of the Cell is listed as being Mr Stephen, his father Jim Stephen and Reeves Knyght of Mayfair Investment Management Limited (a mining specialist). From their descriptions in the AIGO IM these individuals appeared to have only limited experience of the type of investments the Natural Resources Fund was intending to make. As mentioned above, Mr Stephen’s experience was mainly in property investment, his father’s expertise was confined to one specialist field within the agricultural sector and Dr Knyght is a lawyer by background; it is not clear whether his role in relation to the transactions in the natural resources sector he was said to have been involved in was on the legal or business side.

In practice, by the end of the first year of operation (31 December 2014), the balance sheet shows that approximately £1.6 million had been loaned to an entity called Dos Palm Oil whilst £5.8 million remained held as cash. By the end of the second year, approximately £290,000 had been loaned to Dos Palm Oil, £6.7million had been lent to HJ Liquid Assets plc (reduced from about £10 million in March 2015) and £630,000 loaned to Stark. Neither Stark nor HJ Liquid Assets plc had any obvious connection to the Natural Resources Fund’s investment strategy as set out in the AIGO IM.

As mentioned above, no supplemental Information Memorandum appears to have been produced in relation to the £20 million Loan Notes offered by the Equity Fund. The sources of information about the Equity Fund are limited to the Fact Sheets and also some Supplemental Listing Particulars dated 14 April 2014 which related solely to the sale of participating shares in the Equity Fund. The Listing Particulars describe the investment strategy of the Fund as being “to invest through equity financing in companies operating in the financial sector across the globe, with priority on capital preservation and growth”. The Fact Sheet dated April 2014 provides a rather different description stating that the Equity Fund predominantly traded fixed income discounted bonds (a specialised market) with the advice of Kempis Asset Management. It notes that Kempis had targeted a revenue of between £5.3 million and £19 million for the Equity Fund in the first year which, if the maximum £20 million was raised, represented a return of between 26% and 95%.

By October 2014, the new Fact Sheet describes the strategy as including the “equity trading of listed shares, SME secured share purchase and investment in equity trading firms”. It is unclear what “secured share purchase” means or the further opaque statement that the Equity Fund will “only invest in listed shares through secured unlisted share purchase or through a debt mechanism to a trading entity”. Nevertheless, the Fact Sheet states that “regulated trading advisors” would be used, although Kempis is no longer mentioned. We received no explanation as to why the strategy had changed and it did not appear that any of the Firms questioned the reasons for the changes.

In practice, by 30 September 2015, the Equity Fund had invested approximately £2 million in the Natural Resources Fund and £4.6 million in the Commercial Property Fund. On the face of it these investments bear no relation to the Equity Fund’s strategy. A further £1.5 million had been invested in Universe Finance, and there are four properties that are listed as providing security with an estimated value (according to Zoopla) of approximately £8.2 million, albeit that one property in London is valued at approximately £7.1 million.

By 31 March 2016, the Equity Fund had disinvested from the Natural Resources Fund and had made further investments in the Commercial Property Fund. It appears that overall, approximately £6.15 million had been invested in the Commercial Property Fund, but the market value of the shares is given as approximately £5.8 million, a loss of approximately £350,000 having been made. £1.5 million remained invested in Universe Finance.

As we examine in further detail later, when customers of the Firms were recommended to invest in the Loan Notes, they were recommended to do so on the basis of investing in one of three portfolios named the Bespoke Cautious Portfolio, the Bespoke Moderate Portfolio and the Bespoke Adventurous Portfolio. Those Portfolios consisted of what was described as a “carefully selected blend of investments” made up of a mixture of Loan Notes from the various Cells. At the time of the recommendation, the customer would be sent a short Fact Sheet which gave a short description of the relevant Cell and its investment strategy. Some of the information in the Fact Sheets was at variance with what was said in the AIGO IM.

For example, the availability of insurance features prominently on the front page of each Fact Sheet under the heading “Capital Guarantee” accompanied by the statement that the “Lending Scheme” will benefit from the additional protection of an insurance policy covering 100% of the loan in the case of default by AOB Insurance Limited”.

There are a number of problems with this statement. First, as referred to above, at the date of the earliest Fact Sheets (April 2014), insurance was only in place for the Residential Property Fund, that for the Commercial Property Fund coming somewhat later and it was never put in place for the Natural Resources Fund or the Equity Fund. Secondly, the Fact Sheets state clearly that the policy would cover “100% of the loan” which was not the case. The Master Loan Agreements are clear that the insurance was to cover any shortfall between the realisable value of the Cell’s assets and the amount of the loan. Thirdly, as we have said, the insurance policies were in the name of AIGO and hence only AIGO’s Board had the capacity to claim under them and, without any independent scrutiny, would also administer pay outs to lenders.

A second example, as we have already mentioned above, was that in a number of cases the description of the investment strategies of the various Cells in the Fact Sheets was at variance with what was stated in the AIGO IM.

Although, as we have said, HJL had a prominent role in advising on the investments to be made in the Cells, the AIGO IM makes no direct reference to this and focuses on the role of HJL in promoting investment in the Loan Notes.

The AIGO IM states that AIGO had entered into an agreement with HJL appointing HJL for the purposes of promoting the Loan Notes to pension schemes, including SIPPs. It disclosed that under this agreement HJL would be paid a fee of 5% of all loans advanced and utilised by the relevant Cell as part of its business. The AIGO IM also disclosed that HJL may seek to become an IAR of a firm regulated by the Authority for the purpose of being able to offer regulated pensions to HJL’s clients in the pensions marketplace. It is clear from this that HJL would have a dual role, promoting the interests of AIGO in seeking investment in the Cells and being remunerated by receiving a percentage of the funds raised and, if it were to act as an agent of a firm regulated by the Authority, such as one of the Firms, it would be acting on behalf of IFAs who had a duty to ensure that any recommendations made to invest in the Loan Notes were suitable for the customers concerned.

As we have indicated above, 5% of each investment made into the Loan Notes would be paid to HJL upon subscription. As we shall see later, an initial advice fee at the rate of 3% of the funds invested was paid by a customer who accepted the recommendation from the relevant Firm to invest in the Loan Notes.

There were also various upfront costs of the AIGO structure, as disclosed in the AIGO IM, namely £54,000 for the establishment of AIGO and the Cells and the legal costs of the offering and UK legal costs of £102,500.

There were also ongoing costs. These consisted of (i) an initial fee of 1% and an annual fee of 0.5% calculated on the assets under management in the Cells to be paid to Fidelis Global Asset Management Limited as investment manager; (ii) £18,000 per annum to be paid to Fidelis Trust & Corporate Services Ltd to act as administrator; (iii) £4,000 per annum to be paid to each of the Directors of AIGO and periodic expenses such as annual audit fees, fees to regulators and registrars in Mauritius; and (iv) the insurance premium, as described above.

Accordingly, in the first year of their investment, an investor who acquired Loan Notes on 31 December 2013 would pay 3% before the investment was made and then once the various commissions and costs are taken into account (5% + 0.3% (approximation of upfront costs assuming a maximum capital raising of £60 million) + 1% + 0.2% (the insurance premium paid by the Residential Property Fund and the Commercial Property Fund)), approximately 9.5% of the total sum to be invested has been expended before any investment has been made.

Other than the 3% advisory fee, an investor would only find out about the other costs if they read the AIGO IM. They are not disclosed in the Fact Sheets whose only reference to fees is to inaccurately state that there are no fund charges.

Under the Service Proposition, as discussed below, investors who opted for an annual investment review would also have been charged 0.5% p.a. of the total value of their investment.

The first issue of Bonds took place in October 2014. There were three separate issues, each of which was made by a separate company, namely HJ Residential plc, HJ Commercial plc and HJ SME plc. Each of these companies (an “Issuer”) was incorporated in England and Wales and registered as a public limited company, and made an initial offer of up to £4 million of nominal value of Bonds at par.

Each of these issues was described in a separate Information Memorandum for each Issuer, all dated 1 October 2014.

Subsequently, on 17 February 2015, up to £3.7 million Bonds were offered by HJ Liquid Assets plc, which was also incorporated in England and Wales and registered as a public limited company. These Bonds were also offered at par. There is an Information Memorandum for this issue dated 17 February 2015.

Each Issuer was wholly owned by Mr Stephen and had £50,000 in equity capital (a quarter of which was paid up). Mr Stephen and Mr King were named as the two executive directors for each Issuer, being described as having “substantial expertise” in either “the UK residential property market”, “the commercial property market”, “the corporate and business environment” or the “financial markets” depending on the Issuer concerned.

The Information Memoranda contain extensive risk warnings. The offer document states clearly on the first page that “an investment in the Company involves a high degree of risk”. Each Information Memorandum also contains a declaration on the application form in which investors confirm that they understand it to be a high risk investment and that they are seeking a high risk profile for this part of their investment strategy. In the body of the Information Memorandum prospective investors are warned that “an investment … is only suitable for investors capable of evaluating the risks and merits of such investment and who have sufficient resources to bear any loss which may result from the investment”. Warnings are given as to the likely illiquidity of the Bonds; that each Issuer was newly established and so its business strategy was unproven; that the expected economic performance of the investments may not occur; and that the value of each Issuer’s assets may not exceed its liabilities at any particular time.

Summary information memoranda were also produced for each issue of Bonds which contained information about the features of bonds in general, a summary of the terms of the Bonds, details of each Issuer’s strategy and a summary of risk factors but did not contain any information about fees. In addition, two page Fact Sheets were produced which contained no information about risk or disclosure of fees.

Each Information Memorandum was a financial promotion pursuant to s 21 FSMA but was capable of being lawfully distributed in the UK on the basis that it was stated in the document that it had been issued by Alfred Henry Corporate Finance Limited, a firm authorised and regulated by the Authority.

At the time of issuance of the Bonds, it was the intention to apply for them to be listed on GXG Main Quote Market, a Danish exchange similar to the UK Alternative Investment Market. The Information Memoranda stated that GXG Main Quote did not have the status of an EU regulated market. The Information Memoranda also all warned that the Bonds were not yet listed and that, prior to this, it may be difficult to sell them. Further, even with a listing, investors were warned that there may not be a liquid market in the Bonds and investors should regard their investment as of an illiquid nature. There was no evidence that at any time there was an active secondary market in the Bonds.

It is unclear when the Bonds were listed on GXG Main Quote, but subsequently GXG Main Quote was closed down and, on 28 September 2015, the Bonds were instead listed on the Cyprus Stock Exchange Emerging Companies Market. We had no evidence that the Bonds were ever traded on that market.

The Bonds were constituted by a Trust Deed entered into by each Issuer and the Bond Trustee, Woodside Corporate Services Limited. These Deeds were dated 31 July 2014 (the Commercial Bonds); 8 August 2014 (the Residential & SME Bonds) and 17 February 2015 (the Liquid Assets Bonds).

The Residential Bonds had a 6% coupon; the Commercial Bonds a 7% coupon; the HJ SME Bonds an 8% coupon; and the Liquid Assets Bond a coupon of 3%. All interest payments were to be made annually in arrears and all the Bonds had a maturity date of 31 December 2024. They were secured by a floating charge over the assets of the relevant Issuer.

The Information Memoranda stated that the intention was for the repayment of the principal of the Bonds to be dependent on the success of the investment strategies, but there was also to be a Cash Provision Amount (“CPA”) to provide some additional protection. This would consist of “eligible cash investments”, held in a segregated account, of an amount to be determined by an independent actuary but not exceeding 20% of the aggregate principal amount of the Bonds plus the interest accrued by the first interest payment date. It was intended that the ratio of the CPA to Bonds would remain constant over time. Notably, a CPA was to be established even for the Liquid Assets Bond which was intended to be the equivalent of cash itself (see below). The effect of holding a proportion of its assets in cash would clearly affect the ability of the Issuer to achieve the required return to meet its obligations under the Bonds. However, given the lack of financial statements for the Issuers, there is no evidence that a CPA was in place for any of the Bonds or what level of cash was actually held.

Prior to the maturity date, the Bonds could be redeemed at par (plus accrued interest) if the relevant SIPP beneficiary died. The Information Memorandum for the Liquid Assets Bonds also states that “uniquely” those Bonds could also be redeemed at par at any time with 24 hours’ notice; an assertion repeated in the Fact Sheet. However, this provision is not contained in the detailed terms and conditions of the Bonds within the Information Memorandum and there is no Trust Deed within the evidence provided to establish that it actually existed.

Further Bonds could be issued ranking pari passu with the original Bonds, but there is a covenant prohibiting the raising of debt with any prior ranking security. There are no details relating to any overall limit on new debt.

HJ Residential plc’s stated investment strategy was similar to that for the AIGO Residential Property Fund in that it intended to purchase UK residential property at a significant discount to market value (not more than 90%) and sell it within 3 months. However, unlike the AIGO Residential Property Fund, HJ Residential plc would purchase the assets itself rather than lend money to others to do so.

The main deal flow was anticipated to be from HJL, described in the Information Memorandum, as a company formed by two directors (Mr Stephen and Mr King) who have “substantial expertise” in the UK residential property market. HJL would also benefit from advice on structuring transactions from Reeves Knyght, who, it will be recalled, was described in the AIGO IM as a specialist mining consultant for the AIGO Natural Resources Fund. HJ Residential had one non-executive director, David Anderson, whose main experience appeared, from his description in the Information Memorandum, to be in the hotel sector.

No financial statements for HJ Residential plc were in evidence, although it is stated in the summary information memorandum that one of the benefits of listing was that these would be produced twice a year so investors could monitor the Issuer’s progress.

There is little information as to what HJ Residential actually invested in. However, there was in evidence an undated document entitled Table of Property Holdings (for HJ Residential plc) which lists 16 sold and 20 current properties.

HJ Commercial plc’s stated investment strategy was the same as the AIGO Commercial Property Fund, that is the purchase of commercial property at 20-80% market value with either a re-sale within 30 days at approximately 90% market value or work being undertaken to improve the property’s value. The UK property market would be its main focus, but overseas property could also be held. However, HJ Commercial plc’s strategy was also to purchase the underlying assets itself rather than lend money to others to do so.

The main source of deals was again expected to be HJL. There is little information about what properties were actually bought. However, there are unaudited and undated financial statements for 2014 for HJ Commercial plc in the evidence, showing that its total assets of just over £5m were held in cash.

The Information Memorandum stated that HJ SME plc’s intention was to purchase receivables or make loans to natural resources companies, SMEs (small and medium sized enterprises) or start-up companies either in the UK or overseas. The intention was for most loans to be secured by a fixed charge over key assets of the borrowers, examples given include patents, production machinery, vehicles and property; with a floating charge possibly to be obtained over all assets. The minimum investment amount would be £250,000 which means that (taking into account fees) there would have been a maximum of 16 projects invested in and probably less, which, we observe, is not a highly diversified portfolio.

It was stated that HJ SME plc’s investments would be determined by HJL who was appointed as specialist asset consultant. Alongside Mr Stephen and Mr King, HJ SME had a non-executive director (Robert Sargent) whose experience was in institutional fund management at major institutions which does not appear to be relevant to the strategy of HJ SME plc. Mr Sargent’s other directorships included Dos Palm Oil Production Limited (invested in by the AIGO Natural Resources Fund) and Kempis Asset Management (the first adviser for the AIGO Equity Fund).

There was no evidence regarding what investments were made and whether HJ SME achieved the return of 15-20% per loan that it was targeting. This is substantially higher than the 8% return due to Bondholders and appears to reflect the level of risk inherent in small and start-up businesses.

As we discuss later, after their issuance in February 2015, the cash element of investors’ portfolios (where advice had been provided by either FPL or BHIM) was transferred into an investment in the Liquid Assets Bonds.

It was stated that HJ Liquid Assets plc’s strategy was to use the issue proceeds from the Bonds for G10 intra-day currency trading, single stock arbitrage trading and the trading of other liquid assets including foreign currency, money market mutual funds and government bonds. The trading would be done by a specialist company on behalf of HJ Liquid Assets plc (for a 20% performance fee) or HJ Liquid Assets plc would invest on a secured basis in a company incorporated specifically to trade on its behalf (loan interest being set at 3%). The London Academy of Trading is named as one such potential partner. HJ Liquid Assets plc had one non-executive director (John Devonshire), a partner of the London Academy of Trading.

The Information Memorandum warns that HJ Liquid Asset plc’s trading carried “a higher risk of loss than trading many traditional instruments such as shares in many large companies or fixed income securities”. In particular, it notes risks associated with price volatility, changes in the interest rate, liquidity and general market conditions.

As was the case with the Loan Notes, when customers of the Firms were recommended to invest in the Bonds, they were recommended to do so on the basis of investing in one of three portfolios. Those Portfolios were named the HJ Cautious portfolio, the HJ Moderate Portfolio and the HJ Adventurous Portfolio. Later versions were branded BHIM rather than HJ. As with the Loan Notes, those Portfolios consisted of what was described as a “carefully selected blend of investments” made up of a mixture of Bonds from the various Issuers.

There was a prominent heading in the Fact Sheets of “Capital Protection” under which there was text to the effect that the Bonds benefited from being asset-backed as they had tangible assets securing their value held by the bond trustee and that as additional protection, a loss provision mechanism had been built in that provided additional capital in the event of loss. This was described as being similar in construct to an insurance premium.

It was also stated that the Bonds were listed on GXG Main Quote and that there was no restriction on resale. Beaufort Securities had been appointed as broker and it was stated that if the investor wished to sell the Bonds, then Beaufort Securities would perform this function on the investor’s behalf.

A sum equal to 5% of each investment made into the Bonds was (except in relation to the Liquid Assets Bonds) to be paid to HJL as a commission for introducing investors to the Bonds. As we shall see later, an initial advice fee at the rate of 3% of the funds invested was paid by customer who accepted a recommendation from BHIM to invest in the Bonds.

There were various upfront costs, some of which were disclosed in the relevant Information Memorandum, such as £12,000 paid to Alfred Henry Corporate Finance for approving each Investment Memorandum and £12,000 to the same firm for advising on the admission of each of the Bonds to GXG Main Quote. It was also disclosed that a firm of solicitors would be paid for services relating to the verification of each Information Memorandum, but no amounts were disclosed.

There were also ongoing costs. In relation to each of HJ Residential plc, HJ Commercial plc and HJ SME plc, there was an annual fee of 1.5% of gross assets of each Issuer to be paid to HJL (at HJL’s discretion) who had been appointed to act as “specialist asset consultant”. A further sum of £12,000 per annum was payable to Alfred Henry Corporate Finance in relation to advice regarding the admission of the Bonds to GXG Main Quote, £12,000 per annum was payable to the non-Executive Director for each Issuer, £19,200 per annum was payable to the Bond Trustee and £3,000 per annum was payable to the Registrar for each Issuer. In relation to HJ Liquid Assets plc, similar fees were payable, but there was no ongoing fee to HJL, and the directors’ fees were £4,000 per annum to each of Mr Stephen and Mr King and £4,000 per annum to the non-executive Director.

Accordingly, in the first year of their investment, an investor who put funds into the Bonds (excluding the Liquid Assets Bonds) in October 2014 would pay 3% before the investment was made and then once the various commissions and costs are taken into account (5% + 0.3% (approximation of upfront costs assuming funds put in to all three Bonds and a maximum capital raising of £12million) + 1.5% + 1.15% (on the same assumptions)) meaning approximately 10.95% of the total sum to be invested has been expended before any investment has been made.

In fact, it appears that considerably less than the full amount offered was raised. The announcement from the Cyprus Stock Exchange giving details of the listing of the Bonds on that Exchange in September 2015 discloses that Commercial Bonds to the value of £2,512,763 were listed, Liquid Assets Bonds to the value of £2,459,207 were listed, Residential Bonds to the value of £2,963,490 were listed and SME Bonds to the value of £1,812,237 were listed. Accordingly, in practice, the costs would be a higher percentage of the monies raised than referred to above.

Other than the 3% advisory fee, an investor would only find out about the other costs if they read the full Investment Memorandum.

Under the Service Proposition, as discussed below, investors who opted for an annual investment review would also have been charged 0.5% per annum of the total value of their investment.

As mentioned above, Mr Lockie gave expert evidence on the question whether the Loan Notes and the Bonds should have appeared to a reasonably competent IFA to be high risk for retail investors, based on the information relating to the Products that the relevant Applicant claimed to have reviewed. In practice, Mr Lockie made his findings primarily by reference to the various Information Memoranda and Portfolio Fact Sheets.

In assessing what a reasonably competent IFA might reasonably be expected to have known at the time the relevant advice was given, Mr Lockie had regard to what was required to obtain the minimum qualification requirements for IFAs according to the terms of the Authority’s Training and Competence Sourcebook. We understood that each of the relevant IFAs in this case had at least those minimum qualification requirements. In our view, that was an appropriate benchmark. As Mr Lockie said in his report, a reasonably competent IFA, providing advice on investment products for retail investors, should have a sufficiently broad knowledge to understand the principles of risk and return, diversification, how an investee’s cost of capital relates to an investor’s return and to be able to identify when it is prudent to ask additional questions or to enlist more specialist assistance. None of the Applicants took issue with that statement and we accept it as the relevant standard.

Mr Lockie set out a variety of factors that are relevant in assessing the risk of a product. Uncontroversially, he described how assets can be divided into two broad classes, namely “Defensive” assets and “Growth” assets. In the former category would fall cash and bonds, that is fixed interest securities, which would have a hierarchy of risk according to whether the issuer was a Government or a Corporate and whether the bonds were investment-grade or sub- investment-grade, depending on whether a rating had been obtained. “Growth” assets comprised equity instruments (shares) and real property. Mr Lockie explained that for most investors, a mixture of Defensive and Growth assets would be acquired, the split varying according to their particular circumstances. He explained how bonds generally present a lower risk than equities in that bond holders receive a fixed return and are ahead of owners of equity in the queue when the business is wound up. He did, however, stress that not all bonds are the same and he would expect a reasonably competent IFA to consider the risks associated with a bond in each case.

Again, uncontroversially, Mr Lockie explained the principles of investment planning and diversification. In particular, he explained how the risk of a failure of a subset of the broad market, such as a company, sector or country can be diversified away by spreading a portfolio across a range of assets within an asset class. As he explained, this reduces the impact of failure or underperformance of one component on the portfolio as a whole and is a widely accepted principle. He further explained how diversification can also protect systematic risk if the asset classes to which portfolios are exposed are selected so they do not all move in the same direction at once. He also described how portfolio construction relies on using assets which are not well correlated with each other, so that they would not all be expected to move in the same direction at once most of the time.

Mr Lockie explained that there is a range of opinions as to the minimum number of holdings needed to effectively diversify a portfolio, with some suggesting as low as five and others 1,000 or more. He explained that diversification need not be expensive and that most investors can access a diversified portfolio at low cost via a collective fund such as a unit trust, investment trust, exchange traded fund or open-ended investment company. He observed that some such funds hold thousands of individual securities and have a global spread while charging under 1% per annum.

Mr Lockie then explained the extent to which a reasonably competent IFA would be expected to undertake due diligence on a new product. In the absence of a performance track record, he said that a reasonably competent IFA needed to make an assessment based on their experience, the data available about the long term historic returns of a similar asset over a range of market conditions and the proposed product costs. He emphasised that a new product, particularly from a new provider, should be subject to additional scrutiny due to the lack of a measurable track record. In his cross examination, Mr Lockie expressed the view that it was unnecessary to undertake the same degree of investigation where the product concerned, and those running it, were regulated on the basis that an adviser should be entitled to assume that, in the case of a UK investment, the Authority has already conducted that degree of detailed evaluation. He observed that the quality of regulation varied throughout the world, so the degree of due diligence necessary may depend upon where the product in question was regulated and what standards were applied in the relevant jurisdiction.

In Mr Lockie’s view, due diligence should extend to the question of operational risks, examples being the competence and experience of personnel, conflicts of interest and costs.

Mr Lockie then described the criteria he used to determine the extent of risk inherent in an investment product. He accepted that the terms “low”, “medium” and “high” risk are terms that are widely used, but there are not clear and universally accepted definitions of what constitutes “low” “medium” and “high”. He accepted that the terms are somewhat imprecise in the sense that even though a particular investment may be fairly described overall by one of these terms that does not necessarily mean that the same term applies to each and every characteristic of the investment. In other words, it is possible for a given investment to have both low and high-risk characteristics.

He gave an example of a regulated investment fund which employed no gearing or derivatives and invested only in large UK companies, characteristics which would typically be regarded as low risk. However, if the investment fund only held 10 companies in its portfolio, the impact on the portfolio of one of those companies failing would be substantial and give rise to a higher systematic risk. As a result, in his view, a reasonably competent IFA would regard that fund as high risk overall. By contrast, a similar fund which invested only in emerging markets, but held a widely diversified portfolio across dozens of countries and hundreds of companies, would be exposed to high systematic risk because emerging markets are perceived as riskier than the UK.

Mr Lockie’s conclusion as to the approach to be taken in assessing whether an investment is low, medium or high risk overall is a matter of considering several criteria and forming an opinion based on the aggregate of the available data about it. He set out a table of the relevant factors to take into account when assessing an investment which he considered that a reasonably competent IFA would have in mind. We summarise the key factors as follows:

Liquidity and access: low risk is where the investment is accessible within a few days with no or very small loss of capital; medium risk is where the investment is accessible within a few days, but value could be depressed due to market conditions; high risk is where the investment is not accessible on demand and/or the price is determined by the issuer rather than by a free market pricing mechanism

Short-term volatility: low risk is where there is a small chance that the investment could fall in value by other than a small amount and recovery from such falls will generally be within a short period; medium risk is where there is a significant chance that the investment could fall in value and not recover for a prolonged period; high risk is where there is a significant chance that most or all of the investment could be lost irretrievably

Gearing: low risk is where gearing is not employed; medium risk is where gearing may only be employed subject to predefined limits and timescales; high risk is where gearing may be employed without restrictions at the discretion of the investment provider

Currency risk: low risk is where exposure is to assets denominated in the same currency as that of the investment or where currencies are fully hedged; medium risk is where the currency risk is either hedged or unhedged for reasons which are clearly stated; high risk is where exposure may be to assets denominated in other currencies and such exposures may be hedged or unhedged at the discretion of the provider and subject to no independent scrutiny

Maturity risk: low risk is where interest paying investments mature in a short period of time (less than 5 years) and therefore tend to exhibit relatively low price volatility as investors are not committed to owning them for a long period; medium risk would be interest paying investments which mature between 5 and 15 years and their price volatility tends to fall between that of short and long dated bonds; high risk is where interest paying investments mature more than 15 years in the future, and are subject to greater price volatility as the impact of future events on the attractiveness of the income is less certain

Unsystematic: low risk is where the investment is as fully diversified as possible across the asset class to which it is exposed, such as a broad market index fund; medium risk is where the investment is diversified across the asset class to which it is exposed; high risk is where the investment need not be diversified across the asset class to which it is exposed and so may be heavily impacted by the failure or loss of any part of the portfolio’s assets

Counterparty: low risk is where any counterparties are large, stable and established institutions which are regulated, subject to external independent scrutiny and have adequate transparency to allow an informed assessment of the risk involved; high risk is where counterparties may be small, recently established with no track record, unregulated and not subject to significant scrutiny

Systematic: low risk is where the underlying assets are in sectors which are established, subject to market pricing and have a low expected chance of loss, such as short-dated bonds from high quality issuers; medium risk is where the underlying assets are in sectors which are established and subject to market pricing but may be in asset classes which have a higher expected risk such as longer-dated or lower rated bonds, quoted equities or real estate; high risk is where the underlying assets may be unquoted and valuation is a matter of opinion on the part of the provider, the directors of the underlying entities or third parties appointed by the provider; where quoted, the listing is in a jurisdiction where regulation, transparency and investor rights may be less than in developed markets

Regulation and investor protection: low risk is where the investment is fully protected by regulation and investor protection arrangements; medium risk is where regulation and investor protection arrangements cover some aspects of the investment; high risk is where there is little or no regulation or investor protection arrangements and in the event of failure of the provider, investors could expect to lose up to the entire amount of their investment

Mr Lockie accepted that few, if any, individual investments would fall in a single column on the table, thus emphasising the need to look at all the various factors and make an overall assessment.

Applying these criteria, Mr Lockie set out some examples of typical investments owned by retail investors which he would expect a reasonably competent IFA to regard as falling into each category:

Mr Lockie explained that one way of considering the risk profile of an investment is to compare the investment which is being considered against a clearly identified low risk investment. He compared the AIGO Loan Notes, which paid interest at a rate of 8% annually in arrears and where capital would be returned to investors after 10 years, to a UK gilt-edged security due to redeem at the same time as the AIGO Loan Notes, namely the 2 ¼% Treasury Gilt 2023. If an investor bought the latter security on the day the AIGO Loan Notes were issued, he could expect a redemption yield of approximately 3% on an investment with a very low likelihood of default on either interest or principal and which could be traded daily.

Mr Lockie’s analysis is that there is no reason for a high return low risk investment to exist because if market participants perceive that they can obtain a high return at low risk from an asset, demand for that asset will increase. This will push up its price to a level at which the prospective return to new buyers is lower and more in line with the market’s expectations for an asset with that level of risk.

Therefore, Mr Lockie argued, if two bonds of similar maturity have different levels of redemption yield there is a perception somewhere that the one with a higher redemption yield will be riskier than the one with the lower redemption yield. If the issuer deems it necessary to offer a return of 8% when an equivalent UK gilt is offering a return of 3%, there is an implication that the issuer must regard the 8% bond as likely to be higher risk than the equivalent gilt. If not, there would be no need to attract investors by offering a higher return as they would be just as likely to buy the issue at a 3% redemption yield.

Finally, on these general points, in his cross examination Mr Lockie observed that the risk that is being assessed is the likelihood that the investment will deliver what it is expected to deliver during the period that it is held. Thus, in the case of the Loan Notes, the question is whether the risk of the issuer not being able to deliver the expected 8% return over the life of the product and to repay the principal in full at the end of the term can be considered to be a low, medium or high risk. In our view, that is an appropriate yardstick to apply when assessing risk and the Applicants did not dispute it.

The risks identified by Mr Lockie were based primarily on the AIGO IM and the Fact Sheets on the basis that these materials would be the most useful in the assessment by a reasonably competent IFA of the risk profile of the Loan Notes. We agree with that assessment. Much of the material produced by the Applicants as to the due diligence that they undertook on the Loan Notes is in our view irrelevant to the assessment by the relevant IFA of the risk profile of the Loan Notes. Most of that material related to the Firms’ obligations regarding identification for the purposes of money-laundering risks but had no relevance to the question of the professional competence of those involved with the Cells and their investment strategies.

Mr Lockie identified that a substantial proportion of the investors’ funds went to companies controlled by Mr Stephen, in circumstances where HJL had already been paid an initial fee from those funds. Mr Lockie was of the view that in such circumstances, a reasonably competent IFA would be concerned about the selection of counterparties and how the interests of the holders of the Loan Notes who were being expected to fund the enterprises were being protected.

Mr Lockie also noted that the equity holders (notably Mr Stephen) were incentivised to maximise investment returns over and above what was needed to pay the investors, who were funding the investments but had no influence over investment decisions. He particularly noted that the amount of risk that investors would wish to bear (and which would ensure payment on the Loan Notes) may well be lower than that desired by an equity holder. Mr Lockie stated that this would have been obvious to a reasonably competent IFA.

Mr Lockie stated that he would not expect a reasonably competent IFA to have an in-depth understanding of the way in which captive insurance works and accepted that he had limited knowledge on captive insurers.

However, he observed that the premium calculation envisaged a very low risk of default during the 10 year term of the Loan Notes and that this implied that a claim would be unlikely. He went on to say, however, that he would be much more confident of the validity of this premise were the insurer an independent institution whose own business would be affected were a claim to arise. However, in this instance, the captive nature of the insurer meant that he could not regard the low premium as being indicative of an independent assessment of the risk of the Cells defaulting on their obligations in respect of the Loan Notes.

He stated that a reasonably competent IFA would have considered that concerns over the insurance, such as the use of a captive insurer rather than purchasing insurance in the market and the lack of adequacy of the captive insurer’s capital, would have limited the mitigation to the risk profile that the insurance appeared to provide. Consequently, Mr Lockie was of the view that referral to a suitably qualified expert might have been justified.

Finally, on the insurance issue, Mr Lockie noted that if a claim were to arise the fact that the Directors of AIGO retain all responsibility for making claims and administering payouts to lenders should give a reasonably competent IFA cause for concern in that the process would not be independent and subject to scrutiny. This and the other factors mentioned above should, in Mr Lockie’s view, have prompted a reasonably competent IFA to doubt whether, based on the evidence provided, the supposed benefits to the holders of the Loan Notes of the insurance arrangements had any real value.

Mr Lockie rejected Mr Page’s characterisation that the risk level attached to the Loan Notes would be materially different had they been sold as equity. He expressed the view that the risk inherent in a product is not determined by whether it is sold as an equity or a bond; it is a function of what it is and the nature of the issuer’s business. Although there is a difference, at least in principle, in the risk between bonds and equities issued by the same entity this reflects the priority of bondholders over equity holders on liquidation. He observed that if the business fails without sufficient assets to meet its liabilities, this distinction is academic as both parties lose their investment.

Mr Lockie expressed the view that, when considering an investment for a retail investor which is not subject to the UK (or equivalent) regulatory regime, it was incumbent on the entity responsible for advising that investor to ensure that any additional risk which this entailed was mitigated as far as possible by its own due diligence procedures. In the case of an investment not subject to the protection offered by the FSCS, Mr Lockie was of the view that the regulated firm recommending it needed to satisfy itself that the absence of such protection either would not impact materially on the investor’s financial security if the investment were to fail (for example, by only investing a small proportion of their assets into it which they could afford to lose) or that the benefits available from it were considered to be adequate compensation for the elevated degree of risk compared to an investment offered by a regulated institution.

Mr Lockie identified the following risk factors which he would expect a reasonably competent IFA to identify and consider in relation to this Cell:

Mr Lockie considered that many of the risks of the Commercial Property Fund were identical to those of the Residential Property Fund, particularly those identified above as regards Liquidity and Access, Gearing, Currency Risk, Unsecured Loan, Counterparty (with the exception of the reference to Kazai) and Competence and experience of personnel insofar as it refers to Mr Stephen.

In addition, Mr Lockie identified the following risks that he would expect a reasonably competent IFA to identify and consider in relation to this Cell:

Again, Mr Lockie considered that many of the risks of the Natural Resources Fund were identical to those of the two Cells considered above.

In addition, Mr Lockie identified the following risks that he would expect a reasonably competent IFA to identify and consider in relation to this Cell:

Mr Lockie identified the following risks that he would expect a reasonably competent IFA to identify and consider in relation to this Cell:

Mr Lockie concluded that it should have been clear to a reasonably competent IFA, simply from reading the AIGO IM, that the authors of the document recognised the significant risks associated with investment in the Cells. He saw no basis on which an investment in any of the Cells could reasonably be regarded by a reasonably competent IFA as being low risk. In summary, Mr Lockie relied on the following matters for his conclusion that any reasonably competent IFA would have placed the Loan Notes within the “high risk” category:

In his view, there was insufficient evidence to conclude that the insurance arrangements would have been adequate to mitigate these risks, given that not all Cells were covered by them and the ability of the captive insurer to meet the costs of any claims was unknown.

As we stated in relation to the Loan Notes at [251] above, much of the material provided by the Applicants to support their due diligence processes is irrelevant to the question of the risk profile of the Bonds which can properly be assessed by reference to the Information Memoranda and the Fact Sheets.

Mr Lockie expressed the view that the fees payable to HJL (whose sole shareholder was Mr Stephen who was also the sole shareholder and a director of the four Issuers) as well as Mr Stephen’s entitlement to any excess returns above those needed to pay the Bondholders, created a clear conflict of interest. This was because Mr Stephen would have an incentive to procure investment into the Bonds and then the power to direct the activities of the Issuers to maximise his own returns as shareholder, regardless of the desire and capacity for risk of the bondholders who were providing the finance. The selection and appointment of HJL as “specialist asset consultant” for the Issuers (other than HJ Liquid Assets plc), regardless of evidence of its relevant expertise in the underlying assets, shows no indication of having been conducted on an independent basis given that the same individuals represented both parties. Mr Lockie expressed the view that he would expect that these conflicts would cause concern to a reasonably competent IFA considering recommending any of the investments to a retail investor.

Mr Lockie noted that the same comments that he made regarding the relevance of the regulatory protection available in respect of the Loan Notes, as set out at [259] above, applied to the Bonds.

Mr Lockie identified the following risk factors which he would expect a reasonably competent IFA to identify and consider in relation to these Bonds:

Mr Lockie considered that some of the risks of the Commercial Bonds were identical to those of the Residential Bonds, particularly those identified above as regards Liquidity and access, Costs, Cash protection and security, Counterparty, and Competence and experience of personnel. In addition, Mr Lockie identified Currency risk as a relevant factor. Since the Issuer could purchase property outside the UK, the value of such property would clearly be denominated in currencies other than sterling. Therefore, the movement of exchange rates could result in a transaction which had realised a profit in the local currency becoming a loss for a sterling investor in the absence of a currency hedging policy.

Mr Lockie considered that some of the risks of the SME Bonds were identical to those of the Residential Bonds, particularly those identified above as regards Liquidity and access, Cash protection and security, and Counterparty.

In addition, Mr Lockie identified the following risks that he would expect a reasonably competent IFA to identify and consider in relation to these Bonds:

Mr Lockie considered that some of the risks of the Liquid Assets Bonds were identical to those of the Residential Bonds, particularly those identified above as regards Liquidity and access, and Competence and experience of personnel, insofar as this referred to Mr Stephen and Mr King.

Mr Lockie was of the view that the nature of the proposed investment strategies for each of the Issuers was consistent with the risk warnings contained in the Information Memoranda to the effect that an investment in the Bonds involved a high degree of risk.

In his view, the additional fact that many of the personnel involved appear to have limited experience in the specific fields which pertained to the Issuers’ investment strategies as well as the inherent risk of the Issuers’ investment strategies themselves, should have made it clear to a reasonably competent IFA that an investment in the Bonds would be a high risk option. In his view, the small size of each issue should also have given rise to concerns as to the likelihood of there being a viable secondary market so investors could sell their Bonds should they need or wish to do so. This would mean that investors would have no realistic prospect of exiting their investment prior to the maturity of the Bonds and that determining a fair price for the Bonds, at any point, would be problematical.

Mr Lockie observed that the stated yields of the BHIM Portfolios were 6.25% (Cautious), 6.6% (Moderate) and 6.775% (Adventurous). He did not expect a reasonably competent IFA to view the difference between 6.25% and 6.775% as sufficient to warrant such a range of descriptions. A similar analysis could be applied to the Bespoke (AIGO) and HJ Portfolios.

Bearing in mind his assessment of the specific risk factors relating to the Products detailed above and the lack of diversification within the Portfolios, in Mr Lockie’s view, a reasonably competent IFA would not have considered that risk was mitigated in any meaningful way by combining several of these high risk Products. Therefore, in his view, the Portfolios were high risk regardless of whether they were named “Cautious”, “Moderate” or “Adventurous”, and the insignificant difference between their levels of return also indicated that there was, in essence, very little difference in their riskiness.

Each of Mr Page, Mr Henderson and Mr Freer, who were responsible at their respective Firms for recommending the Products, did not accept Mr Lockie’s conclusions that they should be regarded as high risk.

Mr Lloyd submitted as follows:

Each of Mr Page, Mr Henderson and Mr Freer were cross examined on the evidence in their witness statements to the effect that they considered the Products to be low risk. Their position can be summarised as follows.

Mr Page relied primarily on the fact that the Loan Notes generated fixed returns which were guaranteed by an insurance policy covering 100% of the principal amount of the Loan Notes. He said that in relation to the Liquid Assets Bonds, he knew of nothing better on the market that would achieve the same return. In evidence, he was clear that the Liquid Assets Bonds were the same in risk terms as holding cash on the basis that the assets which were held were readily realisable into cash.

He said that the Loan Notes were “just a cash bond with a guarantee” and he also reasonably relied on Mr Tunkel’s advice that the Loan Notes were a “standard asset”. Mr Page accepted in cross-examination that he did not analyse the Information Memorandum in great detail; in particular he did not consider it part of his role to analyse the features of each of the Cells. He said he relied heavily on the fact that Guinness Mahon had accepted the Loan Notes as being suitable for inclusion in a SIPP and the due diligence that Guinness Mahon would undoubtedly have done in coming to that conclusion.

Mr Page said he had received the “performance sheets” for the Residential Property Fund and the Commercial Property Fund on a quarterly basis and he would have spent about “15 minutes” looking at them. He was unclear whether, for the Residential Property Fund he had looked at the detail of the properties held, and he had not seen the duplication of properties which had been raised as a concern by Mr Lockie. In relation to the Commercial Property Fund, he said it caused him no concern when he saw the amount that remained held in cash by Stark rather than invested in property as of 31 December 2014. He also did not notice that, by 31 March 2014, the Natural Resources Fund had lent considerably more than 25% of its funds to Dos Palm Oil contrary to its strategy of lending no more than 25% to any one project and that he did nothing when he subsequently saw the amount that had been invested in the Liquid Assets Bonds saying, “the working within the fund was beyond my remit”.

Mr Henderson regarded the Loan Notes as providing a fixed return and a capital guarantee. He was of the view that although Guinness Mahon was an unsecured creditor in relation to the Loan Notes, the risk of insolvency was mitigated by insurance, which protected the value of the loans against a fall in the value of the underlying assets. He did not consider the lack of “regulatory oversight” to be so significant as to affect his view of the Loan Notes, which anticipated making loans for investment into a stable market in UK property. Accordingly, he considered the Loan Notes to be a low risk investment.

Mr Henderson did not consider the Nevis insurance regulatory regime to be meaningfully different to that of the United Kingdom. He said that he had relied on advice from Mr Tunkel to that effect. As regards the fact that the Loan Notes were not covered by the FOS or the FSCS, Mr Henderson expressed the view that neither the FOS nor the FSCS provide cover in relation to products, but only to advice. He said he relied on Mr Tunkel’s advice that the Loan Notes were “standard assets”.

Mr Henderson confirmed that he had seen performance sheets. He said he would have looked through the details of the properties purchased by the Residential Property Fund but admitted that he had not seen the duplication referred to by Mr Lockie. In relation to the Commercial Property Fund, he said that he worked in HJL’s offices and saw all the commercial transactions; however, he seemed unaware of why there was so much cash held by Stark by the end of 2014. He could not remember “the reasoning” behind the Natural Resources Fund investing in Liquid Assets Bonds and said he would probably have known the reason why the Equity Fund invested in the Natural Resources Fund but could not now remember.

Mr Freer took the view that the Residential Bonds were suitable for clients with a low tolerance for risk, but that view altered slightly when GXG Main Quote turned out to be less sound than he had previously believed it to be. He understood that bonds were less risky than investing in funds because they offer a fixed coupon with a defined date upon which they will pay out capital. He said the risk of investing in a fund is that the value of the underlying assets can go up and down; however, if the bond was held to its conclusion the issuer is obliged to pay out the value. He therefore considered that this, in general, made investing in bonds less risky than investing in shares or funds which invested in shares.

Mr Freer was of the view that there was capital protection for the Bonds in the form of fixed and floating charges and cash collateral. In his view, this made the Bonds relatively stable and low risk investments. As regards regulatory oversight, he observed that many low-risk products were not protected by the FSCS and the FOS.

In Mr Freer’s view, if all an investor required was a product that provided them with capital protection and a fixed return there was no reason why their entire pension pot could not be invested in the Bonds. He said that he could not find any comparable product to the Bonds for a 10 year term which met these objectives. As regards the risk warnings in the Information Memoranda, these were something that was standard for this type of document. He did, however, accept that just because an investment was capable of being traded on a market it did not mean that there was a secondary market and he accepted that no secondary market had developed in relation to the Bonds. He made an unsubstantiated assertion, which we reject, that some Bonds had been sold in the market. He accepted in his cross-examination that the Commercial Bonds tended towards a medium rather than a low risk and the SME Bonds could be regarded as medium to high risk. Nevertheless, he did not accept the conclusions of Mr Lockie’s report but gave no reasons beyond a simple denial.

We start our consideration of the Applicants’ submissions by rejecting Mr Lloyd’s submission that there should be some accommodation to take account of the fact that the Applicants worked for small firms with limited resources. We cannot accept Mr Lloyd’s picture of small firms doing their best with the resources they had.

As Mr Lockie’s evidence demonstrates, a reasonably competent IFA could form a view as to whether the Products were high risk simply by a careful but not exhaustive review of the various Information Memoranda and Fact Sheets. Mr Lockie’s conclusion, which we accept, was that a reasonably competent IFA who undertook such a review would conclude that the Products were evidently high risk. On that basis, Mr Lloyd’s concerns that the Applicants did not have the resources that would be available to a large firm, such as a bank, to undertake detailed due diligence on the Products and those who were responsible for managing them are not relevant.

It may be that the amount of due diligence that small firms, such as the Applicants’ firms in this case, would have to undertake to satisfy themselves that it would be appropriate to recommend the Products would be disproportionate. As Mr Purchas submitted, if the Firms did not have the necessary resources to carry out detailed due diligence, with the result that the Firm would have less data available to assess the Products, it should not be recommending them. As Mr Lockie noted, an IFA may form a provisional view to the effect that the investment concerned looked quite good, but he would have to do so much work that it would make it uneconomical for him to use it. As he also noted, if the IFA could not form a judgment on the basis of his initial review of the documentation and could not easily find out what he needed to know to make that judgment, then the decision should be not to recommend the product.

Each of Mr Page, Mr Henderson and Mr Freer are experienced IFAs with the necessary qualifications to practice as such. The profile of their Firms suggests that prior to their involvement with the Products, typically the investments that they would recommend to their customers would be regulated products, such as collective investment schemes authorised and regulated by the Authority, equivalent products regulated by a regulator or regulated insurance based investments with similar characteristics to collective investment schemes. Insofar as individual securities were recommended, they may have included government securities and other securities listed on a major recognised exchange. Many of the regulated products would be offered by established providers, where it would be reasonable for the IFA to accept that, before they could be offered to the public, those who were responsible for them would have been subject to scrutiny by the Authority such that the IFA would not find it necessary to undertake as significant due diligence on either the product concerned or those responsible for managing it. Mr Page said in his evidence that he would not expect to do significant due diligence on the funds he recommended, and that is a reasonable position to take in relation to regulated products, but not in relation to unregulated products such as those which are the subject of these references.

There was no evidence that any of Mr Page, Mr Henderson or Mr Freer were expert in unregulated funds which invested in property or natural resources or that they were expert in captive insurance or other mechanisms for providing capital protection. However, like Mr Lockie himself, who also did not profess to have specialist expertise in captive insurance or property funds, from their experience and qualifications they would have been able to identify the relevant factors to be taken into account when assessing the risk profile of investments that did not have the characteristics of mainstream investments described above.

There was no challenge to the approach outlined by Mr Lockie in assessing whether an investment could be regarded as either high, medium or low risk, as summarised at [244] above. It appeared to be implicit in Mr Lloyd’s submission that on the Applicants’ balanced assessment the investments came out low risk overall and that an assessment of these factors would be the starting point for a reasonably competent IFA seeking to assess the Products.

We therefore accept that an assessment of the factors identified by Mr Lockie would be an appropriate starting point. It follows from what we have said above that the fact that the IFAs concerned were not, in common with Mr Lockie, expert on the more specialised matters that we have referred to did not prevent them carrying out an appropriate assessment. Accordingly, we reject Mr Lloyd’s submission that Mr Lockie’s evidence is undermined by the fact that he is not an expert in and had limited knowledge of crucial aspects, namely bonds, property and captive insurance.

Neither did Mr Lloyd or Mr Page dispute Mr Lockie’s approach of making his assessment primarily by reference to the Information Memoranda and the Fact Sheets.

It also appears from Mr Lloyd’s submissions that it was common ground that there was no strict formula for determining whether an investment was low, medium or high risk. Mr Lockie accepted that, to a large extent, the process involved forming an impression based on the evidence that was available. We therefore accept that different IFAs may reach different conclusions on the same facts and that there are a range of reasonable conclusions that can be reached when assessing the same information. Some IFAs may give greater weight than others to particular factors.

However, there is no evidence that any of Mr Page, Mr Henderson or Mr Freer carried out a careful balancing exercise having considered all the relevant risk factors. As was demonstrated by the evidence that they gave in their witness statements and in their oral evidence, in relation to the Loan Notes, Mr Page and Mr Henderson appeared to rely primarily on the fact that the fixed returns could be assured because of the nature of the underlying investments and the principal amount of the Loan Notes was guaranteed because of the existence of insurance. Mr Freer thought that the Bonds were lower risk because they were secured and the issuer was obliged to pay out their full value at maturity.

There is no evidence that in relation to the Loan Notes either Mr Page or Mr Henderson gave any weight to any of the factors that led Mr Lockie to conclude that a reasonably competent IFA would have placed the Loan Notes within the “high risk” category namely:

As far as the liquidity point is concerned, we accept Mr Lockie’s evidence that, although on the face of it the ability to assign the Loan Notes within 30 days demonstrates a degree of liquidity, there was no clarity as to how the Loan Notes would be valued or who would purchase them in the absence of a functional secondary market. In any event, this provision only applied to customers advised by HCA. In our view, this is a very strong factor pointing to there being a high risk that an investor wishing to sell his Loan Notes would be unable to do so at the issue price.

With regard to the dependence on the skill of the managers and the success of the investment strategies, Mr Page and Mr Henderson appear to take it as read that there was no risk that the relevant Cells would not be able to generate sufficient returns to service the interest payments, meet the significant costs of running the Cells and repay the principal amount of the Loan Notes. However, as Mr Lockie’s analysis in the case of the property based funds indicates, successful property trading is dependent on both luck and skill rather than the general performance of property as an asset class and also involves significant cost. In our view, that risk would also have been increased in relation to the Residential Property Fund by the interposition of a third party such as Kazai or Stark so that there was significant reliance on the covenant of those entities, neither of which had significant track records. As Mr Lockie identified in relation to the Commercial Property Fund, there was little information about the intended investments which would enable a reasonable assessment to be made of the Cell’s prospects. We also accept Mr Lockie’s concerns regarding the underlying assets and investment strategies of the Natural Resources Fund and the Equity Fund.

Contrary to Mr Henderson’s view, we do regard the lack of regulatory oversight to be a significant risk factor. He is wrong in his assessment that neither the FOS nor the FSCS provide cover in respect of products, as opposed to advice. Regulated collective investment schemes of the kind that we have referred to above as mainstream investments are subject to product regulation, covering matters such as the fitness and properness of the managers who operate the funds, the fund’s investment and borrowing powers, the valuation of assets and the pricing of units and adherence to the published investment objectives. If a regulated fund was to fail as a result of non-compliance with any of these matters, then the FSCS safety net would apply and there would be access to the FOS. The only regulation of AIGO that we can detect is the fact that it was authorised by the Mauritian authorities as an Expert Fund. We have no details as to whether the managers of the Cells were regulated to any material extent in Mauritius. The disclosures in the AIGO IM make it clear that, as an Expert Fund, AIGO was exempt from most ongoing obligations and the regulation of the Mauritian authorities on public collective investment schemes. That in itself is a strong indication that the Loan Notes were to be regarded as a high risk product.

The risks which can arise as a result of a lack of regulatory oversight are well demonstrated by what actually happened in practice. As we have found, all of the Cells deviated from their stated investment strategies, most starkly in the case of the Equity Fund which, as Mr Lockie observed, underwent significant changes in a relatively short period. This would not have been possible without the approval of the relevant regulatory authority and possibly the investors in the case of a regulated fund, but this was a matter which did not appear to concern either Mr Henderson or Mr Page who received the performance sheets which showed how the Cells were investing in practice.

As Mr Lockie stated, the heightened risks presented by the lack of regulation of the product concerned could be tempered by advising an investor to invest only a small proportion of their assets in the relevant product which they could afford to lose. However, as we shall see, in most cases those who were advised to invest in the Loan Notes were advised to invest the whole of their pension assets.

We also agree with Mr Lockie’s view that there was an absence of significant diversification in respect of all of the Cells. Again, this would not have been possible in a regulated fund, where there are strict requirements as to diversification of assets.

We also accept Mr Lockie’s concerns about the competence and experience of the personnel involved with all of the Cells to be well founded. Clearly, if the IFAs had had the necessary expertise, this was an area that could be explored through in-depth questioning and the obtaining of further evidence as to the track record and experience of the individuals involved. That is the kind of due diligence that, for example, a seriously interested institutional investor with significant knowledge of the sectors or trading strategies concerned, and the ability to ask the right questions, could undertake, but, in common with Mr Lockie himself, none of the IFAs in this case would have been competent to undertake this at reasonable cost. That is why, as Mr Lockie said, a reasonably competent IFA would find that there was sufficient concern about the competence and experience of the personnel involved to consider it a strong factor pointing towards investment being in the high risk category.

We also consider that both Mr Page and Mr Henderson placed undue reliance on insurance. First, insurance was not in place for all of the Cells. No insurance policies were obtained for two of the Cells at all. Even where there was insurance in place, we agree with Mr Lockie’s assessment that it was of limited value.

As our analysis of the insurance arrangements set out [160] to [166] above demonstrates, a captive insurer based in Nevis provides much less confidence than a recognised open market insurer. The Nevis regulatory requirements are very light touch and the cost of insurance had to be borne by the individual Cells, in addition to the interest payments and the other running costs of the Cells. The riskiness of the Cell’s trading strategies, as discussed above, enhanced the risk that the premiums would not be paid. As we have found, the value of the Residential Property Statutory Fund by 31 December 2014 was only a very small proportion of the loans it insured so that the ability of the insurance to meet any shortfall between the realisable value of the Cell’s assets and the amount of the loans must be regarded as highly questionable. There would be no compensation scheme available were the insurer to fail. The risk of the insurance arrangements not performing to the extent represented was also heightened by the fact that the benefit of the insurance contracts lay with AIGO itself which would be making any claims and administering any recoveries.

There is no proper basis for Mr Henderson’s assessment that the Nevis regulatory regime was not meaningfully different to that of the United Kingdom. Mr Smith’s evidence clearly demonstrates that not to be the case, bearing in mind the very low capital requirement for insurers in Nevis compared to the United Kingdom. Mr Henderson’s assertion that Mr Tunkel had advised that the two regimes were comparable is not credible and we reject it. He could point to no written advice in that regard, and we could not see how an experienced lawyer such as Mr Tunkel could possibly come to that conclusion, bearing in mind that the readily available information on the Nevis regime would indicate to any reasonably competent lawyer that the regime was much laxer than that in the United Kingdom.

Accordingly, the statement in the Fact Sheets that the insurance was in effect a “capital guarantee” and that the insurance policy covered 100% of the loan was highly misleading.

With regard to the “potential indicators of lower risk” associated with the Products referred to by Mr Lloyd in his submissions, none of these detract from the strong indications of high risk that we have referred to above. Mr Lloyd’s submissions in this regard were not made with any great force.

We place no weight on the role of the Mauritius regulator for the reasons we have set out above. Although it is true that bonds can be a “defensive” asset class, the Loan Notes were not promoted on that basis. Investment in a “defensive” asset is, as Mr Lockie indicated, designed to reduce the risk that arises because of the investor’s holdings in other riskier assets, but as we have indicated above, the Loan Notes were themselves assets which carried many attributes of a high risk investment.

Mr Lloyd’s submission that bonds are typically lower risk than direct equity investments is an over generalisation. As Mr Lockie pointed out, the risk inherent in the product is not determined by whether it is sold as an equity or bond; it is a function of what it is and the nature of the issuer’s business. The difference merely reflects the priority of bondholders over equity holders in terms of on-going payments and on liquidation.

As far as diversification is concerned, in his submission Mr Lloyd appears to accept that diversification was limited, and in our view, it was insufficient to conclude that the property portfolios were of lower risk. Likewise, whether an investment strategy based on purchasing distressed property at below market value is successful in providing some level of protection against drops in market value, as we have indicated, will depend very much on the luck and skill of those implementing the strategy.

In our view, the question as to whether or not the Loan Notes could be regarded as “standard assets” is largely irrelevant to the question of the risk profile of the Loan Notes in the context of whether they were suitable to be recommended to retail investors.

In this regard, both Mr Page and Mr Henderson placed much reliance on a letter of advice written by Mr Tunkel to Mr Henderson on 12 March 2014. At that time, the term “standard assets” had not found its way into the Authority’s Handbook as a defined term. However, there were proposals in a consultation paper issued by the Authority to provide such a definition and Mr Tunkel indicated in his letter that the proposed definition would require that to be “standard assets” the asset would have to be capable of valuation and capable of realisation within at most 30 days’ notice at a price closely correlated to that valuation. Mr Tunkel expressed the view that the Loan Notes could fall within the expression “structured product”, which the consultation paper indicated could qualify as a “standard asset” provided it met the valuation and realisation criteria mentioned above. Mr Tunkel said that there was no reason why a transfer notice could not be accommodated within the 30 day timeframe and if the idea was to allow portability from one SIPP to another then that would be straightforward to arrange. He also said that if transferability at 30 days’ notice could be facilitated, then there should not be a problem organising a valuation at the same frequency. He then concluded:

“My view is that it should be possible to conceive of the AIGO loans as standard assets in the terms of the proposed formulation in the [consultation paper]. The matter is not certain, simply because the terms of the consultation on vague and imprecise, and the FCA has yet to provide definitive rules.”

As can be seen, Mr Tunkel’s advice is heavily caveated. In our view, a reasonably competent IFA would not rely on it as definitive advice.

In any event, as Mr Purchas submitted, whether or not the Loan Notes could be described as “standard assets” was not relevant to their risk profile. The term is now used in the Authority’s Handbook but only in a limited context. IPRU-INV 5.9 sets out the Liquid Capital Requirement for firms whose permitted business includes establishing, operating or winding up a personal pension scheme. That would include a SIPP provider such as Guinness Mahon. The list of standard assets in that rule includes “structured products”, which may be wide enough to cover the Loan Notes. The liquidity requirement is that the asset “must be capable of being accurately and fairly valued on an ongoing basis and readily realised within 30 days, whenever required”. If the asset meets those requirements, then it can be taken account of in calculating the SIPP operator’s capital requirements. The rule says nothing about whether it can be regarded as having a low risk profile. It may be a factor which would influence a SIPP operator such as Guinness Mahon in agreeing to hold such assets within a SIPP, but it says nothing about whether Guinness Mahon or anyone else regarded it as a product that could appropriately be promoted to retail investors on the basis that it was a low risk product. At its highest, it could be said to be a relevant factor when considering liquidity, which is only one of the factors that an IFA needs to consider when assessing the risk profile of a product. Even in that regard, as Mr Lockie said, it was not clear how the Loan Notes would be valued or who would purchase them in the absence of a functioning secondary market.

In our view, therefore, neither Mr Henderson nor Mr Page were justified in placing any significant weight on the fact that the Loan Notes may have been capable of being classified as a “standard asset” under the Authority’s Handbook. It also follows that Mr Page’s heavy reliance on the fact that Guinness Mahon had accepted the Loan Notes as being suitable for inclusion in a SIPP was misplaced; such due diligence as Guinness Mahon may have done was in part at least for a different purpose and there is no evidence that it agreed to accept the assets on the basis that it regarded them as suitable investments to be promoted to retail investors.

The comparison that Mr Lockie made between an investment in the 2 ¼% Treasury Gilt 2023 (a maturity similar to that of the Loan Notes) demonstrated in clear relief the difference between a low risk investment which pays a fixed return but has (as near as possible) a capital guarantee and a high risk investment which also seeks to pay a fixed return and purports to offer a capital guarantee which, in fact, is of minimal value. The Gilt offered a return of 3% per annum over the investment period with, being a government issued security, a minimal risk of default. It is also a highly liquid investment traded in an active secondary market with a clear market price.

The Gilt used by Mr Lockie for his example is a paradigm example of a low risk investment: see [246] above. Of course, that investment pays nothing like the 8% return promised by the Loan Notes. There is a simple reason for that which is that investors who want a return of more than 3% have to accept a higher level of risk and the entity offering the investment has to pay this return otherwise it would not be able to attract investors. As Mr Lockie explained in his evidence, there is no reason for a high return low risk investment to exist: see [248] and [249] above. In our view, the logic of Mr Lockie’s conclusion on that point is unassailable.

By contrast, the Loan Notes are a paradigm example of a high risk investment, as also identified by Mr Lockie at [246] above. In our view, the Loan Notes have all of the relevant features identified by Mr Lockie as characterising a high risk investment and, even though there may be a number of features that may be indicators of lower risk, in our view no reasonably competent IFA could reasonably conclude that these outweigh the strong features of a high risk investment identified above which characterise the Loan Notes.

We also accept Mr Lockie’s conclusions that the risk of the Loan Notes is not ameliorated by being offered in a blended portfolio for the reasons he gave. In our view, the risk profile of the Loan Notes is not reduced by combining Loan Notes issued by different Cells in a portfolio.

There is no evidence that Mr Freer or Mr Page (in relation to the Liquid Assets Bonds) placed any weight on any of the factors that led Mr Lockie to conclude that a reasonably competent IFA would have placed them within the “high risk” category namely:

As far as the Liquid Assets Bonds are concerned, we note that they offered a yield of no more than 3%, which is the same as the Gilt used by Mr Lockie as his comparator. Accordingly, there could be no basis for recommending investment in the Liquid Assets Bonds bearing in mind the capital security offered by a similar yielding gilt and the significant features of high risk identified by Mr Lockie in relation to them. We therefore reject Mr Page’s view that there was nothing better on the market that would achieve the same return. As a reasonably competent IFA, he could have identified the comparative investment that Mr Lockie did. It is also clear that Mr Page did not understand the risk of the Liquid Assets Bonds. The fact that the assets held were readily realisable into cash does not mean that there would be no loss of capital on realisation because of the risk features of the trading strategy identified by Mr Lockie.

In our view, Mr Freer was entirely wrong to have discounted the risk warnings in the Information Memoranda relating to the Bonds. They were very specific in their statement that the Bonds were only suitable for investors who could afford to lose the entirety of their investment and, as Mr Lockie found, those risk warnings were consistent with the features of the Bonds described in the Information Memoranda. Whilst we accept that a risk warning in an Information Memorandum cannot be regarded as determinative, Mr Freer should have given due consideration as to whether the risk warnings were consistent with the features which were described. There is no evidence that he undertook that exercise, but in any event, in our view, the only reasonable conclusion to be drawn from the Information Memoranda is that the risk warnings were consistent with the features of the Bonds as described.

We accept entirely Mr Lockie’s conclusions on the risk factors he identified in relation to the trading and investment strategies of the Issuers of the various Bonds. The reasons he gave are very similar to those he identified in relation to the Loan Notes. Likewise, we accept his conclusions as to the limited relevant experience of those who would be responsible for implementing those strategies. The fact that the amounts raised by each Issuer were comparatively small, enhances the risk that the Issuers would not achieve their investment strategies due to the heightened effect of the high costs likely to be incurred and the limited ability to diversify their investments.

Our findings in relation to the lack of regulatory oversight of AIGO are equally applicable to the Issuers of the Bonds. Indeed, it could be said that the position is worse because there was some regulation of AIGO by the Mauritius regulator but none of the Issuers required authorisation by any regulator to issue the Bonds, the only applicable regulation being the requirement that the Information Memoranda were approved by a person authorised by the Authority.

Insofar as they are applicable to the Bonds, we reject Mr Lloyd’s submissions, as summarised at [281] (4) above for the reasons we gave in relation to the Loan Notes at [314] to [317] above.

It follows that we reject Mr Freer’s view that the Bonds were less risky than investing in a collective investment scheme because they offer a fixed coupon with a defined date upon which they will pay out the capital. As we found in relation to the Loan Notes, based on Mr Lockie’s findings, the fact that the investment concerned could properly be described as a bond rather than an equity investment is of limited significance; what is required is an assessment of the features of the particular investment in question, regardless of whether it is an equity or a bond.

As regards the liquidity issue, Mr Freer accepted in his cross-examination that no secondary market developed in relation to the Bonds and that the fact that the Bonds were originally listed on the GXG Main Quote did not in itself guarantee any liquidity.

In relation to the “standard assets” issue, DWF LLP gave a legal opinion dated 4 August 2014 addressed to the directors of HJL and the issuers of the Residential Bonds, the Commercial Bonds and the SME Bonds. That opinion stated that it was reasonable to conclude that securities to be listed on the GXG Main Quote would satisfy the Authority’s definition of “readily realisable securities” and, as there was nothing restricting the Bonds being traded within 30 days of the sale order being given, “we would be satisfied that the Bonds will be standard assets”. However, the opinion went on to say that this “could not guarantee a willing buyer for the Bonds”. Consequently, this opinion is consistent with Mr Freer’s view that the fact that the Bonds were listed on the GXG Main Quote did not in itself guarantee any liquidity.

For the reasons given by Mr Lockie, as summarised under the heading “cash protection and security” at [271] above, we do not regard the existence of the cash collateral and the floating charges on the assets of the issuing companies as impacting materially on the risk profile of the Bonds. We therefore do not agree with Mr Freer’s assessment that it was appropriate to place significant weight on those features in coming to his conclusion that the Bonds were relatively stable and low risk investments.

As we have found in relation to the Loan Notes, for the reasons set out at [326] above, we do not consider that the risks of the Bonds were ameliorated by being offered in a blended portfolio.

In the end, Mr Freer himself accepted that the Commercial Bonds and the SME Bonds were not on balance low risk investments. For the reasons set out above, based primarily on our acceptance of Mr Lockie’s evidence, we conclude that the Bonds were not low-risk investments. On the contrary, they were clearly high risk investments.

Based on the analysis set out above, our conclusion is that it would have been obvious to any reasonably competent IFA, who did no more than use his expertise to review the various Information Memoranda and Fact Sheets, that the Products were high risk. The features of the Products that are indicative of an investment carrying a high risk of loss are overwhelming, that is the risk of the issuer not being able to deliver the expected return over the life of the product and to repay the principal in full at the end of the term.

As a result, a reasonably competent IFA would have concluded that the Products were not suitable to be recommended to retail investors except in very limited circumstances. Those circumstances might be where the investor, having been warned appropriately about the risks involved, was prepared to commit a small part of his investment portfolio on the basis that the assets concerned were those that he was willing to lose in the hope that the higher returns promised were achieved.

The risk profile of the Products was such that, in general terms, the promotion should have been restricted to institutional investors who had the necessary resources to carry out due diligence to assess the risks adequately and understand them and those sophisticated investors or high net worth individuals who were able to bear the risks involved. The Authority’s rules permit illiquid and high risk investments such as the Products to be promoted to high net worth investors and sophisticated investors. The former are defined as those with an annual income of £100,000 or more and liquid net assets to the value of £250,000 or more. Such investors would have to accept that the investments concerned exposed them to a significant risk of losing all of the money they had invested. Likewise, a sophisticated investor is someone who confirms that he is sufficiently knowledgeable to understand the risks associated with engaging in investment activity in speculative illiquid securities and that the investments concerned may expose him to a significant risk of losing all of the money invested.

We make the following findings of fact at [343] to [412] below from the evidence before us, which, unless otherwise indicated, we did not take the Applicants to dispute in any material respect.

The genesis for the establishment of the Pension Review and Advice Process was the development of the LeadTracker software, primarily by Mr Nick Maynard a director of EFP. Mr Maynard was contacted by HJL in 2011 or 2012. He understood HJL to be a lead generator and that HJL wished to add value to leads that they sold on to other people. The leads concerned were customers who wanted to consider pension switching. HJL was interested in the ability to pre-screen leads so that they would be more valuable when sold on. Mr N Maynard’s contact was Mr Stephen.

In response to this, LeadTracker was developed. The idea was to bridge the gap between an analysis tool of the customer’s existing pensions and a model that could give a recommendation, and it was around the middle of 2013 that the discussions moved to the question as to whether it would be possible to develop LeadTracker so that it could give advice. Mr N Maynard emphasised that LeadTracker was a piece of software that could model the advice to cover any particular fund or range of funds; it was not developed purely with the Products in mind.

The first use of LeadTracker was in the context of the Execution-Only Process. That took place between 30 October 2013 and approximately January 2014. HCA was the only Firm to adopt the Execution-Only Process. The process involved a pre-packaged file, including an application that had been completed by the customer, being provided to HCA by HJL, who had been appointed as an IAR of HCA. HCA would then confirm the business could be completed. We return to the Execution-Only Process when considering Mr Henderson’s reference.

When developed for use in the Pension Review and Advice Process, as well as maintaining a record of interactions with leads introduced to the process, LeadTracker was able to produce reports comparing the customer’s existing pension(s) against an alternative based on a SIPP with an assumed underlying investment. A further process was added which permitted answers from a Fact Find to be uploaded and for a Pension Recommendation Report to be generated. HJL, principally through Mr Stephen, was involved in the development of LeadTracker for the Pension Review and Advice Process. The LeadTracker software was owned by a company under the control of Mr N Maynard which in due course licensed the use of the software by each of the Firms when they adopted the Pension Review and Advice Process. HCA was the first of the Firms to sign an agreement to enable it to use LeadTracker, on 30 January 2014.

There were seven key stages in the Pension Review and Advice Process, which were:

It is the Authority’s case that all the leads that led to potential customers passing through the Pension Review and Advice Process were generated through arrangements made by HJL. That appears to be accepted by both FPL and HCA, but BHIM contends that it had no knowledge of the involvement of HJL in the process and that its only relationship was with CAL in that regard. We will return to that matter when considering Mr R Ward’s and Mr Freer’s references.

Aside from that issue, it is clear from the evidence that HJL entered into at least 30 agreements with marketing companies and leads were generated by the marketing companies calling prospective customers and offering a free pension review.

We were taken to one of these agreements which appears to be a typical example. We should note that, although the agreement referred to below provides for a fixed amount to be paid for each lead, there are also other agreements where the marketing company was to be remunerated on the basis of the amount invested into the Products. Mr Stephen denied that was the case in his oral evidence, but that evidence is contradicted by the agreements concerned and we therefore reject it.

The marketing company agreed to make outbound or receive inbound calls for the purpose of generating clients in the UK who fit specified criteria and who were interested in having a no obligation pension review conducted by an independent financial adviser. HJL agreed to pay the marketing company £280 for each qualified lead that was generated. The specified criteria to qualify as a lead were:

It can be seen from these criteria that although the criteria envisaged that potential customers could be approached with a view to them transferring out of occupational schemes, none of the Firms had permission to effect pension transfers (that is transfers out of an occupational scheme into a personal pension scheme such as a SIPP) as opposed to pension switches (that is switches from one personal pension scheme to another such scheme) so that it was envisaged that the Pension Review and Advice Process should only embrace leads who may be switching from one personal pension scheme to another.

The marketing agreement then set out details as to the information that the marketing company should obtain from the lead, in particular the details which established that the lead met the specified criteria and a copy of the lead’s current pension policy statement. A sample Pension Enquiry Form and Pension Summary Report request form were attached as a schedule to the agreement pursuant to which, if the lead wished to take the matter further, the lead would authorise the obtaining of the necessary information from their current provider to enable the Pension Summary Report to be generated.

It is important to note that both the documents referred to at [353] above were branded with the name of the relevant Firm which would be providing any recommendation at the end of the process. Therefore, the lead was authorising the relevant Firm to obtain the necessary information, but the Pension Summary Report request form stated that the lead had been introduced to the relevant Firm through a third party who was covering the cost of the Pension Summary Report, and that introducer was disclosed as being HJL. That was the case even in relation to BHIM, according to the completed examples that were in evidence before us.

There was a covering letter which was sent to the lead with the documents referred to at [353] above following their contact with the marketing company, if they were interested in taking matters further. That covering letter, which it appears was generated by the marketing company, stated that the company was “happy to be able to provide you with an introduction to an… IFA to conduct a no obligation review of your current pension arrangements”.

We have also seen a sample cover letter for a Pension Enquiry Form and Pension Summary Report request form prepared by Taylor Barton, one of the marketing companies, which said that “the entire process” would be managed by HCA and that “They will communicate all updates and progress and be your main point of contact going forward”. The letter concluded with a statement that “one of our approved partners [HCA] will be in touch once we receive your completed documents to advise of the progress of your report”.

Therefore, as Mr Purchas submitted, these documents gave the misleading impression to customers that the relevant IFA would be sourcing the information from their existing providers, preparing the Pension Summary Report and preparing the report on their existing pension plans. However, in reality, none of the Firms were involved in the research for, or production of the Pension Summary Reports which was all undertaken by the outsourced providers.

In the early months of the operation of the Pension Review and Advice Process, that is between May and October 2014, this work was carried out by HJL. However, in October 2014 the processing of leads, but not the generation of leads, appears to have been transferred from HJL to CAL, although we have seen no written agreement in that regard.

This is evidenced by the agreement, described as a Standard Service Agreement entered into between HJL and FPL on 2 May 2014. Pursuant to that agreement HJL agreed to provide FPL with lead generation services as well as a detailed list of administration services. Those administration services comprised the outsourcing to HJL of all the work relating to the production of the Pension Summary Report, the undertaking of the Fact Find, the production of the Pension Recommendation Report and the provision of comprehensive client files loaded on to FPL’s server. HJL was remunerated through a share of the advice fees received by FPL in respect of customers who were recommended the Products. An agreement in similar terms was entered into between HCA and HJL on the same day.

On 13 October 2014, CAL and FPL entered into a Standard Service Agreement in similar terms to the previous agreement between HJL and FPL, except that the services to be provided were limited to the administration services described above and did not include the lead generation services. There appears to be no agreement between FPL and HJL amending the original Standard Service Agreement so as to exclude the administration services, but it is to be assumed, and Mr Page did not seek to argue otherwise, that HJL remained responsible for the lead generation services.

It does not appear that HCA and CAL entered into a formal agreement, but in practice it appears that HJL continued to provide lead generation services and CAL provided the administration services during the remaining period that HCA participated in the Pension Review and Advice Process. CAL’s “Typical Client Journey” flowchart which was in evidence shows that CAL would receive details of leads that met the specified criteria from the relevant marketing company working for HJL.

Initially, CAL operated from the same offices as HJL. In his evidence, Mr Page said that he was not comfortable with that position due to potential conflicts of interest and as a result CAL moved to another office nearby.

Although we have no evidence of common shareholdings and directorships, there was clearly a close connection between CAL and HJL. Two of the directors of CAL were Mr David Worrow and his son Mr David Worrow Jr. It appears the latter had worked for HJL. Staff who had also worked for HJL transferred to CAL, including Mr Tom Edwards-Stuart, who worked in compliance for CAL. The two companies appeared to work seamlessly in relation to the Pension Review and Advice Process. Mr King of HJL referred to CAL in an email to Guinness Mahon as “our outsourcing company”. That is consistent with there being no formal agreement between HJL and CAL following the separation of the administrative services from the lead generation activities in October 2014.

We have seen standard scripts prepared for the marketing companies to use in their contacts with potential customers. In all cases, the script provides for the agent to introduce themselves as acting on behalf of one of the named Firms.

It appears that some of the marketing agents deviated from the scripts and engaged in cold calling, giving misleading information in the process. In her evidence, Ms High dealt with her enquiries into Taylor Barton, after receiving two consumer reports received by the Authority’s Contact Centre. A consumer contacted the Authority to explain that her daughter had been cold called by Taylor Barton offering a pension review and that they were claiming to be ringing on behalf of the Department of Work and Pensions. A second report from a consumer described how Taylor Barton stated that the government was funding them to offer pension reviews and that, if they went ahead, they would be referred to Mr Page.

Stage 2 of the Pension Review and Advice Process involved preparing and issuing a Pension Summary Report. As mentioned above, this was done by either EFP, HJL or CAL, as the case may be, (i) obtaining the details of the customer’s existing pensions; (ii) once that was obtained entering the details into LeadTracker; and (iii) arranging for LeadTracker to generate the Pension Summary Report in a templated form. HJL and Mr Henderson were involved in the preparation of the templated documents.

The Pension Summary Report, however, went further than what was envisaged by the Pension Summary Report request form. Rather than just providing a report on the customer’s existing pension plans, the Report set out a comparison focussing on the costs under the existing plans when compared to a transfer to the Guinness Mahon SIPP or Avalon SIPP and assuming an investment in an unspecified product selected by HJL. The cost comparison took into account a 3% charge to cover any advice costs that might be levied for making the switch, as well as the costs typically charged by the schemes for managing funds.

Under the heading “What happens now?” the Report stated that one of “our customer representatives” would contact the customer to discuss the process of obtaining professional advice about whether the customer’s pension should be transferred. It was stated that if the customer decided to proceed with “our advice service” then “we will establish how best to invest your pension funds” and “what you aim to achieve by way of income from your pension plans”.

The Report then concluded by including the electronic signature of the relevant IFA of the Firm involved, that is one of Mr Page, Mr Henderson or Mr Freer, as the case may be.

We accept Mr Purchas’s submission that the Pension Summary Report maintained the appearance that it had been produced by the relevant approved Firm. It had the relevant Firm’s cover pages and logos, giving the impression that it had produced the paperwork. In reality, HJL and CAL were the firms that were most involved in producing this document.

We also accept that the Firms had no meaningful involvement with this part of the process. The Firms did not supervise or monitor the preparation of this document, nor did they have the capacity to check that the data was being inputted correctly and that the projections were being calculated correctly. We did not take any of the Applicants to dispute that point. However, we understand that it would have been possible for the relevant Firm to access the Pension Summary Report on the LeadTracker system once it had been issued.

Stage 3 of the Pension Review and Advice Process involved the signing of the Service Proposition. Agents of EFP, HJL or CAL, as the case may be, would attend the customer’s house to go through the Pension Summary Report or the customer would be sent it by post and be contacted in a follow-up call. Customers were asked whether they wished to proceed to receive advice from the named Firm.

Initially the Service Propositions used by each Firm were almost identical save for the name, address and FS register number of the Firm.

The Service Proposition set out the basis on which the Firm was going to act. It said:

“…we offer an Independent advice service. We will recommend investments based on a comprehensive and fair analysis of the market. We will place no restrictions on the Investment Markets we will consider before providing investment recommendations, unless you instruct us otherwise. We will however only make a recommendation when we know it is suitable for you.”

In relation to the scope of the service offered the document said:

“We operate independently and therefore provide investment services from the whole market.”

From April 2014, HCA used a revised version of the Service Proposition which contained the following statement:

“We have agreed with the FCA that Non-Standard Investments are not suitable for most Clients and as a Firm we do not believe unregulated assets, which cannot be readily valued or realised restricts our Clients position and do not advise their use.”

This reflects the terms of a Voluntary Requirement which HCA entered into in March 2014, and which we return to later when considering Mr Henderson’s reference.

The customer was sent a marketing brochure (the “Brochure”) promoting the relevant Firm which was produced at the same time as the Pension Summary Report.

In bold type at the beginning of the Brochure it was stated that:

“[Firm] offers the highest level of service and independent financial advice. No two clients are the same which means that our financial planning and investment advice is tailored specifically to your needs.”

The Brochure went on to say that the Firm was able to provide “all of our clients with a flexible and bespoke approach”. It then said that “Our financial advisers are fully independent” and provided details of the Firm’s senior management team.

Further on, under the heading “Reasons Why People Transfer Their Pensions”, the Brochure again emphasised the importance of taking independent advice which was described as “taking advice from an expert who is not tied to offering the products of one particular pension provider” which meant that the adviser concerned “can act entirely in your best interests to advise a pension portfolio that best matches your needs”.

Under the heading “The Review Process” the Brochure explained how the process would lead to the making of a “Pension Advice Report”, following the carrying out of the Fact Find. In regard to the Fact Find, the Brochure stated that the customer would receive a review from the Firm so it could obtain specific information which would enable the “[Firm] to construct a bespoke recommendation based on the information you have provided”.

Information was then given as to what would happen if the customer received a Pension Advice Report, namely that the customer would be contacted and if the customer wished to proceed, arrangements would be made for the necessary documents to be delivered to the customer for signing to complete the transfer.

The contact address for the Firm given in the brochure was that of HJL and, later, CAL.

We mention at this stage that Mr Page denied that FPL used the Brochure, but it is clear that Brochures were produced for FPL. We return to that issue later when considering Mr Page’s and Mr T Ward’s references. Apart from Firm specific details, the text of the Brochures for the various firms and the photographs used were more or less identical.

Stage 4 of the Pension Review and Advice Process involved the Fact Find, and the attitude to risk and capacity for loss assessments. The Fact Find, and the attitude to risk and capacity for loss assessments, were either conducted over the telephone or face to face at a customer’s home. The assessments were conducted by EFP, HJL or CAL, as the case may be, and not the Firms.

There were a number of examples of Fact Finds in evidence and they were broadly the same in terms of the information requested and questions asked, save for reference to the particular Firm’s name.

The agent conducting the Fact Find worked from a written script and completed the answers by hand. Most of the questions had options which were completed by ticking the relevant box. There were also some questions which allowed actual information to be put in, such as those regarding the customer’s occupation and their annual gross income. The completed script was uploaded to LeadTracker.

The customer was asked about their retirement age, the percentage of their current gross income they hope to enjoy in retirement and the percentage of their retirement income that they hoped would come from their pension arrangements. One example we looked at, which was completed on behalf of BHIM, related to a customer who disclosed his occupation as being a roadsweeper with an annual gross income of £13,000 who was looking to retire at 60, hoping to enjoy 100% percent of his current gross income in retirement and that the entirety of that income would come from his pension.

There were limited questions regarding the customer’s investment objectives. The customer was asked whether or not they had strong ethical concerns regarding where their money was invested. However, the process did not appear to require exploration of any of the customer’s interests and objectives in this regard. As we shall see later, whatever the answer to this question, it was not taken account of in the LeadTracker process.

Under a section headed “Investment Returns” the first question to be asked was:

“Would you prefer your pension fund to:

•

Grow at a fixed and known-rate each year?

•

Go up or down in value depending on the underlying investments performance?”

The agent would complete the answer to that question by ticking the relevant tick box which appeared alongside the question.

The next question was about guarantees, with an explanation to be read by the agent to the effect that it might be possible to build in guarantees to the customer’s pension which would ensure that their funds would not fall below the original amount invested. It was explained that guarantees can be important to people who could not easily stand any losses in the value of their pension funds and the customer was told that there was just one question to answer on this switch which was:

“If it could be guaranteed that the value of your pension fund at the end of an agreed term could not fall below the amount invested would you want to incorporate this feature?

•

Yes [or]

•

No”

The Fact Find did not ask any other questions about investment objectives.

There was then a series of questions designed to assess the customer’s attitude to investment risk, the script explaining that this would help the Firm to match an investment strategy to the customer’s profile. After those questions were answered, the agent would complete the result which would be one of Very Cautious, Very Cautious to Cautious, Cautious, Cautious to Moderate, Moderate, Moderate to Speculative, Speculative, Speculative to Very Speculative, Very Speculative, and Ultra Speculative.

At one end of the spectrum, “Very Cautious” was described as:

“You prefer to take very little risk with your money. A typical “Very cautious” portfolio will have only a small proportion invested in equities with the balance in other assets to provide diversification.”

At the other end of the spectrum, “Ultra Speculative” was described as:

“You prefer to take very significant risk with your money. A typical “Ultra Speculative” portfolio may have almost all of the funds invested in equities with the balance in other assets to provide diversification. There may be an increasing proportion of specialised equity within the portfolio.”

We note, based on our assessment of the risk of the Products, that it would only be those customers who had indicated that their attitude to risk was “Ultra Speculative” for whom it might be considered the Products met their risk profile.

The customer was then asked to agree or not if the category explained to the customer by the agent met their attitude to risk.

The final section of the Fact Find looked at the customer’s capacity for loss, how long they would be holding their pension before retirement and what impact any losses might have on their lifestyle. Questions were asked on a multiple-choice basis as to when the customer intended to use the invested money, and how much of the investment the customer could stand to lose without having a significant impact on their future standard of living.

The end of the script contained the following statement:

“It will take an IFA approximately 2 days to analyse your information and prepare your personalised Recommendation Report.”

The customer was asked whether they wished at that point to make an appointment date to discuss this Report.

Step 5 of the Pension Review and Advice Process involved generating and issuing a Pension Recommendation Report. Customers’ answers to the Fact Find, attitude to risk and capacity for loss questions were uploaded onto LeadTracker. The report was then automatically generated by LeadTracker which populated a template recommendation report with relevant information. The Firms had no involvement with the preparation of the Report and an electronic signature from a suitably qualified adviser at the named Firm was simply added to the Report. We consider later in the context of the individual references the extent to which sight of the Reports was had by the Firms before they were sent out to the customer.

The Pension Recommendation Report contained an executive summary, typically a recommendation to invest in a pension fund that offered fixed returns and/or a capital guarantee, and that this should be done by investing in one of the Portfolios through a SIPP operated by one of the SIPP Providers. It was explained that the transfer would provide the following:

An investment strategy which contains underlying capital guarantees, the customer being referred to the accompanying Fact Sheet for more details

An investment strategy which offers fixed returns of a specified level

Consolidation into a single, manageable plan

An investment strategy which protects against capital loss.

After explaining (i) the customer’s financial objectives and attitude to investment risk, as obtained from the Fact Find; (ii) the customer’s proposed retirement date; and (iii) the objective as regards the amount of the customer’s income in retirement that would come from their pension, the Report then set out (iv) a summary of the customer’s existing pensions, in particular their transfer value; and (v) a projection of the final funds that could be achieved by the customer’s desired retirement age. This was then compared to projections for the customer’s existing funds.

The customer’s attitude to investment risk was then discussed, it often being stated that the recommended portfolio differed from the typical portfolio that could be expected for someone with the customer’s attitude to risk because of the objectives outlined by the customer during the fact-finding process, notably the desire to have a fixed return and a capital guarantee.

Details of the recommendation then followed, with reference to the included Fact Sheet, the emphasis being that the recommendation had been made in order to obtain the fixed investment returns and/or guarantee that the customer sought.

Details of the Firm’s charges were then given, namely 3% of the customer’s transferred funds. The ongoing charges from the SIPP Provider were also given and the customer was informed of the fee of 0.5% per annum were they to choose to receive an ongoing review of their pension arrangements.

Finally, there were some very generic risk warnings none of which referred to the specific investments that were the subject of the recommendation, other than to note that “the recommended investment differs from many mainstream opportunities” and that this may result in a delay in accessing income and tax free cash because of the nature of the investments - particularly relevant given the Loan Notes required a notice period of 12 months before they could be redeemed.

The electronic signature of the relevant IFA appeared at the end of the recommendation, that is either Mr Henderson, Mr Page or Mr Freer, as the case may be.

At this stage, a representative of EFP, HJL or CAL, as the case may be, visited the customer to go through the Pension Recommendation Report and discuss whether they wished to proceed to switch their pension into either the GM SIPP or the Avalon SIPP, as the case may be, and the underlying Products.

Finally, the SIPP application was completed. It would appear that the majority of customers at this stage waived their right to cancel the transaction within 30 days. Ms Tibbetts’s evidence, which we accept, was that a substantial number of customers were told that if they waived their rights the investment would be completed quicker.

There was no significant challenge by any of the Applicants to the Authority’s contention that HJL performed significant functions in connection with the Pension Review and Advice Process. As we have mentioned, there is an area of dispute between the Authority and BHIM as to whether BHIM had any kind of contractual relationship with HJL, a point to which we return when considering Mr R Ward’s and Mr Freer’s references.

The Authority relied on the matters set out at [415] to [425] below in support of its contention, and we accept the Authority’s submissions on these matters, which are clearly borne out by the documentary evidence.

HJL initiated and influenced the development of the Pension Review and Advice Process, including not only the development of LeadTracker but also by taking the lead in drafting the documents that were used in the process. As we have seen, the form of the Fact Find, the various Reports, the Brochures and the Fact Sheets were all in common form to be used across the three Firms, and HJL dealt with Mr N Maynard and his associated companies in influencing the development of LeadTracker, so it was capable of being used in relation to the promotion of the Products.

For example, we have seen an exchange of emails on 26 and 27 April 2014, where Person A at HJL provides a draft Brochure for FPL to Mr T Ward who then shares the draft with Mr Page and obtains information from Mr Page in order that the Brochure can be completed. Mr T Ward accepted in his oral evidence that Person A was involved in the production of the Brochure.

We have also seen a chain of emails, starting with a discussion between Mr King and Mr Stephen on an early draft of a Brochure, where Mr King states that he had “tried to shape it less totally in the direction of what we want”. That email was also copied to Mr Henderson.

These matters are clear evidence that, from HJL’s perspective, its use of LeadTracker and the design of the Pension Review and Advice Process, was in order to promote the Products. The AIGO IM made it clear that the target investors were solely pension schemes, including SIPPs. The engagement of the Firms to make recommendations through the Pension Review and Advice Process to leads sourced by HJL, through the use of the marketing companies, was the distribution channel used by HJL to promote the Products. The Pension Review and Advice Process had been designed by HJL, with the prime responsibility falling on Mr King, Mr Stephen and Person A. It was HJL that determined which IFAs could participate in the Pension Review and Advice Process, as Mr Stephen accepted in his oral evidence.

Mr Lloyd accepted that although LeadTracker was designed to direct investors who satisfied specified criteria towards whatever products were input into it, during the Relevant Period, it was only being used for HJL products. In the event none of the Applicants, nor Mr Stephen, disputed that any products other than the Products were recommended through LeadTracker.

It was also not disputed that, in addition to acting as an introducer of leads, HJL operated the Pension Review and Advice Process on behalf of both HCA and FPL from around 2 May 2014 until around 13 October 2014, when, as discussed above, CAL became involved. HJL continued to be involved in the Pension Review and Advice Process thereafter, for example, being involved in preparing communications to customers to whom BHIM was recommending the use of Avalon instead of Guinness Mahon as the SIPP Provider.

It is therefore clear that HJL had a dual role. It generated qualified leads through the use of marketing companies with the objective that those leads would receive recommendations to invest in the Products through the Pension Review and Advice Process. At the same time, HJL was performing functions on behalf of the IFAs. As we have seen, the marketing companies represented to potential customers that they were acting on behalf of the IFAs. In essence, although it was not clearly documented as such, there was a sub-agency arrangement, whereby HJL engaged the marketing companies to generate leads for the IFAs. That arrangement continued, even after CAL came on the scene because, as we have seen, HJL continued to be responsible for the generation of leads. That structure had clear implications as regards the existence and management of conflicts of interest, which we return to later.

Mr Lloyd submitted that the process was designed to help the Firms filter out those who they knew they would advise against investing in the Products, so they only provided advice to those who might be suitable. We shall explore later the extent to which the process achieved that objective in practice. That was quite different to HJL’s objective. Our findings as to the role that HJL played lead to the conclusion that HJL’s primary objective was to provide a semi-automated recommendation to a customer to switch his pension into a SIPP, where the underlying investments would be one or more of the Products. The Pension Review and Advice Process fulfilled this objective by identifying the customer as having met the criteria for the making of such a recommendation, namely that they had indicated in the Fact Find that they would be interested in an investment with capital protection and a fixed return.

We have described at [74] to [87] the requirements of the Authority’s Handbook regarding the obligation for a firm to monitor both its IARs and other entities that perform outsourced functions on its behalf. We concluded at [89] and [90] that those requirements applied to the functions performed by HJL or CAL, as the case may be. Therefore, in summary the Firms had, among other things, the following obligations:

There was no evidence that any of the Firms took meaningful steps to understand how HJL was sourcing leads so as to be satisfied that HJL and the marketing companies were behaving in an appropriate manner. We have identified a number of instances where marketing companies made cold calls and made inappropriate statements to the effect, for instance, that they were acting on behalf of a government agency.

Neither was there any evidence that any of the Firms undertook any meaningful due diligence on the way in which the leads were being provided for the Pension Review and Advice Process. In particular, that could not be the case at all in relation to BHIM because Mr Freer and Mr R Ward maintained that at the outset, they did not know that HJL was sourcing the leads.

In short, it did not appear that any of the Firms were of the view that it was their responsibility to ascertain how the leads were being sourced and whether HJL and the marketing companies were behaving appropriately when seeking to perform outsourced functions on behalf of the Firm.

We return to this issue again in the context of the individual references.

We now turn to our assessment of the extent to which the Pension Review and Advice Process generated recommendations to customers which were not compliant with the Authority’s requirements as to suitable advice. In that regard, the requirements of COBS 9.2 and COBS 9.4.7R are particularly relevant.

Our assessment at this stage is based entirely on the documentary evidence that was before us, particularly the client files of each of the Firms. We set out below our general conclusions on a preliminary basis which will then be tested when we come to consider the references of the individual Applicants later in this decision.

We start by examining the Fact Find. It is uncontroversial that sufficient information has to be gathered from the customer in order that the IFA concerned can determine whether a recommendation is suitable.

We accept the Authority’s case that the Fact Find was structured so that customers were steered towards certain outcomes and insufficient information was collected to enable suitable advice to be provided. In particular:

As regards the first of those two deficiencies, it is apparent from our review of the template Fact Find, as set out above, and as submitted by Mr Purchas:

We therefore accept the Authority’s case that the Fact Find scripts did not allow for sufficient further information to be gathered from the customer to establish the suitability of the recommendation subsequently made.

This further information is commonly known as “soft facts”. As Ms Tibbetts indicated in her evidence and in response to questions from the Tribunal, those soft-facts might include a customer’s personal circumstances and can relate to a variety of different areas for example their financial investments, liabilities, future life events that they will need to drawdown money for and the extent to which dependents will rely on the pension in addition to the customer. If not all of the customer’s income will be drawn from their pension, this may also give rise to questions about the nature of their additional income.

Therefore, the Fact Find process did not comply with the standards prescribed by COBS 9.2.2R which requires a firm to obtain the necessary information regarding the customer’s knowledge and experience of the investments which were the subject of the recommendation and all their investment objectives.

Neither did the process comply with the standards laid down by COBS 9.2.2R as it did not allow sufficient information to be obtained to provide a full understanding of the customer’s financial position. Contrary to the requirements of COBS 9.2.2R, there was no information sought on the source and extent of the customer’s other assets and their regular financial commitments. In a case like this, in our view, it would be essential for such information to be gathered, particularly where the customer had indicated that not all of their retirement income would come from their pension. In those circumstances, it would be necessary to take that additional information into account in assessing whether a recommendation to invest in the Products would be suitable.

As regards the second of the two deficiencies identified by the Authority, it is also apparent from our review of the template Fact Find, as set out above, and as submitted by Mr Purchas:

Consequently, there was a clear and substantial risk that because of the deficiencies in the Fact Find, recommendations to customers to invest in the Products would be unsuitable and accordingly the Firm concerned would be in breach of its obligation under COBS 9.2.1R to take reasonable steps to ensure that a personal recommendation is suitable for the customer concerned.

The Authority carried out a file review of 20 randomly selected files for each of the Firms. These file reviews and the deficiencies identified were addressed by Ms Tibbetts in her evidence. Bearing in mind that a standard process was used in relation to all leads that passed through the Pension Review and Advice Process we agree with the Authority that it is likely that the deficiencies identified are likely to be representative across all of each of the Firm’s files and we so find. As we have said, Ms Tibbetts’s findings were not challenged in any material respect, and we accept her evidence.

We start by reference to Ms Tibbetts’s statement that the Authority considers that the Products recommended to customers were high risk, illiquid and unlikely to be suitable for retail investors except in very limited circumstances due to:

Ms Tibbetts went on to say that on the basis of the review of the customer files, the Authority concluded that the advice process in all cases was not sufficient to ensure that the Products would only be recommended to customers with sufficient knowledge, experience, understanding and ability to accept the risk of speculative investments.

Ms Tibbetts’s assessment is consistent with our own conclusions as to the nature of the Products and our conclusion that, as a consequence, they would not be suitable for recommendation to the type of investors that were targeted through the Pension Review and Advice Process. As we have said, these were retail investors with relatively small pension schemes, that is with a value between £15,000 to £75,000 (although in fact some of the customers had smaller pension pots whilst a few had pension pots in excess of £100,000). It is also clear that virtually all of the customers had modest incomes and were not sophisticated in any respect as far as investment matters were concerned, and certainly not in relation to investments such as the Products. Neither could these customers afford to lose the amount invested in their pensions. An example was the roadsweeper with an annual income of £13,000 that we referred to earlier.

It appears where a recommendation was made to a customer to switch their pension, that recommendation would extend to the whole of their existing pension arrangements, or at least all of the pensions that were subject to review under the Pension Review and Advice Process. Therefore, if they did switch, most customers would find that the performance of the entirety of their pension assets depended on the performance of a high risk and undiversified portfolio containing the Products.

For that reason alone, we are able to conclude that in respect of all of the files reviewed by the Authority and, most likely for all of the recommendations made in respect of customers whose files have not been reviewed, that the recommendations will not have been suitable for the customer. Consequently, the relevant Firm would have failed to comply with its obligation under COBS 9.2.1R to have taken reasonable steps to ensure that the personal recommendation was suitable for the customer.

However, we think it is important to set out in some detail the other deficiencies that have been identified through the file review.

We start with some general observations of our own from our review of a number of the files for each of the Firms, which we have chosen at random, written from the perspective of an experienced IFA, in the hope that it may be of assistance in preventing similar deficiencies arising in the future.

As we have indicated, the attitude to risk assessment appeared to have no real effect on the outcome. The pair of binary answer questions supposedly labelled to identify a client's objectives asked them to choose between a preference for a fixed or variable return, and a guaranteed or at risk initial capital sum. These two questions could give one of four possible responses of which we only saw three. Twenty of the customers, unsurprisingly, wanted fixed returns with a guaranteed capital sum with two customers wanting a fixed return with no guarantee and three a variable return with a guarantee. Those five customers, at variance to the majority view, still ended up with an identical outcome of a GM SIPP or an Avalon SIPP invested in the Products.

A common feature of all the files is that the recommendations generally failed to address any of the facts established in the Fact Find, other than the aspects of the portfolio referred to above. The covering letter to the recommendations said it took account of information provided by the customer such as desire for fixed returns and capital security, ethical concerns, and whether professional management and online access were important, but these were not matters explored in the recommendation itself. It was striking that the recommendations did not consider the actual circumstances of the person to whom they were sent and instead addressed only a generic outline of the category of person which had been targeted by the process. Matters such as illness, unemployment, bereavement and other assets were all ignored in the recommendation.

As we have found, there are numerous blind spots in the Fact Find which ought to be considered in the context of a pension review. There is no enquiry into the customer’s other savings and investments, whether they had any secured or unsecured debt, whether there had been past debt problems, or whether they owned their home or not. The Applicants intimated that these matters were not important when the advice being given was a straightforward comparison of one asset in a pension pot to another. However, in our view, it is a problem when the whole premise underlying the advice was that the customer would be able to follow through an investment built upon a 10 year return being maintained with certainty that the customer would not need to access the funds in the meantime.

In some cases, where customers had said they wanted to continue to contribute to their pension, the comparisons are shown being made on the basis that contributions would continue. FPL implemented ongoing contributions in only one of the four cases where the transferring plans were receiving contributions. HCA recommended continuation of contributions for two of the three clients who had said they wanted to contribute and BHIM recommended that the three who expressed a desire to continue did so, however the question was not always asked by the field agent conducting the fact finding interview.

The common feature of 19 of the 25 sample files reviewed is that the customers earned less than the national average wage and had pension assets which were relatively modest so that contributions would be very important in helping the customer’s future financial security. Allowing contributions to cease as a direct result of advice given is clearly inappropriate. In none of the sample files did a customer receive an indication of the pension they might expect in monetary terms nor were they given a target contribution rate. These deficiencies are clear evidence that none of the Firms were providing independent bespoke advice.

We set out in the Appendix to this decision our own observations on the files that we reviewed. None of them were free of problems.

We turn now to the results of the Authority’s file review. Mr Purchas provided the following summary which we find to be fair and accurate:

There was a dispute between the parties as to whether a copy of the relevant Information Memorandum was provided to the customer along with the Pension Recommendation Report. The Fact Sheets in relation to the Loan Notes stated in the small print at the bottom that the AIGO IM would be provided on request. There was no reference in the covering letter to the Pension Recommendation Report that among the documents enclosed was the Information Memorandum. In the Report itself, the customer was referred to the “included fact sheet” for more details of the recommended investments. If the Information Memorandum was also included, it would have been expected that this would also be referred to in the body of the Report.

The Applicants maintained that the relevant Information Memorandum was sent in hard copy to every customer, that being the agreement with CAL or HJL, as the case may be. Mr Henderson, in particular, says he saw copies of the AIGO IM being placed into client correspondence when he was in HJL’s offices and that he believed that a hardcopy was sent to every customer who acquired the Loan Notes.

The Authority does not accept that Information Memoranda were routinely sent. Ms Tibbetts’s evidence was that no Information Memorandum was found in the digital files reviewed by the Authority. Her evidence was that the Authority conducted its own customer contact exercise in January 2020 to ascertain whether the customers concerned had received an Information Memorandum. The Authority only received six responses from that exercise, and only one customer said that he was provided with the Information Memorandum but that was after he had taken his decision to invest.

We accept, as Mr Lloyd submitted, that it would be wrong to rely on the results of the Authority’s customer contact exercise as demonstrating that Information Memoranda were not routinely sent to customers. It was a very small sample and customers were asked in 2020 to recall documents they received some 6 years earlier, so that the answers given may not be reliable.

However, in our view, the other evidence points overwhelmingly to the conclusion that the Information Memoranda were not routinely sent to customers. The only specific reference to the Information Memoranda was in the Fact Sheets which indicated that it was available on request. If in fact it was being sent with every Report, then either the covering letter or the Report would have said so. On the contrary, there was a clear statement to the effect that it was not being sent with the Report and was only available on request. That indeed, would be the expected position. It is not in our experience usual for an IFA to send the full scheme particulars or prospectus of any investment. The necessary information is usually provided in a key features document or similar summary of the features of the investment concerned.

That position is not contradicted by Mr Henderson’s evidence that he saw copies of the Information Memoranda being prepared for despatch to customers or his oral evidence that he personally discussed it with a few clients. The customers concerned may have been given the document because they requested it, as envisaged in the Fact Sheets. No evidence was provided of any instruction to HJL or CAL to ensure that Information Memoranda were sent to all customers to whom a recommendation to invest in the Products was made or any evidence that any of the Applicants followed up with HJL or CAL to confirm that their instructions were being followed.

We therefore conclude that Information Memoranda were not sent to customers who did not specifically request a copy, as envisaged in the Fact Sheets.

In any event, in our view it would not have been appropriate for the Firms to have relied on the fact that they had provided the customer with the Information Memorandum to demonstrate that they complied with their obligations to ensure that the key features of the Product concerned, and the risks attached to it were fairly explained to the customer. As we have seen, the Information Memoranda are long and complex documents which were not prepared with the retail investor in mind. As we have said, in relation to the AIGO IM, since this was distributed by HJL as the IAR of FPL and HCA, it would have been the responsibility of the relevant Firm to ensure that the document complied with the relevant financial promotion rules, and in particular, the requirement that the document be clear, fair and not misleading. There is no evidence that either of those Firms undertook that exercise. The material in the Information Memoranda was not prepared in such a way as to be readily understood by the typical customer who received a recommendation through the Pension Review and Advice Process.

We therefore conclude, that on the basis of the customer files that the Authority reviewed, and our own review, that it is likely that any customer who received advice pursuant to the Pension Review and Advice Process to switch his pension into a SIPP where the underlying investments were one or more of the Products received unsuitable advice. This was in clear breach of the relevant Firm’s obligation under COBS 9.2.1R to have taken reasonable steps to ensure that the advice was suitable for the customer. We shall, however, return to this issue when considering the individual references.

In his submissions, Mr Page contended that Mr Tunkel had “signed off” on the Pension Review and Advice Process.

We have seen no evidence to support that assertion. None of the letters of advice from Mr Tunkel that were in evidence specifically deal with the Pension Review and Advice Process. His regulatory advice appears to relate purely to the promotion of the Loan Notes, the structuring of the Products, the relationship between the marketing companies and HJL, and the regulatory implications of the lead generation process.

Indeed, there is evidence which directly contradicts Mr Page’s assertion. Howard Kennedy learnt that in his written representations to the RDC, Mr Page contended that the Pension Review and Advice Process had been designed by Mr Tunkel. Howard Kennedy denied that was the case. In a letter it wrote to the RDC on 3 August 2018, Howard Kennedy said that Mr Tunkel was responsible for advising on the structuring of AIGO and gave advice to HJL on regulatory issues that “one faces in the UK when seeking to distribute interests in the AIGO Loan Scheme”. It went on to say that Mr Page was mistaken in his belief that Mr Tunkel’s advice went beyond that, or that advice was provided on the actual distribution system itself.

As Howard Kennedy went on to say in their letter, designing an advice process was not something that a lawyer would “dream of undertaking”.

We therefore reject Mr Page’s contention that Mr Tunkel was involved in the design of the Pension Review and Advice Process. Neither, it appears, did Mr Tunkel give any advice as to whether the process, as designed or operated in the manner we have described, complied with the Authority’s requirements regarding the suitability of the recommendations that were made through the process.

There was also a suggestion that the Applicants took comfort from the fact that Guinness Mahon had undertaken their own due diligence on the Products and had accepted them as suitable for inclusion in a SIPP for retail investors.

That point was directed more at the question as to whether the Applicants had undertaken appropriate due diligence on the Products, and we have found no evidence that Guinness Mahon or any other SIPP Provider provided any comfort in relation to the Pension Review and Advice Process. Neither would we expect that to be the case; the suitability of any particular recommendation made by a Firm to invest in the Products would be entirely a matter for the Firm itself.

Mr Henderson contended that SimplyBiz had provided HCA with advice on the Pension Review and Advice Process. We return to that issue when considering Mr Henderson’s reference.

The Applicants stressed that not every lead recorded as data on the LeadTracker system invested in the Products.

We were shown statistics for each of the Firms prepared in June 2015 which showed cases received by each Firm, the status of cases in progress, the number of cases that had completed, that is with a recommendation to invest in the Products, and then the number of cases “Not Proceeding” with a breakdown of the reasons why the case was not proceeding to completion.

It is true to say that a large number of the cases introduced did not proceed to completion. However, for the largest number of cases where that happened it was either because the customer was “no longer interested” or was unable to be contacted. Those who were advised against investing were a very small number, for example just over 2% of the cases not proceeding for HCA, and similarly low proportions for FPL and BHIM. The other reasons why cases were not proceeding, were because they were cases that should not have been introduced in the first place, for example because the fund was too small, the customer had switched IFA recently or their existing pension already contained guarantees.

Mr Lloyd had suggested in his opening submissions that the heading “no longer interested” was a catch-all category which included examples where the Firm decided that it was no longer in the customer’s interest for the investment to proceed. However, that point was not pursued in Mr Lloyd’s closing submissions and there is no evidence that we have seen to support it. We therefore find that the separate category headed “Advised Against” contains the only cases where there was some positive recommendation by the Firm against investment in the Products, which, as we have said, covered only a very small proportion of the cases that did not proceed.

It was also the case, as demonstrated by the statistics, that the large majority of customers who received any recommendation were advised to invest in the Products. There is also no evidence that, where a recommendation was made to a customer to switch their pension, the recommendation was to invest in anything other than one or of more of the Products. As the Applicants accepted, the only investments that were ever part of the LeadTracker process were the Products.

Therefore, as Mr Purchas submitted, the data does not support the Applicants’ contention that customers were regularly advised against investing in the Products.

The Applicants also contended that customers who entered the process but did not receive a recommendation to invest in the Products were advised by Firms to acquire other investments, on the basis of separate independent advice given by the Firms. The Applicants all contended that one of the attractions of the Pension Review and Advice Process as far as their Firms were concerned was the ability to generate leads who could be advised to invest in other Products.

In particular, Mr Page contended that any customers who were initially proposed for the LeadTracker process, but where the Products did not suit, were “parked” to be revisited at a later date by a newly recruited pension specialist. We return to that point when considering Mr Page’s reference. Likewise, Mr R Ward and Mr Freer emphasised that the primary purpose for BHIM engaging with the Pension Review and Advice Process was to generate leads for their Cheltenham business.

However, there was nothing in the evidence before us to indicate that a single customer, across any of the Firms, who was an HJL introduced lead, invested in a product other than the Loan Notes or the Bonds through a pension switch.

This is supported by the new business registers provided by the Firms. In respect of HCA and FPL, the new business registers for the period during which those Firms participated in the Pension Review and Advice Process show that outside of the LeadTracker process, they only had a very small number of customers who were invested in other products. With regard to BHIM, which had both a London and a Cheltenham Office, all of the HJL leads were advised to invest in the Bonds.

Therefore, the clear inference to be drawn from the evidence on this point is that, where the customer had indicated a preference for either a product with capital protection or a fixed return, they would in the vast majority of cases be recommended to invest in the Products through a SIPP; and none of those customers would be recommended to invest in any other investment product by any of the Firms during the Relevant Period. That also follows from the fact that, as we have found, the only questions in the Fact Find about investment objectives that the customer was asked was whether they were interested in (i) an investment that grew at a fixed rate and did not fluctuate in value; and (ii) an investment which carried a guarantee as to the value of the investment on redemption.

In the light of our findings as to the way the process was structured and operated, we turn to consider whether the statements in the Service Proposition and Brochure reflected the reality of the service offered by the Firms through the medium of the Pension Review and Advice Process.

In our view, the impression that would have been given to any customer receiving the Service Proposition and the Brochure was that they would, by entering into an agreement with the relevant Firm, receive bespoke advice from an IFA that was individually tailored to their individual needs and aspirations.

However, the only service that any of the customers received from the Firms was a recommendation to invest in the Products, which was the predetermined outcome provided the customer had indicated a desire for capital protection and/or a fixed return – a likely consequence due to the leading questions in the Fact Find that we have identified above. If such a recommendation did not follow because, for example, the criteria for inclusion in the process were not met or the customer did not express a desire for a fixed return or capital protection, then none of the Firms intervened to carry out a further review of the customer’s financial situation and recommend an alternative suitable product. The customer was simply left without any further services provided by the Firm.

As Mr Lockie stated in his report, an IFA is generally understood to mean a firm or individual which is authorised by the Authority and is able to consider and recommend all types of retail investment products that could meet an investor’s needs and objectives. An IFA would therefore consider retail investment products across the whole market and give unbiased and unrestricted advice. Many of the customers who did not receive a recommendation through the Pension Review and Advice Process were likely to have needs and objectives that could have been addressed with independent advice, but they were not pursued after they had been screened out of the process. This was most unfortunate bearing in mind the profile of the customers concerned. It should also be noted, that one of the criteria to be satisfied to enter the process in the first place was that the customer did not have an IFA. They might therefore not have had the necessary knowledge and experience to understand that what they were being offered was not the typical services of an IFA.

It is evident, that a new business register which contains high volumes of identical outcomes applied to a large number of consumers randomly captured by extensive lead generation activities is not the result of a genuinely independent advisory service.

It is also instructive to look at the process from HJL’s position. HJL’s objective was to use the process as a means of maximising investors for their Products. They and their associates designed a process to capture those who confirmed that they were interested in capital protection and/or a fixed rate return. The Firms effectively became accomplices in that exercise and were not to any meaningful extent performing the functions expected of an IFA. As our review of the files reveals, there is little evidence of the Firms intervening in the process before the recommendations were made. As we have found, there are numerous examples of Fact Find responses having no influence on the outcome which nearly always led to a recommendation to invest in the Products. In essence, the IFAs lent their name to HJL’s distribution process and, in effect, provided a veneer designed to give the impression that a truly independent service was being provided.

Mr Lloyd, using Mr Henderson’s position as an example, said that his involvement in the process meant that he was in control and had a determining say and so could decide to take a customer out of the process if appropriate. He said that was what Mr Henderson understood his role to be, a role which he thought at the time constituted being independent. He did not consider himself to be wed to HJL or the Products and, although that is where the LeadTracker process led, he was under no obligation to allow customers to go through the process. That is what he meant when he said that he was acting independently. We return to the particular position of Mr Henderson and the other Applicants and what they understood to be meant by acting as an IFA when considering their particular references, but at this stage we do not accept that what Mr Lloyd has described illustrates that the Firm concerned was giving independent advice in the manner in which it was described in the Service Proposition.

Mr Lloyd accepted in argument that there could have been a “better description” of the services being offered in the documents. He accepted the Tribunal’s formulation of what in reality was the nature of the service set out in the Service Proposition. It was put to Mr Lloyd that a more accurate description would be on the following lines. The Firm could have explained that it had recently become aware of a very good opportunity and had linked up with a product provider that was promoting products which the Firm believed would be suitable for investors who met certain criteria, namely the desire for capital protection and a fixed rate of return. If the Firm assessed the customer’s personal circumstances, and was of the view that they were suitable for investment in those products, then it may make a recommendation to that effect, but if the Firm considered that such a recommendation was not suitable, then it would consider whether there were other products that may be suitable instead.

Mr Lloyd accepted that that would be a fairer and more transparent description of what was actually going to happen, rather than the impression that was actually given, namely that the Firm was going to undertake a whole of market assessment resulting in a bespoke, tailored recommendation.

However, based on what we have said above as to what constitutes independent advice, the description of the service that was actually provided cannot fairly be said to amount to the giving of independent advice.

In that regard, we accept the Authority’s analysis that the statements in the Service Proposition were false and misleading in relation to the service provided to customers.

First, the statements that the Firms provided an “independent advice service” and “operate independently”, and the statements that they provided a “comprehensive and fair analysis of the market” and that “We will place no restrictions on the Investment Markets we will consider” were all false and misleading.

In reality, the advice provided in the Firms’ names was not provided through an independent advice service. The advice process had been developed by HJL to assist HJL in sourcing customers to invest in HJL’s own products developed for the UK pensions market.

The advice was not generated by the Firms on a client-by-client basis, but through an automated process without any meaningful assessment of individual customers' needs. The LeadTracker software, as each of the Applicants accepts, generated the reports and the only products that LeadTracker would generate a recommendation report for were the Products.

The only products that would be recommended to customers who passed through the Pension Review and Advice Process were HJL’s products, namely the Bonds and Loan Notes. The Applicants have accepted in evidence that no other products were recommended.

The Outsourced Functions were performed on the relevant Firm’s behalf by HJL, EFP or CAL. HJL had a material financial interest in the customers investing in the Bonds and Loan Notes and had a close connection with CAL.

As Mr Purchas submitted, similar failings appear in the Brochure which held out the Firms as providing customers with independent advice from qualified financial advisers and explicitly stated that an advantage of independent advice is that the adviser is not tied to one particular provider or product, is not incentivised to make a particular recommendation and will therefore act entirely in the customer’s best interests. The same issue arose in other stages of the Pension Review and Advice Process. For example, at the end of the Fact Find it was stated that “it will take an IFA approximately 2 days to analyse your information and prepare your personalised Recommendation Report …”, whereas the recommendation was not personalised and there was no meaningful involvement from any IFA in the making of the recommendation.

We consider, where relevant to the determination of their references, the knowledge and belief of the Applicants as to the falsity of the statements in the Service Proposition and the Brochure.

The Authority relies on SYSC 10.1.3R, 10.1.7R and 10.1.8R, as set out at [95] to [97] above, (in respect of Mr Page, T Ward and Mr Henderson) for its contention that those Applicants should have addressed the obvious conflicts of interest arising from HJL and its directors’ financial interest and involvement in the Products and the development and operation of the Pension Review and Advice Process.

In essence, the Authority says that there was a clear conflict of interest between the Firm, which includes its appointed representatives, and the Firm’s customers. HJL was an IAR of both FPL and HCA, so the provisions mentioned at [95] to [97] above are applicable in this case and neither FPL nor HCA argued otherwise.

The only conflict explicitly recognised by FPL and HCA was the fact that HJL received a commission of 5% of the proceeds of the various offers of the Products. They say that conflict was adequately managed by being disclosed in the Information Memoranda.

However, in our view, the Authority was correct to say that the conflicts of interest went much wider than that. As Mr Purchas submitted, HJL had an overarching involvement in the Outsourced Functions from the beginning to the end of the process, along with an interest in the leads generated through the marketing companies that it appointed being invested into the Products. That created a serious divergence of interest between what HJL wanted, which was these customers to invest into the Products, and what was in the customers’ interests which was to obtain suitable advice as to whether to switch at all and, if so, by reference to a consideration of products from across the market by means of an independent review by the identified IFA.

Neither Mr Lloyd nor Mr Page challenged that analysis, and we accept it.

HJL was not an IAR of BHIM and therefore the Authority has not pleaded a case against Mr R Ward and Mr Freer relying on SYSC. It relies on what it says is a broader approach which applies to all of the Applicants.

The Authority says that the Applicants should have had regard to the conflicts of interest as these impact on the potential suitability of the advice given including the disadvantages of a recommendation to invest in the Products through the Pension Review and Advice Process. At the broader level, the Applicants should have had regard to and disclosed HJL's interest in customers switching their pensions to the pre-selected Products, both in terms of the commission HJL received and the on-going involvement of HJL and its personnel with the Product providers. This involvement included acting as investment adviser, holding the share capital (in the case of both the HJ Bond Issuers and AIGO Cells) and owning and managing most of the various entities that received loans from the AIGO Cells.

Again, neither Mr Lloyd nor Mr Page challenged that analysis, and we accept it.

We are fortified in these conclusions by Mr Lockie’s evidence. As set out at [252] above, in relation to the Loan Notes, Mr Lockie was of the view that there was a clear conflict where a substantial portion of the investors’ funds were lent to companies controlled by Mr Stephen, in circumstances where HJL had already been paid an initial fee from those funds. That would give rise to concern on the part of a reasonably competent IFA about how the interests of the holders of the Loan Notes would be protected. Likewise, he identified a conflict between Mr Stephen’s interests in maximising his returns as an equity shareholder and the interests of the holders of the Loan Notes in circumstances where they had no influence over the risk that the AIGO Cells, in effect under the direction of Mr Stephen, would be taking with their investment.

Similarly, in relation to the Bonds, at [269] we set out Mr Lockie’s concerns about the conflict created because of Mr Stephen’s interest as a director and shareholder of the Issuers, giving rise to an incentive to procure the maximisation of his own returns, regardless of the desire and capacity for risk of the bondholders who were financing the enterprises. There was also concern about the selection and appointment of HJL to provide investment advice to the Issuers without an independent selection process.

We agree with Mr Lockie that these conflicts would be highly relevant and cause concern to a reasonably competent IFA considering recommending any of the products concerned to a retail investor. They are therefore highly material to the question of suitability, and as well as having been managed through appropriate disclosure or otherwise, should have been considered by the IFAs as part of their assessment as to whether the Products were suitable.

Turning to the detail of the conflicts of interest concerned, these are summarised by Mr Purchas as follows.

As identified above, HJL had close links to, and a vested financial interest in, the Products which were recommended to customers by the Firms. In relation to the Loan Notes:

In relation to the Bonds:

As also identified above, there were conflicts of interest inherent in the Pension Review and Advice Process. HJL had a financial interest in having customers invest in the Products while the customer’s interest was in receiving appropriate and suitable pension advice. Furthermore, according to evidence provided by a former employee of CAL to the RDC, the field agents working for CAL were entitled to receive 0.1% of the total value of the pension invested by way of a personal commission.

Since the Applicants did not identify any of the conflicts of interest detailed above, save for the fee payable to HJL out of the proceeds of issue of the Products, it follows that no steps were taken by any of the Applicants to manage any of those other conflicts. Nor, as we have found, did any of the Applicants take any steps to manage the conflict arising out of the fee payable to HJL.

Mr Page says that he sought to address what he saw as a conflict created by the fact that HJL and CAL operated from the same premises by asking that CAL operate from different premises to HJL, but this does not address the substance of the conflicts identified above, and in any event did not happen until the middle of October 2014.

As far as disclosure of conflicts is concerned, all the Applicants relied on the Information Memoranda, but only sought to do so in the context of the disclosure of HJL’s fee payable on the issue of the Products. As we have said, that is ineffective due to our findings that, in general, Information Memoranda were not provided, and even in those cases where they were provided, for example when requested by customer, they were not an appropriate medium through which to make such disclosure.

The implications of our findings on conflicts of interest set out above are considered further in relation to each Applicant in the context of the consideration of their individual references.

We start with our findings of fact which are specific to Mr Page’s and Mr T Ward’s references which are to be read in conjunction with the findings that we have made on matters which are common to all of the references, as set out above.

Mr Page is an experienced adviser who has had a long career in financial services. He accepted in cross-examination that he was aware of the regulatory requirements relied on by the Authority in these references and the nature of those requirements.

Mr Page started his career in financial services in 1993. Prior to the formation of FPL he had worked for a number of firms, including Prudential plc and St James’s Place. FPL was formed in 2011 and initially operated as part of the Financial Limited network as an Appointed Representative. On 9 April 2014, FPL applied for authorisation in its own right from the Authority and the application was granted on 3 July 2014 whereupon Mr Page was approved to exercise the CF 1, CF 10, CF 11 and CF 30 controlled functions. Mr Page was during the Relevant Period the only approved person at FPL.

Mr T Ward has also had a long career in financial services, but in operational rather than advisory roles. He commenced his career in 1978 and worked for a variety of institutions, including a period between 1989 to 1995 where he was Head of Operations and Assistant Director for a derivative trading company, City of London Options Limited. He was made redundant from that position and then took a job as a senior inspector at one of the Authority’s predecessor regulators, namely the Securities and Futures Authority (“SFA”), where he worked for 12 months. During that time his role was to attend on businesses and review their operations to ensure their compliance.

In 1996, Mr T Ward became the Head of Compliance and Operations at SG Investment Management Ltd (“SGIM”), later moving to become Global Head of Operations and Administration and an Executive Director at that firm. During that time, Mr T Ward was approved to exercise those functions by the SFA.

Mr T Ward was removed as a director of SGIM with effect from 15 October 1999 and his employment terminated following allegations of misuse of an expense account debit card, withdrawal of cash from an office safe for personal use and authorising transfers from a suspense account to an account in his own name. SGIM notified the SFA of those matters in a notice to the SFA withdrawing Mr T Ward’s approval and the SFA initiated an investigation into Mr T Ward’s conduct.

On 9 April 2001, Mr Ward was convicted of 6 counts of obtaining a money transfer by deception, as a result of which he was sentenced to imprisonment for a term of 12 months. Mr T Ward continues to dispute his guilt, contending that he thought the money transferred into his accounts was in relation to a pay rise he had been promised, but he did not launch an appeal regarding his conviction.

The SFA’s investigation had not concluded by the time that the Authority took over the SFA’s functions under FSMA on 1 December 2001. The Authority considered taking action to prohibit Mr T Ward on the grounds that his criminal conviction and the surrounding circumstances indicated that he was dishonest and should be prohibited. However, it appears that the Authority reached the view that Mr T Ward was unlikely ever to be granted approved person status in the future and, although there was some risk to consumers in the area of financial activity for which approved person status was not required, on balance the Authority decided not to resource an investigation where it believed the risk to consumers was low. Mr T Ward was informed that the disciplinary proceedings would be discontinued, but that the documentation concerned would be held on record and, in the event he applied for permission to carry out a controlled function, those matters would be considered and taken into account.

It is therefore clear that Mr T Ward was experienced in the financial services industry and was aware of the approvals required to perform certain services, particularly as he had approved person status for a number of years and had worked at the SFA supervising regulating firms. He said in his interview with the Authority that he understood what controlled functions were and the need for approval when performing them. Mr T Ward was asked in cross-examination whether, if an application had been made on his behalf to be a CF1 for FPL in 2014, it would have been approved. Mr T Ward, unconvincingly, asked what a CF1 was (which we are sure he knew because of his previous experience and involvement in these proceedings) but said that he assumed that if he had applied to become a director of FPL, which was never his intention, it would not have been approved.

Following his release from prison, Mr T Ward provided operational assistance to a number of mortgage brokers and other financial advisers.

In 2013, Mr T Ward was asked by a contact whether he knew any IFAs who would be interested in being involved in some pension business. He subsequently received details of the Execution-Only Process and was given the contact details of Person A who he met in November 2013 for the first time. Person A introduced himself as a representative of HJL. During the meeting a business model relating to pensions being switched to a GM SIPP with the underlying investment being the Loan Notes was discussed.

Mr T Ward undertook some due diligence on Person A. He discovered that Person A had been convicted and sentenced in August 2013 for two offences under the Insolvency Act for failing to disclose property to the Official Receiver in relation to bankruptcy proceedings. Mr T Ward said in his evidence that despite the conviction having only occurred recently, he did not think that rendered Person A “immediately unsuitable” for him to work with in relation to a project involving UK pensions.

Mr T Ward introduced the opportunity to Mr Page, telling him that he was impressed with the paperwork that he had seen. In early December 2013, Mr Page and Mr T Ward met with Person A and Mr Stephen at HJL’s offices in London. Mr Page confirmed that he undertook no due diligence or investigation into Person A’s background. He denied in his interview with the Authority that he knew about Person A’s convictions until after the Authority’s visit in June 2015. On the basis of his lack of due diligence, we accept that was the case at the time that the initial discussions took place with Person A, but in view of the fact that Mr T Ward did conduct some investigations into Person A’s background we think it is likely that subsequently, and before June 2015, Mr Page did become aware of Person A’s convictions.

It is clear that following the meeting, Mr T Ward took the initiative in progressing matters towards establishing a relationship between FPL and HJL. On 5 December 2013, Mr T Ward sent an email to Mr Page attaching “a full sample file for the project we have been discussing”. He went on to say:

“I would suggest that we start with three a day initially and these will be paid at £100 per case when the receiving Scheme receipts the monies into the fund.”

Mr T Ward referred to a “separate set of template documents that will be needed to submit the papers to the provider” which he said he would send later and that these would need to be used on FPL’s headed paper where appropriate. The email finished by Mr T Ward saying:

“If all is well I would intend to start early next week if that suits you Andrew?”

The sample file that is attached to the email included a copy of a client agreement for arranging execution only investments to be entered into between the customer and HCA. It was therefore clear that the file related to the execution-only business that HCA was at that time conducting in relation to introductions made to it by HJL as its IAR.

Later in the day, Mr T Ward sent the other documents envisaged. These documents provided for the IFA concerned to review the customer’s application for the GM SIPP and submit it to Guinness Mahon for the customer’s SIPP to be established and the funds transferred from his existing pension for investment in the Loan Notes. The documentation made it clear that the IFA would have no obligation to advise on the suitability of the investments concerned.

On 6 December 2013, Mr T Ward sent Mr Page an agreement to be entered into between FPL and HJL whereby FPL would appoint HJL as its IAR so as to enable HJL to introduce leads to FPL. This agreement had already been signed by Mr Stephen on behalf of HJL and was subsequently signed by Mr Page on behalf of FPL. Templates were also prepared for use by FPL at the same time, all of which related to execution only business.

The documents to be used were subsequently revised. Again, Mr T Ward took the initiative in progressing this. In an email to Mr Stephen on 19 December 2013, Mr T Ward attached “the revised suite of docs that we are intending that Andrew will use”. He said:

“I am proposing that this route will change nothing, except for the fact that Andrew now takes the responsibility for the cases. The invoicing for the fee of £500 per case remains the same method and I need your agreement to that also.”

Mr Page then encountered difficulty in registering the introducer agreement with the Authority. On 2 January 2014 he contacted Financial Ltd, for whom at that time FPL acted as an Appointed Representative, because he discovered that as FPL was not directly authorised registration would have to be effected by Financial Ltd.

Mr T Ward took the initiative in addressing this issue. He spoke directly to a compliance manager at Financial Ltd. That compliance manager emailed Mr Page on 27 January 2014 to say that Mr T Ward had been in contact but that he would prefer to deal with Mr Page. The compliance manager said that registering HJL as an introducer of Financial Ltd was not something that Financial Ltd would normally do.

On 29 January 2014, Mr Page emailed individuals at a firm he was contemplating working with in Dubai saying that “I was hoping to join my friend’s business and incorporate mine with his, but it’s not that simple going directly authorised, but it may work in the future”. Mr Page accepted in cross examination that this was a reference to the business with HJL that Mr T Ward was attempting to introduce to FPL.

Mr Page continued to try and obtain Financial Ltd’s agreement to registering HJL as an IAR. In an email to the compliance manager at Financial Ltd Mr Page indicated that the introductions were to high net worth individuals. Mr Page could not explain why he made that reference when the target investors envisaged by HJL would not fit that definition.

Financial Ltd explained that if HJL was to become its IAR it would have to do some due diligence. Mr Page was asked to undertake this and then explain what he had done to establish the credibility of HJL as an introducer. Mr Page enlisted the help of Mr T Ward in that regard who suggested Mr Page prepare a draft for him to review, advising Mr Page to include information regarding the “turnover and financial stability” of HJL which Mr T Ward could flesh out with the numbers.

In fact, what Mr Page produced was a one page document containing little detail. He described what he was being asked to do for HJL as follows:

“I have been given the opportunity to meet and complete a Fact Find on [HJL] client; this will involve no more than completing a Fact Find and then discovering if I may be able to help their client. I will ensure that I complete the review and see where I can help within a suitable timeframe to all my usual standards…”

This document was sent to Mr T Ward, but nothing happened for a number of weeks and, on 3 March 2014, Mr Page emailed Mr T Ward saying that he needed the “beefed up report from your guys”.

In the end, nothing materialised in terms of Financial Ltd registering HJL as an IAR and the proposed arrangements with HJL took a different direction.

It appears that, on 7 March 2014, Mr T Ward contacted Mr Page to tell him that HJL were proposing a new approach. On 8 March 2014 Mr Page emailed Mr T Ward saying he was looking forward to receiving details. He also said “if I can keep Financial out of the loop all the better”.

Later that day, Mr T Ward emailed Mr Page with further details. He said:

“I understand that they have now moved the product to it being an advisable switch. That means, that as we will be giving advice, that we don’t have to have them registered and I can negotiate a 3% fee on ALL transfers. Obviously, I will be supplying the packaged client – all supporting documentation will be wrapped into the file – so it will simply be a case of putting our name to it and effecting the transfer. I would then suggest that as each transfer has an average value of £50k that we simply split the fee 50/50. In effect, every case you do will generate gross £1500 and we get £750 each from every case? Provider will almost certainly pay your Network and then, once it is filtered through to you, I will invoice for my share?

My understanding is that they have over 700 cases per month at the moment? And only four others doing this for them!!!! That would mean we could collar over 150 cases prepackaged, per month and that would generate us gross a ridiculous £200k plus per month!!!!! I think we adopt the “suck it and see” approach and ask for one case, submitted and then see if any shit is thrown out? If not, gradually increase our numbers?????”

Mr Page responded on the same day, saying that Mr T Ward’s email had “just made my day”. He said that he was happy to proceed as Mr T Ward suggested and that he would “make sure I have a good process and system in place to knock them out as and when, serious money too…”

On 14 March 2014, Mr Page informed Financial Ltd that he would possibly be receiving income from a second source that would be “admin orientated” and asked how this would fit in with Financial Ltd’s systems.

It appears that Mr T Ward then started to progress matters with HJL. On 14 March 2014 he emailed Mr Oliver Maynard of EFP with a template of FPL’s letterhead. It seems that Mr Page had by then taken the decision that FPL should seek authorisation from the Authority in its own right. In an email to Mr T Ward on 18 March 2014 he said:

“I think this will come off big style, I have just phoned Financial stating I wish to go directly authorised as I do not want their extra services as my business model is so simple.

They are going to set me up, it takes 3 months, they are pinging a form over to get the ball rolling. They think I just don’t want the back office stuff they provide.

We can continue with my new bank account, nothing changes going forward, my fees increase slightly, but no one will have access to my business but me, we can pretty much do what we want then …”

Matters then proceeded swiftly. On 21 March 2014, Mr Page emailed Mr Oliver Maynard informing him that he had signed the Software Licence Agreement for LeadTracker. That followed a meeting that had been held on the same day between Mr Page and Mr T Ward on the one hand and Mr Nick Maynard and Mr Oliver Maynard from EFP on the other. On 9 April 2014, Mr Page informed Mr T Ward that FPL’s application for authorisation from the Authority had been submitted that day. In response, Mr T Ward informed Mr Page that he was liaising with Person A to obtain login codes for himself and Mr Page to the LeadTracker system. These were obtained on 16 April 2014.

Both Mr Page and Mr T Ward vehemently contended that FPL had no intention of participating in the Execution-Only Process and that Mr Page had dismissed that possibility when he first met HJL in December 2013. Mr Page said that he did not consider execution only business to be a particularly fulfilling or ethical way to work and therefore rejected participating in the Execution-Only Process because it felt as though he would “just be putting my name to it and indeed this was really how it was presented to me”. Mr T Ward says that he remembers very clearly a conversation with Mr Page in the lift on their way out from their first meeting with HJL where Mr Page said that he had no interest in progressing matters if what was being offered was participation in execution only business. That appeared to be one of the few times in Mr T Ward’s oral evidence where he was able to remember clearly a conversation which had taken place some years previously.

Although both Mr Page and Mr T Ward were persistent in their evidence in holding to that line, that evidence is clearly contradicted by the contemporary documents. We therefore reject both Mr Page’s and Mr T Ward’s evidence on this point.

At this stage, the Pension Review and Advice Process had not been developed. HJL were only promoting the Products through the Execution-Only Process, initially with HCA. The sample documentation that was given to Mr T Ward and Mr Page related solely to the Execution-Only Process, as we found at [533] and [534] above. Mr T Ward’s email of 5 December 2013, as referred to at [532] above, makes it clear that he was keen to progress matters on the basis of the documentation that had been provided. FPL signed an Introducer Agreement with HJL on that basis.

As we have found, Mr Page encountered difficulties in registering HJL as FPL’s IAR whilst FPL was an appointed representative of Financial Ltd. He was not able to progress matters in that regard because Financial Ltd required a detailed report on the due diligence that FPL had undertaken on HJL and, as we have seen, that matter was not progressed in any substantive manner.

We have no doubt that had FPL provided what Financial Ltd required so as to enable HJL to be registered as IAR then FPL would have proceeded with the Execution-Only Process. FPL’s potential participation in that process was overtaken by events when Mr T Ward informed Mr Page on 8 March 2014 that HJL was moving to an advised process and FPL then proceeded to take the necessary steps to enter that process, including applying for authorisation directly.

The Authority suggests that Mr Page was keen to keep Financial Ltd in the dark as to his plans. It is true that he described the role that FPL was going to perform as essentially an administrative process, but it appears that, at least at this early stage, Mr Page genuinely did believe that he would be signing FPL up to what was essentially an administrative process which would involve simply putting FPL’s name to files where recommendations had been made to customers without any significant work on the part of FPL itself. That is consistent with how Mr T Ward described the process in his email to Mr Page on 8 March 2014, as set out at [546] above, and we note it contradicts Mr Page’s assertion that he was not interested in business where he was simply asked to put his name to something.

As we have mentioned above, FPL’s application for authorisation by the Authority was received by the Authority on 9 April 2014. Although Mr Page said that the main reason FPL decided to apply for direct authorisation at this stage was because he thought that networks such as Financial Ltd had had their day, we have no doubt that the primary motivation was to enable FPL to participate in the Pension Review and Advice Process. From his experience with Financial Ltd and the proposal to register HJL as an IAR, it was clear to Mr Page that FPL could only participate in the Pension Review and Advice Process if the Firm became directly authorised. It was also apparent that Mr Page saw an advantage in distancing the Firm from Financial Ltd: see the emails referred to at [546] and [550] above.

Mr Page instructed IFA Compliance Limited (“IFAC”), a subsidiary of Financial Ltd which provided compliance services, to prepare the application for authorisation for FPL and paid a fee for that service. While Mr Page suggested initially during cross-examination that he may not have seen the application himself as it was prepared by IFAC, he then did accept that he had seen the document prior to it being submitted and had signed the declarations at the end of the application. Among other things, those declarations warned that it was a criminal offence to knowingly or recklessly give the Authority information which was false, misleading or deceptive and that the Authority must be notified immediately of any significant changes to the information provided. Another one of the declarations confirmed by Mr Page was that the information in the application was accurate and complete to the best of his knowledge and belief.

At the time of the application, Mr Page had signed the Software Licence Agreement for LeadTracker a few days previously, on 21 March 2014, and, as we shall see later, he was sent an updated Service Proposition on 7 April 2014. Arrangements for FPL to participate in the Pension Review and Advice Process were therefore well advanced at the time of the application. Two weeks after submitting the application Mr Page wrote to Mr Paul Gilham at Pan Trustees (the trustee for Guinness Mahon) stating that “we should commence submission of advised transfer cases imminently”.

The application did not take into account the potential arrangements for FPL’s participation in the Pension Review and Advice Process which were, as we have found, at that stage well advanced and was the primary motivation for FPL applying to be directly authorised. In particular:

It was also clear that Mr Page did not provide any details of the proposed arrangements with HJL to IFAC at the time of the making of the application and he did not update the Authority once the arrangements with HJL had been completed, other than arranging for the introducer agreement with HJL to be recorded on the Authority’s register. Mr Page raised during cross-examination a question as to how he would have updated the Authority, but he accepted that he could have phoned the Authority or emailed or written to it. He could also have clarified with IFAC what needed to be told to the Authority and how it should be done.

Alongside the authorisation process, FPL continued to make arrangements to finalise the documents necessary for participation in the Pension Review and Advice Process.

On 31 March 2014, Mr Page sent Mr T Ward a copy of FPL’s existing terms of business and asked him to amend it “as you see fit”. Mr T Ward subsequently amended the document to turn it into the Service Proposition to be used in the Pension Review and Advice Process, sending it to Mr Oliver Maynard on 4 April 2014, copying in Mr Page. In that email Mr T Ward said that “I have now completed the above document and would ask if you could kindly add our logo and bits to the front cover for me…”. A final version was sent back to Mr T Ward by Mr O Maynard on 7 April 2014 and was subsequently received by Mr Page.

Just prior to that, on 2 April 2014, Mr Ward sent an email to Mr Page asking him to “please cut-and-paste the text below and send it to [Mr O Maynard) as soon as possible”. The text drafted for Mr Page to send was to the effect that Mr Page was happy to confirm that he had reviewed the content of both the Pension Summary Report and the Pension Recommendation Report and was happy to proceed with both.

As mentioned above, on 25 April 2014, Mr Page provided the trustee of the GM SIPP with FPL’s bank account and contact details, referring to the fact that Mr T Ward had informed Guinness Mahon that FPL should commence admission of advised transfer cases “imminently”.

At this time, Mr T Ward was taking the lead on settling the contents of the Brochure with Person A. Mr T Ward indicated that it would be ready to print the following week, as Person A wanted. In that context, Mr T Ward had reviewed the brochure currently used by HCA and told Person A that it would be hard to improve on it and therefore it should be adapted for use by FPL.

On 2 May 2014, FPL entered into the Standard Service Agreement with HJL, as detailed at [359] above, pursuant to which HJL agreed to provide FPL with lead generation services as well as a detailed list of administration services.

On 9 May 2014, there was an exchange of emails between Mr T Ward and Mr Worrow Jr regarding the finalisation of the Brochure. These emails were forwarded to Mr Page so he could provide the final information required, namely the job titles of the various FPL employees mentioned in the Brochure. Mr Page’s comment on the Brochure was “Impressive! Seems all in order”.

It appears that leads were being processed for the benefit of FPL shortly thereafter. We have seen a Pension Summary Report request form dated 13 May 2014 branded in the name of FPL, envisaging that FPL would be providing the Pension Summary Report in due course. This was, of course, before FPL had been authorised by the Authority and whilst its application for authorisation was under consideration.

Around this time, Mr T Ward and Mr Worrow Jr were in correspondence regarding the estimates of the volumes of business that would be coming FPL’s way in the following months. On 22 May 2014, Mr T Ward, in an email which was not copied to Mr Page, said that the estimates given were “exactly what we were after”.

On 13 June 2014, Mr Page emailed Mr T Ward informing him that IFAC were now providing Mr Page with the “regulatory requirements for going direct”. He went on to say:

“I’m not sure how this fits with the Pension transfers, better to keep it separate and keep it off the radar, I’ll just use the IFA practice for my business.

We can still keep things compliant moving forward and see how it evolves”

It appears from that email, that Mr Page regarded the new business to be done through the relationship with HJL as being separate from his IFA business, although he accepted that, in practice, the two sides of the business could not be kept separate, as there would be reporting requirements to the Authority as regards FPL’s business as a whole. However, we take from the email that Mr Page did, at least in commercial terms, regard the new business as being separate from FPL’s existing lines of business. That is also reflected in the arrangements that FPL had with Mr T Ward, namely that Mr T Ward would receive 50% of the income from the pension transfer business.

On 16 June 2014, Mr Page emailed Mr T Ward informing him that he had sent to HJL a compliment slip to be used for FPL, which gave its address as HJL’s address in Mayfair.

On 18 June 2014, Mr Worrow Jr emailed Mr T Ward asking if Mr T Ward and Mr Page were happy with the Fact Find documentation and saying that he would be phoning Mr T Ward later that day to discuss the documents. Mr T Ward then asked Mr Page to “take a look at the attached for me please” asking, in particular, Mr Page to edit the Fact Find. Mr Page replied with a few comments on the same day, saying that the rest of the document read well.

On 3 July 2014, FPL received its authorisation from the Authority. Mr Page informed Mr T Ward immediately on receipt of the notification from the Authority. Shortly afterwards Mr T Ward informed Person A, telling Person A that he would inform Mr Worrow Jr as well. Mr Page also emailed his brother-in-law to inform him that FPL had been directly authorised. Mr Page said:

“I can now put things into place I’ve been working on these past few months. I was in London last week tying a few things with Tom a new business partner and things are looking good moving forward.”

Mr Page denied in his cross examination that he saw Mr T Ward as an equal partner in FPL. Nevertheless, as we have found, Mr T Ward was an equal partner in the pension transfer side of the business in the sense that he received 50% of its income as remuneration for his services to FPL.

On 16 July 2014, Ms High became aware of the activities of Taylor Barton, one of the marketing companies appointed by HJL. She was sent a record of the Authority’s contact with a consumer who had reported that they had been contacted by Taylor Barton who had said that the government were funding them to offer a pension review, the impetus for the review coming from the OFT. The report said that Taylor Barton claimed they were approved by the Authority and that if the consumer went ahead she would be referred to a local company called Andrew Page who were backed by the OFT.

On 18 July 2014, Mr Page emailed Mr T Ward informing him that he was going to familiarise himself with the nature of the AIGO Cells. It therefore appears to be the case that Mr Page had not undertaken any significant review of the Cells before that time, although Mr Page maintained in his oral evidence that he had looked at a considerable amount of documentation relating to the Cells before then. We have found no evidence of that, and, accordingly, reject Mr Page’s evidence on that point.

Although Mr T Ward was sent documents relating to the Cells by Mr Page, Mr T Ward did not himself undertake any significant review of those documents, although he was aware in general terms of the nature of the Cells. He confirmed that he was aware that there was a “Mauritian involvement” but said that, at the time, he was not aware that AIGO was incorporated in Mauritius. Whether or not that was true, we accept that Mr T Ward did not undertake any due diligence in relation to AIGO.

It did not take long for Pension Recommendation Reports to be issued in FPL’s name. We have seen one dated 21 July 2014, which indicates that the earlier part of the process, namely the sourcing of the lead and the preparation of a Pension Summary Report, must have taken place sometime before then. We have seen a Pension Summary Report, relating to a different lead, dated 4 July 2014. We have also seen the transcript of a call between the agent conducting a Fact Find and a lead who subsequently received a Pension Recommendation Report. The call took place on 16 July 2014 and the agent disclosed at the beginning of the call that he was acting on behalf of FPL, stating that FPL was an independent financial adviser, authorised and regulated by the Authority.

Mr Page agreed that he was obliged to carry out due diligence on the Loan Notes and maintains that his due diligence was adequate. He accepted in his cross examination that it was necessary to take care to ensure that he had sufficient understanding of the features and risks of the Loan Notes before they were recommended to customers. He placed strong reliance on the insurance arrangements and the investment strategy of the Cells. It was quite clear from Mr Page’s evidence that he relied on the fact of the 8% coupon, and the insurance arrangements, to justify the recommendation of the Loan Notes without regard to other risk factors. For example, in relation to the suggestion that he should have considered the risks of the investment strategies not supporting the 8% return, he did not think that it was his responsibility to review the particular investments that the Cells made or the expertise of those responsible for the investment strategies.

On 18 July 2014, Mr Page sent an email to Fidelis, the investment manager of AIGO, asking for details of the various funds and the amount they had under management. He never received a response and did not follow up. Mr Page’s evidence was that, for his due diligence, he relied primarily on documentation provided by Guinness Mahon and some documentation from HJL. However, he only obtained information from Guinness Mahon in October 2014, sometime after FPL had started to use the Pension Review and Advice Process, and the information provided then included the AIGO IM. As regards that document, Mr Page said that although he read it carefully, he did not analyse it, which he regarded as the responsibility of Guinness Mahon who he said had agreed that it was suitable for investment through the GM SIPP.

As regards the insurance arrangements, Mr Page understood that insurance was not in place for all of the Cells when recommendations started to be made and that it was never in place for the Natural Resources Fund and the Equity Fund. Mr Page did not obtain copies of the various certificates of insurance.

Mr Page received the quarterly performance schedules for the Cells, which set out the details of the investments that had been made, and said he would have spent 15 minutes or so looking at them. He did not review the performance of the Cells against their stated strategies in the AIGO IM, for instance, not raising any issues with the fact that the Equity Fund was investing into the Natural Resources Fund. Again, he said that this level of analysis was not required on his part.

The documentation to support Mr Page’s contentions that he conducted adequate due diligence on the Loan Notes is, by and large, largely confined, as Mr Lockie found, to information commonly sought when verifying identity for money-laundering purposes and for establishing that the various entities concerned actually existed. There are no documents which provide any evidence of Mr Page actually assessing the Loan Notes themselves and the Cells’ investment strategies.

There is no evidence that Mr Page gave any serious consideration to whether HJL or CAL were suitable to act as introducers and perform the Outsourced Functions on behalf of FPL. Neither did Mr Page undertake any assessment of the suitability the marketing companies, such as Taylor Barton, who purported to act on behalf of FPL or HJL or CAL, who conducted the Fact Finds. In fact, he was not aware of which companies had been appointed by HJL to source leads on behalf of FPL. Neither did he undertake any monitoring of the manner in which those entities carried on their activities when purporting to act on behalf FPL. Accordingly, Mr Page did not undertake any due diligence into how the marketing companies were remunerated.

As we have mentioned, Mr Page stated in interview that he was not aware of Person A’s bankruptcy and criminal record until June 2015. He was aware that Person A brought the business model for the process to Mr T Ward, but he did no due diligence on Person A.

Mr Page’s position was that it was the duty of HJL, the Appointed Representative of FPL, to ensure that the leads were obtained correctly and accordingly took no steps himself to monitor the way in which those leads were being generated.

FPL’s new business register shows that the first recommendation by FPL to a customer to switch their pension into an investment in the Loan Notes took place on 5 August 2014.

On 1 August 2014, Mr Raphael was contacted by email by Ms High with information about customers being cold called by Taylor Barton and then being referred to FPL. Mr Raphael followed this up by emailing Mr Page and asking him for a copy of FPL’s new business register providing details of all business FPL had arranged via a “SIPP or SSAS arrangement”. In setting the background for this request, Mr Raphael attached to his email a link to the adviser alert that the Authority had published to relevant firms on 28 April 2014, stating that the Authority was currently undertaking supervisory work in relation to pension transfers. That document alerted firms to the Authority’s requirements when they give advice on SIPPs. In particular, the alert stated the following:

“We believe pension transfers or switches to SIPPs intended to hold non-mainstream propositions are unlikely to be suitable options for the vast majority of retail customers. Firms operating in this market need to be particularly careful to ensure their advice is suitable.”

The alert outlined some of the findings that the Authority had made as to unsuitable advice having been given in this area. It said:

“In the cases we have seen, customers’ existing arrangements were invariably traditional pension plans invested in mainstream funds or final salary schemes, with the customer generally having no experience of non-mainstream propositions and many having very limited experience of standard investments. The new arrangements firms proposed were to transfer or switch customers’ funds to a SIPP, with a view to investment in non—mainstream propositions, which were typically unregulated, high risk and are highly illiquid investments. Some examples of these investments are overseas property developments, store pods and forestry. Such transfers or switches are unlikely to be suitable for the vast majority of retail customers.

Generally speaking, we found very poor standards of advice. Firms typically failed to carry out an assessment of the customer’s overall financial position, needs, attitude to risk and objectives in relation to the switch or transfer as a whole (including the characteristics and risk of the wrapper and of the underlying investments). Advisers’ understanding of non-mainstream propositions was also typically very poor, at least in part because of inadequate due diligence on the products and on the product provider.”

In our view, it is very clear that any reasonably competent IFA considering whether to participate in the Pension Review and Advice Process would have regard to this alert and whether or not it was relevant to the process, bearing in mind the profile of the customers being targeted and the nature of the Loan Notes. Mr Page said in his cross-examination that he may have seen the alert before, but he could not remember. Mr Page said he was of the view that the alert did not cover the Loan Notes because AIGO was a regulated fund, on the basis that it was regulated in Mauritius. He was of the view that the kind of investments referred to by the Authority, such as forestry and store pods were quite different to the investments to be made by the Cells. On the basis of our assessment of the risk profile of the Loan Notes, that was clearly not the case.

Mr T Ward became involved in the response to be made to Mr Raphael. On 19 August 2014 he sent an email to Mr Page setting out a draft response. Mr T Ward said in his evidence that he had prepared this response on Mr Page’s instruction and that potentially it might have been a draft prepared by Mr Page in respect of which he tidied up the grammar.

We reject that characterisation of the email. The email commenced “can you please take a look at the response below”. In our view, it is clear Mr T Ward took the initiative in preparing the response for Mr Page to review. The draft response stated that what was attached was a “detailed new business register stating all business the firm has arranged via a SIPP or SASS…”

The attachment to Mr T Ward’s email showed only six completed transactions (and one pending transaction) and stated that the “date of advice” was between September 2012 and March 2014. The transactions concerned all related to existing clients or family members of Mr Page and were in respect of mainstream investments.

By this time there were, however, a considerable number of transactions effected through the Pension Review and Advice Process in the pipeline and waiting to be completed. On 11 August 2014, Mr King had emailed Mr T Ward attaching a list of business “signed up” for FPL as of the previous Friday. Mr King said “nothing for Page completed as yet but only a matter of days now before the first money should drop”. On 18 August 2014, Mr Page had emailed Mr T Ward attaching a spreadsheet detailing fifteen transactions that had been received by Guinness Mahon between 29 July 2014 and 13 August 2014, where the total value of the funds to be transferred was £802,000.

Mr Page sent the response to Mr Raphael the next day, 20 August 2014, in the form drafted by Mr T Ward and with the spreadsheet attached to his draft also attached but omitting the pending transaction.

Both Mr Page and Mr T Ward contended that this response was accurate and reflected what Mr Raphael was seeking, notwithstanding the fact that it made no reference to what were, by that stage, a considerable number of transactions which had passed through the Pension Review and Advice Process, where the recommendation had been made, details had been submitted to Guinness Mahon and funds transferred. That meant that the only remaining step be taken was the issue of a confirmation note from Guinness Mahon that the transaction had been completed, or in Mr Page’s words the issue of a “policy number”. Mr Page confirmed that he did not provide any updated details to the Authority of those transactions once they had finally completed.

Unsurprisingly, Mr Raphael’s review of the information provided by Mr Page did not give him any cause for concern. He emailed Ms High on 27 August 2014, saying that FPL appeared to be low risk “assuming the IFA is telling the truth”.

However, Ms High continued to make enquiries into Taylor Barton during which Taylor Barton confirmed that they generated between 40 and 50 letters of authority which were referred to both FPL and HCA. In light of that information, Mr Raphael thought that speaking to Mr Page might facilitate Ms High’s enquiries into Taylor Barton.

Accordingly, Ms High and Mr Raphael telephoned Mr Page together on 1 September 2014. The call was not arranged in advance with Mr Page.

There is a dispute as to what time of day this call took place and where Mr Page and Mr T Ward were physically situated at the time of the call. In his cross-examination of Ms High, Mr Page said that he received no call on 1 September because he was with a client on that day. However, it is clear that the call did take place on that day. That was the evidence of both Ms High and Mr Raphael and is also corroborated by Mr Page’s email of 5 September 2014 to both Mr Raphael and Ms High thanking them for their follow-up emails from the call which he acknowledged he had received during the morning of 3 September 2014. In that email, Mr Page went on to say that “I have also given some thought to the content of our two conversations on Monday, 1 September 2014”. In any event, under cross-examination, Mr Page did accept that the call took place on that day but said that it was in the morning.

However, Mr Raphael’s evidence was that he had booked a meeting room between 1.30 pm and 2 pm and it was likely that he had done so in order to make the call from that room. There was also an exchange of emails between 1.30 pm and 2 pm between Mr Page and Mr T Ward which, as we find below, took place during the call. On that basis, we find that the call did, as Mr Raphael said, take place in the early afternoon of 1 September 2014. Mr Page was clearly mistaken in his recollection of events. It is also consistent with an entry in his diary for the same day which indicates an appointment at 1.30pm, without giving any further details.

As far as the contents of the call are concerned, these were summarised in an email that Mr Raphael sent to Ms High on 2 September 2014. Mr Raphael referred first to the “discussion with Andrew page yesterday” which he then summarised as follows:

“

•

We explained to Mr Page why we initially contacted him as we received information he was involved in conduct similar to the alerts

•

We had reviewed his SIPP register and only saw six and Mr Page said they were all standard investments. He said that he had only been trading since June 2014

•

We asked Mr Page to explain his relationship with Taylor Barton as they were sending out letters with his firm’s name on it – although he was hesitant at first he said that he gets leads from Hennessy Jones (which gets them from Taylor Barton)

•

Mr Page said that he had done due diligence on TB – we asked whether he had looked on the FS register and saw they were an introducer to another IFA and why would he then send leads to him-we asked whether he had known about Henderson Carter and he said he did not.

•

We explained that we would review matters in a few months time”

As we said, at the time of the call there was an exchange of emails between Mr Page and Mr T Ward. The chain starts at 13.37 with Mr Page asking Mr T Ward:

“Who are Taylor Barton

They asked me if I have received introductions from them?”

Mr T Ward replies at 13.38:

“Don’t know them. Checking now but I would say no!”

Mr T Ward sent a further reply at 13.40:

“They are a lead provider and provide leads to Hennessy Jones.

Not direct to us – so don’t use this info yet!!!!! I am still digging!!!!”

Mr T Ward sent a further reply at 13.41:

“We have not – Our introducer may have – again I’m still digging so don’t open to them yet!!!!!”

Mr T Ward sent a further reply at 13.43:

“This is okay I believe. It’s not us so we can deflect the flak!!!! If Needed!!!!

But it’s not life threatening issue I don’t think mate!!!!

Are they being bastards or ok?”

Finally, Mr T Ward sent a further reply at 13.50:

“TB provide leads to Hennessy Jones and DO COLD CALL

Clients/prospects apparently.

We can say that we will check with our introducer (HJ) to see if they use this company and if they do we will investigate further and if we do not receive an acceptable reply we will drop them immediately.

But try and work it that HJ use a large number of lead providers and we don’t always have details of all of them! DON’T SAY THAT THEY COLD CALL MATE”

It was put to both Mr Page and Mr T Ward that this exchange of emails took place whilst Mr Page was on the telephone to Mr Raphael and Ms High and Mr T Ward and Mr Page were in the same office. Mr Page denied this was the case because he said he was in Shropshire with a client on that day. Mr T Ward took the position that he did not know where Mr Page was and neither did he know where he was on that day, over seven years ago.

In our view, the only conclusion properly to be drawn from this evidence is that the email exchange took place whilst Mr Page was on the phone to Mr Raphael and Ms High and that, on the balance of probabilities, the exchange took place while Mr Page and Mr T Ward were in the same office.

The timing of the emails is consistent with the time of the call, which we have found took place between 1.30pm and 2pm. The language of the emails is clearly consistent with the exchange taking place contemporaneously with the call, for instance, Mr T Ward at 13.43, using the present tense in the question he posed at the last line of his email. Furthermore, the email exchange shows it took a few minutes for Mr T Ward to give Mr Page further information so that he could respond to the Authority’s questions regarding Taylor Barton, which is consistent with Mr Raphael’s summary of the discussion where he said that Mr Page was hesitant at first but then disclosed that the leads came from Hennessy Jones who obtained them from Taylor Barton.

The emails also reveal Mr T Ward taking the lead in telling Mr Page how to deal with the Authority and, in particular, suggesting that Mr Page does not give the Authority the full picture at this time.

There is clear evidence of Taylor Barton cold calling potential leads who subsequently became customers of FPL through the Pension Review and Advice Process. Mr Page was taken to transcripts of calls between consumers and the Authority’s contact centre to that effect.

On 3 September 2014, Mr Raphael sent Mr Page links to alerts for advisers in relation to SIPPs and underlying unregulated investments, including the alert some of which is quoted above. On the same day, Ms High sent Mr Page a consumer alert which warned consumers to be wary about being offered a free pension review out of the blue and being encouraged to move their pension to get better returns.

These emails were passed on to Mr T Ward who in turn passed them on to Person A. His comment to Person A was “we knew all about this some time ago… If anything, these are meaningless where we are concerned. Keen to make sure we box this one off today mate”.

Although neither Mr Raphael’s nor Ms High’s emails called for a response, Mr T Ward then took the initiative in preparing a response to the Authority. On 4 September 2014 he emailed Mr Page, with a copy to Person A, as follows:

“I have taken the view that less is more in this situation and provide the draft for discussion attached. I am sure that there will be a number of views to be taken into account on this issue and await everyone’s thoughts before moving forward.

I have copied [Person A] in as he will, if he is happy with the attached, send a copy to his Solicitors for their input.

I am keen to get this out but more keen to make sure we kill it first time “STONE DEAD”

…”

Mr T Ward said in his cross examination that this draft was prepared at the request of Mr Page and contains much material that Mr Page had drafted himself. We can find no evidence of that and the email referred to above is entirely consistent with Mr T Ward having taken the initiative in preparing a draft in conjunction with Person A, because of course, HJL would be affected were the Authority to pursue matters further at this stage. Mr Page had no explanation to offer as to why Mr T Ward wanted this response to be sent to the Authority. The draft said this in relation to the consumer alert:

“I think I should make it absolutely clear that I do not recruit any Lead Generation Companies as part of my Business Model. I do have one Introducer who has recently started to provide me with a number of client introductions. These are qualified leads and come with signed [letters of authority] from the clients. We then collect the information on their existing plan [s] and complete a review of the same. At NO time leading up to my review has any advice being provided to the client by either the Lead Generator all the Introducer. Only after a full review of their circumstances do I issue the initial report which is followed up with a telephone call to establish whether they would like to proceed. Under no circumstance would I consider investments in unregulated products such as overseas property, forestry or store pods among other things. I do hope that this clears up this issue.”

As regards the other alerts, the draft stated that Mr Page followed the Authority’s view that the provision of suitable advice generally requires consideration of other investments held by the customer and that consideration of the suitability of the overall proposition is taken into account. Mr Page then set out his commitment to comply fully with the Authority’s guidelines.

The final version was sent to the Authority on 5 September 2014 without any significant amendments to the draft prepared by Mr T Ward.

An exchange of emails between Ms High and Mr Raphael after receipt of Mr Page’s response indicated that they were reasonably comfortable with it, but they informed Mr Page to look into whether FPL needed to record HJL as an IAR and referred him to areas of the Authority’s website that might assist. It therefore appeared that Mr T Ward had achieved his objective of stopping any further enquiries from the Authority at this stage.

On 8 September 2014, Mr Page emailed Mr T Ward informing him that Mr Palmer of IFAC was shortly coming to see him to discuss his “new world as a directly authorised adviser”. Mr Page said to Mr T Ward that he will “just keep quiet about the HJ business”. On 16 September 2014, Mr Page emailed Ms Preston-Hoar in which he informed her that he now had an IAR on board and that they would be providing pension leads. He asked a question about how to record this business but gave no further details as to the nature of the business concerned.

On 11 September 2014, Mr Page arranged for HJL to be registered as an IAR of FPL and, on 16 September 2014, emailed Mr Raphael to inform him of that fact.

On 29 September 2014, Ms Preston-Hoar emailed Mr Page in response to a request from him, informing him that his first return to the Authority would be due by the middle of November, but would only need cover the few months from FPL becoming directly authorised until the end of September. This response was forwarded to Mr T Ward who said:

“That may be great news as we will have only completed on small numbers and then that gives us six months until may next year!!!!...”

Mr Page responded:

“Yes, I’ll make sure it looks as good as possible, I’ll email Mark my accountant tomorrow, I’m glad we can this sorted then have a good run at it, we’ve done 19 so far for GM.”

Both Mr Page and Mr T Ward denied under cross-examination that this exchange indicated their pleasure at the prospect of being able to carry out a large amount of business before the Authority became aware of the nature and volume of the business being conducted. Their position was that what was meant was that they would have a sufficient period to make sure all their processes were “sorted”.

We reject that explanation. The tenor of the exchange is clear; both Mr Page and Mr T Ward were pleased to know that there would be a significant period of time before the Authority would be aware of the volumes of business being conducted allowing FPL to have a “good run” at completing cases. Nothing is said about the processes that may need to have been undertaken to deal with the volume of business.

On 30 September 2014, Mr Page thanked Ms Preston-Hoar for her advice on the return date and indicated for the first time that FPL had commenced doing pension transfers through introductions from HJL, saying that there were “quite a few in the pipeline” but giving no further details.

On 13 October 2014, as described at [360] above, CAL and FPL entered into a Standard Service Agreement to reflect the fact that CAL rather than HJL were now undertaking the necessary administration services relating to the Pension Review and Advice Process. There is no evidence of FPL having undertaken any due diligence on CAL at this time.

Mr T Ward accepts that he was significantly involved in communications with Guinness Mahon with regard to the novation of a number of customers from HCA to FPL. Mr T Ward says that these were matters of an administrative nature and did not require Mr Page’s input although Mr Page was kept informed. It would appear that this process was initiated at the request of HJL following an agreement between HJL and HCA to that effect.

On 9 December 2014, Person A emailed Mr T Ward, copying in Mr Page, telling Mr T Ward that he needed a letter from HCA passing FPL all their clients that had signed up for ongoing reviews as well as those who had not. Once those letters were obtained they could be presented to Guinness Mahon who would then be obliged to accept the transfer of clients from HCA to FPL.

On 10 December 2014, Mr T Ward provided a draft of the letter to be given by HCA to Guinness Mahon for Person A’s approval which, when completed, was sent under Mr Page’s signature to Guinness Mahon on 10 December 2014.

Mr T Ward continued to take the lead on the arrangements for the transfer of the servicing rights from HCA to FPL, including how to deal with the pro-rata distribution of the service fees payable, without the input of Mr Page.

In November 2014, it appeared that HJL took the decision that investors in the Portfolios would have any cash element substituted by the Liquid Assets Bonds. On 10 November 2014, Person A wrote to Mr N Maynard to this effect, instructing him to substitute the Liquid Assets Bonds for cash held within both AIGO and HJ Bond Portfolios. A summary of the Information Memorandum relating to the Liquid Assets Bonds was attached.

On 20 November 2014, Mr Worrow Jr sent Mr Page a term sheet for the Liquid Assets Bonds, saying that this product gave clients a better return on the cash element of their Portfolio, asking Mr Page to confirm in writing that he was happy for this to be included in the advice reports as soon as possible.

It would appear that Mr Page gave that approval shortly thereafter, as he confirmed in his cross-examination. He said he read the term sheet, but there is no evidence of Mr Page having undertaken any significant due diligence on the Liquid Assets Bonds. However, not long afterwards he started the process of encouraging clients to transfer the cash element of their investments into Liquid Assets Bonds. Mr Page’s diary entries show that he blocked out three days on 17, 18 and 19 November 2014 to “call HJ clients”. He said that he could not remember what those calls would have been about, but in our view there cannot be any doubt that they were regarding the switch to the Liquid Assets Bonds. Finally, Mr Page did accept in his cross-examination that he did try to contact the relevant clients by telephone.

Mr Page prepared a script to be used during these calls, the key point of which was that it contained a recommendation to do an internal transfer within the particular Portfolio to take advantage of what was described as the extra growth provided by the Liquid Assets Bonds. Mr Page accepted that no Fact Find was undertaken and no explanation of the risks attaching to the Liquid Assets Bonds was given.

An opt out letter was prepared to be sent to those customers who could not be contacted by telephone. We have seen the text of the letter that was used, prepared in early February 2015. Mr T Ward accepted that it was quite possible that he was involved in the drafting of this letter. The letter said that “we highly recommend that we switch any cash element of the portfolio to this bond in order to take advantage of the extra growth”. It went on to say that if the customer was happy then they did not need to do anything at all and “we shall perform the switch on your behalf once the bond is issued”. Again, the letter gave no explanation that there was an increased risk as a result of the switch from cash to the Liquid Assets Bond and no information was given setting out the risks, benefits or costs of the proposed course of action.

Mr T Ward took the lead in dealing with Guinness Mahon with regard to recording the switches, informing Mr Robilliard of Guinness Mahon on 2 April 2015 that all correspondence on that issue should be directed to him as the clients concerned were FPL’s and as such “we will make the decisions on these matters”.

However, there were some administrative difficulties in effecting the switch and in an email on 28 April 2015, copied to Mr Page, Mr T Ward told Mr Robilliard of Guinness Mahon that “no monies are to be invested from the funds held on account… until either Andrew or myself provide the confirmation”

Mr T Ward initiated the process for altering the service fees payable to FPL. On 9 January 2015, Mr T Ward informed Mr King that he intended to provide comfort to Guinness Mahon that they could alter FPL’s charging structures “as we please” provided they stayed within certain industry recognised parameters.

On 21 January 2015, Mr T Ward emailed Person A, copied to Mr Page, reporting on his discussions with Guinness Mahon on this issue. He started by saying that “I have agreed” with Guinness Mahon that FPL can charge its annual servicing fees on 31 December 2014 and that FPL will then complete a “negative response” circular to customers confirming that the coupon is about to be paid and that FPL will be taking its service fees. The email also asked Person A for his agreement that coupons would be reinvested.

Mr T Ward contended in cross-examination that all of this would have been cleared with Mr Page first and suggested that Mr Page may have dictated the letter to him. That is simply not credible; it is quite clear from the way the email is constructed that this was Mr T Ward reporting on something that he had taken the initiative on with Guinness Mahon. Although it appears that Mr Page was being kept informed, it does not look as if he played any significant part in the discussions that Mr T Ward had with Guinness Mahon.

In January 2015 FPL established an Investment Committee. This was FPL’s only governing committee and its three members were Mr Page, Mr Richard Blackshaw and Mr T Ward. It was decided that any two of the three members could meet to transact business.

The main item of business discussed at the first meeting on 9 January 2015 was the performance of the Products and it was confirmed that the 8% coupon on the Loan Notes was to be paid in full. The Investment Committee agreed that all cash received would be reinvested in accordance with the initial investment strategy.

It was therefore clear that Mr T Ward was a party to that decision. He also took the lead in the correspondence with Guinness Mahon on that issue so as to ensure its implementation. Although Mr Page was copied in on correspondence, there is no evidence to support Mr T Ward’s contention that all the correspondence was cleared with Mr Page in advance.

The minutes for the second meeting of the Investment Committee, held on 20 March 2015, record that the main business of the meeting was to discuss investment strategy relating to customers introduced through the Pension Review and Advice Process. It is clear that this discussion took into account the advice being given to customers to switch their cash holdings into the Liquid Asset Bonds and the minutes record the decision to contact customers to get their consent to the switch.

The minutes for the third meeting of the Investment Committee, held on 27 May 2015, dealt with concerns raised by FPL’s compliance team following file checks. The Committee confirmed that there was nothing detracting from FPL’s processes in the Authority’s Conduct of Business Rules.

Mr T Ward sought to downplay his role on the Investment Committee. He said that he was only there as a notetaker and to provide information. Again, we do not find that explanation credible. Mr T Ward is held out as a full member of the Committee and there is nothing to suggest that he did not take part in the decisions that are recorded to have been made by the Committee on an equal basis with the other members. Had it been intended that he perform a purely secretarial or information providing role, that could have been made clear and the minutes could have recorded that Mr T Ward was purely in attendance at the Committee meeting rather than participating as a full member. There is no evidence to suggest that to be the true position.

In November 2014, IFAC undertook a review of one of FPL’s files, which related to a customer who had been introduced through the Pension Review and Advice Process. The file was chosen at random by Ms Preston-Hoar from a number offered by Mr Page.

On 27 November 2014, Ms Preston-Hoar emailed Mr Page to inform him that the file had been reviewed but “we suspect you won’t be happy with the result”. Ms Preston-Hoar therefore suggested that she and Mr Page discussed the results over the telephone and a call was arranged.

The file was given a poor review. Ms Preston-Hoar recalls being concerned by the shortcomings of the Fact Find and, in particular, that the file reviewer noted that it did not capture adequately the client’s financial experience or obtain sufficient information to enable an assessment of the client’s capacity for loss. It was also noted that the Fact Find did not contain details of the client’s existing pension arrangements or properly explore the client’s ethical investment preferences.

It is not clear whether the call with Mr Page actually took place, but on 8 December 2014, Mr Page sent Ms Preston-Hoar an email attaching what he described as “information that is sufficient to clarify the points in the file check”, although Ms Preston-Hoar said that the information provided was what she would have expected to have been considered by the file checker.

The additional information was passed on to a compliance consultant employed by IFAC so that the file could be reassessed. That consultant confirmed to Mr Page on 3 February 2015 that the “case has now been signed off as the documentation that you sent answer the queries that were raised”.

Mr Page forwarded the email to Mr T Ward with the comment:

“Unbelievable, they have signed it off as a clean case: No remedial work to do”

There is no explanation as to why the compliance consultant considered the recommendation to be suitable and Ms Preston-Hoar did not take any further action in relation to the matter.

The file, however, had passed with the lowest pass score possible, that is 5/10. When asked in cross-examination whether he considered it satisfactory that the file passed with such a low score, Mr Page stated that he would have been concerned “if it got 1 or 2”. It was clear, however, from Mr Page’s email to Mr T Ward that he did not believe that any concerns needed addressing as a result of the file review.

A review of three further files took place in May 2015. This time all three files failed and were given the lowest mark possible, 1/10. Under “Actions” the file reviewer stated that the sales process was non-compliant and that the written advice given was not backed up by the paperwork. The reviewer stated that the firm needed to reconsider all aspects of its sales processes as they were not compliant. The reviewer noted that there had been a non-advised fact finding followed by an advised recommendation, with no direct discussion between the IFA and the client. The view was expressed that regulated advice could not be based on a fact find completed by a non-qualified individual. In addition, the Fact Find asked too few questions and, as this was the basis for the advice, that advice was flawed.

FPL was provided with these file review results and this led to Mr T Ward telephoning Ms Preston-Hoar on 20 May 2015 to discuss them. The call had been preceded by an email from Mr Page to Mr Worrow Jr on 19 May 2015 in which he asked for an answer to give to IFAC regarding their view that a non-qualified adviser completing a Fact Find, which resulted in a recommendation being provided by an IFA who had not met the client, was non-compliant.

Ms Preston-Hoar emailed Mr Page on 20 May 2015 reporting that Mr T Ward had spoken to her. However, she felt that this was better dealt with in writing but, as she did not have Mr T Ward’s email address, she was responding to Mr Page instead. On IFAC’s case notes relating to FPL, Ms Preston-Hoar describes Mr T Ward as “Andrew’s go to man”. Ms Preston-Hoar could not remember why she referred to Mr T Ward in those terms; she said it could have been that Mr T Ward had used the term in reference to himself when he introduced himself to her.

According to Ms Preston-Hoar’s email, Mr T Ward had asked to speak to the file reviewer because he was unhappy with the comments made about the process being non-compliant because the Fact Find was completed by a non-authorised person before the recommendation was given by the IFA. Apparently, Mr T Ward explained that the process had been approved by lawyers. Ms Preston-Hoar replied that although COBS was unclear on that point, she did feel that the process was not in the spirit of the rules and that the Authority would be likely to pick up on a number of areas, in particular the basic nature of the Fact Find, the use of leading questions and the use of an unauthorised adviser to carry out in-depth questioning of the client. Ms Preston-Hoar emphasised that the fact that the process did not obtain sufficient “know your client” information was the main problem.

Mr Page responded later that day saying that he had discussed the feedback with Mr T Ward and would further digest her comments before reverting.

On 27 May 2015, Mr Page emailed Ms Preston-Hoar to inform her that following the Investment Committee meeting that day, it had been decided there was no point in having further checks on pension transfer files because FPL had a legal opinion that their process was compliant. Mr Page did, however, say that he took on board that the soft facts within the Fact Find needed exploring further and “we are incorporating this for this process”. In fact, in his cross-examination, Mr Page expressed the view that he had always thought that more soft facts were needed. The Investment Committee minutes dated 27 May 2015 also record that FPL accepted that more soft facts were needed.

As we have found, there was no evidence that FPL had received a legal opinion to the effect that the Pension Review and Advice Process was compliant with the Authority’s requirements.

Ms Preston-Hoar replied the next day agreeing that there was no point in having file checks, but suggested that the decision was reviewed in six months’ time to give FPL time to consider making changes. Ms Preston-Hoar said in her evidence that it was regrettable that Mr Page decided not to follow IFAC’s advice, but IFAC could not force him to do so.

Early in March 2015, Mr T Ward contacted Ms Hallett of Carey Pensions UK LLP (“CPUK”) to enquire as to whether CPUK might enter into a partnership whereby CPUK provided SIPPs to customers being advised by FPL. Mr T Ward explained the approach was on the basis that FPL were concerned about the capacity of Guinness Mahon to cope with the business being referred to them.

CPUK then began due diligence on FPL and the bonds that FPL had represented would be their preferred investments. On 15 April 2015, Ms Hallett met Mr T Ward and Mr Page at CPUK’s office in Milton Keynes. According to Ms Hallett, based on her interactions with Mr T Ward, she believed Mr T Ward had responsibility for business development for FPL and had developed the firm’s SIPP business, whilst Mr Page was the individual regulated by the Authority who signed off on advice given to customers.

There were a number of other meetings in May and June 2015 and Ms Hallett observed that Mr T Ward always took the lead, tending to speak and answer questions more than Mr Page. Her observation was that Mr Page was a quiet man, but responded to questions about FPL’s advice process when asked directly. Mr T Ward took the lead in explaining the SIPP process and agreeing fees for CPUK to provide SIPPs to FPL under a trial agreement, with a view to increasing FPL’s sales of SIPPs. It was always Ms Hallett’s belief that Mr T Ward was acting, and could negotiate, on behalf of FPL as a regulated entity. Ms Hallett, however, was aware from CPUK’s due diligence that Mr T Ward was not registered as a director of FPL.

Matters then took a different course. From discussions with Mr T Ward in or around late April 2015, Ms Hallett became aware that FPL had an investor willing to assist the firm in buying a SIPP provider. By coincidence, at that time the shareholders of CPUK had decided to exit the UK business and so, on 1 May 2015, Ms Hallett had a discussion with Mr T Ward about the possibility of FPL acquiring CPUK.

On 2 May 2015, Miss Hallett emailed Mr T Ward and Mr Page with a standard non-disclosure agreement (“NDA”). This was returned signed by Mr T Ward and Mr Page.

The agreement, which was in the form of a letter, was addressed to “Mr T Ward & Mr A Page Page Wealth”. The signature block was as follows:

“Agreed on behalf of Page Wealth

Signed

Thomas Ward

Andrew Page

Director/Authorised Signatory on behalf of Page Wealth”

Ms Hallett’s evidence was that she understood Mr T Ward to be an authorised signatory acting on behalf of FPL. She said that it was CPUK’s policy to obtain the signatures of two authorised signatories on a document of this kind, although the signatories concerned did not need to be directors as far as CPUK was concerned.

In his evidence, Mr T Ward contended that the acquisition was to be in the name of a new entity, a partnership between him and Mr Page, backed by an investment arranged by Person A, and that partnership would trade under the name “Page Wealth”.

That was a new contention made for the first time at the hearing. Mr T Ward’s witness statement suggested that he signed as “authorised signatory” because he was authorised by Mr Page to sign, not because he was a director.

That explanation could only have been made in the context of FPL being the proposed purchaser, as it was understood to be the case by Ms Hallett. It was also the case that “Page Wealth” was the branding used by FPL in relation to business generated through the Pension Review and Advice Process. We therefore reject Mr T Ward’s evidence on this point. We find that Mr T Ward signed the NDA on behalf of FPL along with Mr Page who was also acting on behalf of that entity.

On 4 June 2015, Miss Hallett and other colleagues met Mr T Ward and Mr Page again, along with Person A who was then identified as the investor who might be interested in purchasing CPUK with FPL.

According to Ms Hallett’s unchallenged evidence, the CPUK team were not impressed with Person A. After the meeting, they undertook some due diligence and discovered a press article showing that Person A had previous convictions for blackmail and offences under the Insolvency Act 1986. Accordingly, CPUK decided to distance themselves from Person A and FPL and, on 9 June 2015, Ms Hallett told Mr T Ward that they were not going to proceed with the negotiations because of the involvement of Person A.

In March 2015, FPL and HJL discussed the possibility of transferring all customers’ funds currently invested in the Loan Notes into a range of new bonds issued by companies controlled by HJL.

Mr T Ward took a leading role in relation to this proposal. On 8 April 2015, Mr T Ward emailed Mr King saying that he “just wanted to float our proposed procedure” for the switch of the Loan Notes into the Bonds, stressing the importance of avoiding a decrease in funds invested by FPL “cashing in” the existing investments that “we intend to migrate to the Bonds”. Mr T Ward asked Mr King to see if he had any issues with what was proposed following which he would roll out the process to Guinness Mahon for their approval.

The Authority alleges that Mr T Ward had access to FPL’s bank account. We were taken to an email dated 11 May 2015 from Mr T Ward to Mr Page which said:

“I paid £1500 into my No 2 Account and the £107 into My No 1 Account…. Hope that’s ok?

The balance left is £254.19 mate.”

FPL’s bank statements for that date show those two payments, made by Faster Payment in favour of Mr T Ward, and indeed show a balance of £254.19 following the transfers. A number of payments had been made on 24 April 2015, including two to Mr T Ward and his wife. There was an email on the same day from Mr Page to Mr T Ward which said “Thanks for sorting the banking”.

Mr T Ward denied in interview with the Authority that he was able to access the bank account or that he transferred any money to himself, contending that he was not an authorised signatory for FPL’s bank accounts.

In his cross-examination, Mr T Ward denied that he had access to Mr Page’s login details and said that there was a single fob that Mr Page always kept to himself. He denied that the words “I paid” in the 11 May 2015 email indicated that he made the transactions saying it was simply “semantics”.

However, on 12 May 2015, Mr Page emailed Mr T Ward telling him that he would like Mr T Ward to have access to the accounting system used by FPL and he informed him that he had changed the password, disclosing what it was, and saying it was “like Metro for continuity”. Metro Bank was the bank with whom FPL held its accounts. It can be inferred from this email Mr T Ward already knew the password for the bank account.

In our view, the evidence set out above points overwhelmingly to the conclusion that Mr T Ward did, contrary to his assertions, have access to FPL’s bank account and was able to effect transactions on the account.

By June 2015, the Authority had identified that FPL had been involved in recommending pension switches and transfers into the Loan Notes. On 3 June 2015 the Authority conducted a short notice visit to FPL. The purpose of the visit was to gather further information from FPL and to assess whether any immediate steps needed to be taken to prevent consumer harm.

Mr Walmsley led the Authority’s team which visited FPL. They were met by Mr T Ward who took them to the meeting room to meet Mr Page. Mr T Ward asked each of the Authority’s representatives to state their name and (inappropriately) to disclose where they lived. The representatives gave their names, but not where they lived.

Mr Page was interviewed in the presence of Mr T Ward who remained as an observer for much of the meeting and took responsibility for locating the information and documents requested by the Authority. Mr David Worrow Jr subsequently joined the meeting.

Mr Page contends that, during the meeting, Mr Walmsley had said that the operating and compliance manuals which detailed FPL’s customer journey and operating rules were “some of the best manuals I had ever seen”. Mr Page also said that Mr Walmsley was impressed by the client journey but said that FPL “may need to go restricted”.

Mr Walmsley’s evidence was that at the meeting Mr T Ward was very direct and confident whilst Mr Page seemed more hesitant and more reactive, perhaps a little bit out of his depth.

As far as Mr Page’s contention is concerned, Mr Walmsley had no recollection of making any positive affirmation about the business model of FPL. He said that his role was to ask questions and gather information. He does recall seeing some client compliance manuals on a desk outside of the room and flipping through them. He says he was struck by the fact that “someone had gone to town to make this look like a good set of documents in terms of looking superficially compliant”. He said that to say that documents were “the best I had ever seen” were not words that a supervisor or an enforcement officer would use on a fact-finding visit.

We prefer Mr Walmsley’s evidence on this point. Mr Walmsley is an experienced official in relation to both supervisory and enforcement matters. As he said, his role was to gather information which would then be assessed by the Authority in the fullness of time. It would be most unusual for any positive comment of the type attributed to him to have been made in this situation. Mr Page’s memory can, as we have seen, play tricks on him. We think it highly plausible that Mr Walmsley did make a positive comment to the effect that he was pleased to see the compliance manuals but that it went no further than that. Mr Page, in our view, read more into the comment than was justified. This finding is corroborated by the fact that the note of the meeting, as referred to below, did not record any feedback given by Mr Walmsley at the meeting.

The Authority prepared a very detailed note of the meeting, typed up from contemporaneous handwritten notes, at which it was clear that Mr Page was very open about FPL’s business. The note records Mr Page’s observation about his relationship with Mr T Ward as that he worked very closely with him, saying, “we do everything together, he’s a bit more shrewd than I am”. The note also records Mr Walmsley observing that Mr Page was an IFA and Mr Page answering “yes, it could be an issue going forward, may need to go restricted…”. On the basis of this evidence, we find that the point about ‘going restricted’ was raised by Mr Page, not by Mr Walmsley.

On 15 June 2015, Mr Walmsley wrote to Mr Page, thanking him for his cooperation with the Authority’s visit team, for providing detailed answers to the Authority’s questions, and facilitating the response to the Authority’s information request.

The letter then expressed the Authority’s immediate and serious concerns about FPL’s business arrangements and asked the firm to vary its permission to add a requirement not to conduct pension-related regulated activities, including requirements to terminate the relationship with HJL pending the outcome of the Authority’s review of the information and documents obtained during the visit. Mr Page was warned about a possible referral to Enforcement.

On 7 July 2015, the Authority held a meeting with FPL at the Authority’s offices. Mr Page, Mr T Ward and Mr Tunkel attended on behalf of FPL. From the Authority’s side, the meeting was led by Ms Hartley and, among others, Mr Walmsley was present. The meeting discussed the concerns the Authority had with FPL following the short notice visit. In particular, FPL was told that if a Voluntary Requirement along the lines proposed in the Authority’s letter of 15 June 2015 was not signed shortly, the Authority was going to move forward with implementing the requirements itself. FPL was also told that enforcement action was still a possibility.

Mr T Ward took an active role at the meeting. According to the Authority’s note of the meeting, Mr T Ward reiterated a request made by Mr Tunkel that the Authority set out in writing the large number of new points that the Authority had raised regarding the Products and the Pension Review and Advice Process. Mr T Ward is also recorded as stating that FPL was happy to give a declaration that they would never advise clients to invest in AIGO funds in the future. Ms Hartley confirmed in her evidence that, in her view, this demonstrated that Mr T Ward was holding himself out as having the authority to make a promise on behalf of FPL without consultation with Mr Page, which Ms Hartley said she would typically only expect from an approved person.

On 10 July 2015, Mr Page signed the Voluntary Requirement on behalf of FPL. In summary, this required FPL:

On 13 July 2015, Ms Hartley received a telephone call from Mr Page and Mr T Ward, the latter taking the lead in informing the Authority that an external consultant had been appointed to review FPL’s pension processes and, therefore, Mr T Ward was particularly keen to have the Voluntary Requirement lifted as soon as possible.

Ms Hartley’s evidence was that during this phone call it was clear to her that Mr T Ward was answering questions on behalf of FPL. She said she would ask questions directly of Mr Page, but Mr T Ward tended to respond on his behalf or add his own comments following Mr Page’s response. Ms Hartley said it got to the point where she had to inform Mr T Ward that he was not an approved person with the Authority and so needed to allow Mr Page to answer the Authority’s questions. Ms Hartley’s evidence is corroborated by a contemporaneous note of the meeting that was in evidence and we accept it. Ms Hartley observed in her evidence that this was a telephone call where she was surprised at the level of involvement from a non-approved person and that, after she raised the point, Mr T Ward did cease to be quite so dominant.

On 23 October 2015, following the review of FPL’s processes by the external consultant, Ms Hartley informed Mr Page that the Authority would be prepared to vary FPL’s permissions so that it could conduct pension business on a limited basis.

On 3 November 2015, Ms Hartley telephoned Mr Page to explain that it had been decided to refer FPL and Mr Page to Enforcement for investigation, reminding Mr Page that this was something that had been discussed previously.

Following the Authority’s intervention, Mr Page sought to obtain the release of his own investment in the Loan Notes. He emailed Guinness Mahon’s trust company on 14 August 2015 as follows:

“… please arrange the total disinvestment of my SIPP back into cash with immediate effect.

Following dialogue with the regulator, I have been requested to sample the process and have agreed to use my personal pension as the test case.

If we can do this, it may reduce the pressure to disinvest all cases imminently.”

On 24 August 2015, he chased Guinness Mahon saying “I have a meeting with the FCA this Wednesday and I need to get this resolved”.

Mr Page admitted in his cross-examination that he had lied in these emails. The emails were sent after the Authority had told Mr Page not to request the disinvestment of his and other funds. Mr Page’s justification was that he made the request due to a threat from a Guinness Mahon executive who had told him that, if he continued with any client disinvestment, he would feel the full force of Hennessy Jones. Mr Page said that, by sending his emails, his intention was to make the Guinness Mahon executive think that the Authority were involved in the disinvestments.

There was in evidence a document bearing the date Wednesday 14 January 2015 and described as “Business Agreement between Financial Page Ltd and Thomas Henry Ward”. The agreement confirms that in the event of a cessation of continuity of FPL’s business for whatever reason, then all FPL clients with a total SIPP fund size in excess of £50,000 “will then fall under the custodianship of Mr T H Ward for an introduction to an alternative Independent Financial Adviser of his choosing”. The agreement was not originally provided to the Authority but came to light after it was provided to FPL’s Administrator.

The agreement stated that cessation of the business was to include the death, incapacity or bankruptcy of Mr Page, the forced closure or cessation of FPL’s business, or the business going into an insolvency process.

There was a dispute as to whether the agreement was wrongly dated and was in fact entered into a year later, in January 2016.

On the face of it, it would appear more likely that an agreement of this nature would have been entered into after difficulties had emerged with FPL’s business. In January 2015, FPL had only been undertaking business introduced through HJL for a few months and, from its perspective, all appeared to be going very well. Clearly, in January 2016 things were not going well; FPL had ceased its relationship with HJL, FPL had agreed a Voluntary Requirement restricting its business and both Mr Page and FPL had been referred to Enforcement. Mr Purchas suggested that the agreement unintentionally bore the wrong date because it was often the case that people referred inadvertently to the previous year when dating documents in January. However, doubt is cast on that theory by the fact that 14 January 2015 was indeed a Wednesday, as stated on the document and pointed out by Mr T Ward in his cross-examination.

Both Mr Page and Mr T Ward gave evidence in their cross examination which is consistent with the agreement having been entered into in January 2016. Mr Page was taken to the written representations made on his behalf to the RDC which, in defending Mr Page having entered into this agreement, stated that it was considered reasonable to consider how best to meet the needs of FPL’s customers in the event of FPL’s insolvency at a time when he had been notified of investigations that may lead to FPL being compromised.

Mr Page said he could not remember the date the agreement was signed, but he did say that the document was all his doing because, at the time, death threats were being made to him, he was suffering with bad depression and the suggestion was made to him that he should take out a £1 million life policy, which he declined. Other evidence that Mr Page gave on those issues clearly related to the period after the Authority’s investigations had commenced. Mr T Ward said there was no reason to disbelieve the date actually written on the document. However, Mr T Ward did say that the agreement was entered into when Mr Page “was at a very low point”. He also said it was at the time that there was a proposal to take out a life insurance policy, referred to above, and Mr Page was receiving threats. That evidence is consistent with the agreement having been entered into after the Authority’s investigations had commenced.

On balance, we find that the agreement was entered into in January 2016. That is consistent with the circumstances that Mr Page found himself in that time. On his evidence, he was receiving threats and was suffering from depression. The purpose of the agreement was to preserve FPL’s business in the event that it went under, which was a realistic possibility at the time due to the Authority’s investigations. Although Mr T Ward said he could not remember when the agreement was entered into, his evidence as to the circumstances in which it was entered into are also consistent with the agreement being entered into in January 2016. It is unusual when dating a document to enter the day of the week it was signed as well as the date itself. On balance, we conclude that this was done so as to disguise the true date of the document and avoid any suggestion the year had been wrongly stated. Accordingly, it is likely that the document was backdated in order that it should appear that the agreement was entered into before the Authority’s intervention.

As far as the merits of the agreement are concerned, Mr T Ward’s evidence was that, if he did receive “custodianship” of clients, he could have undergone a “beauty parade” of IFAs to ensure they were properly looked after. Mr Page asserted that he was sure that the clients would have been looked after under Mr T Ward’s custodianship.

On 21 August 2015, FPL and Mr Page entered into an agreement, described as a Loan Agreement, with Mr Worrow Sr. The agreement provided for Mr Worrow Sr to lend to FPL £25,000, repayable on 1 January 2016. Under the heading “Collateral” the agreement provided for FPL to sell its “entire client base” along with “all rights that go with it”, excluding monies derived from servicing rights. Mr Page guaranteed FPL’s obligations under the agreement.

Mr Page accepted that FPL received a payment of £25,000, out of which he paid £12,500 to Mr T Ward.

We observe that, although the agreement referred to a sale of the client base, in our view the provision is properly to be construed as the granting of security as collateral for the loan, so that it was never intended that the client base itself would be sold absolutely Although, of course, it would be open to Mr Worrow Sr to enforce the security were there to be a default under the loan agreement.

The Authority did not become aware of the agreement until 10 October 2016 when it obtained it from the Administrator of FPL.

Mr Page repeatedly referred in his evidence to winning in a legal case whereby it was held that the agreement was a “nonsense”. In fact, Mr Page was mistaken, because the legal case was one which related to the setting aside of a statutory demand and did not relate to the validity of the agreement. It is quite clear that the agreement was a valid loan agreement, and it was shown as such in FPL’s accounts. FPL received the loan made available under the agreement and, in later correspondence, it is clear that FPL acknowledged its indebtedness to Mr Worrow Sr, asking for further time to repay the loan.

On 9 November 2015, Ms Dawes of the Authority informed Mr Page when she would be available in order to discuss a suitable time for discussion about the scope of the Authority’s Enforcement investigation. Mr Page forwarded that email to Mr T Ward, informing him that this “could be an opportunity for a sale”.

On 22 January 2016, Mr T Ward emailed a representative of Get Claims Advice, a claims management company, saying that “meeting with your contacts re a possible sale of the client base may be a good way forward”.

On 28 January 2016, Mr Page returned to Get Claims Advice signed copies of a non-disclosure agreement and an introducer agreement. The non-disclosure agreement recited that each of the parties intended to disclose information to the other for the purpose of discussing the possibility of the parties entering into a joint venture and arranging the potential sale and/or novation of FPL’s client bank. The introducer agreement provided for Get Claims Advice to pay FPL commission for introducing customers who had been or believed they had been mis-sold pension transfers, pension switches or SIPP investments.

Mr Page provided the customer details to Get Claims Advice on 1 February 2016. The customers concerned were ones that had been novated to FPL from HCA and who had contacted Mr Page with concerns about the pension advice they had received. He, however, had not provided the advice because their pension recommendations had been made at a time when they were still clients of HCA. Mr Page said that the purpose of the agreement was so that Get Claims Advice would deal with data subject access requests from those clients and that FPL received no monetary reward. However, as the agreement indicates, Get Claims Advice did have an obligation to pay FPL commission for being introduced to the clients.

On 14 July 2016, FPL was placed into administration. FPL was declared in default by the FSCS on 22 March 2017. FPL was subsequently placed into liquidation and dissolved on 6 February 2020.

We now turn to the issues to be determined on Mr Page’s reference. We approach each of the issues in turn, dealing with each of the key allegations made by the Authority in relation to the issue concerned, as set out at [11] above.

For the reasons set out at [482] to [498] above, we have concluded that the service which was provided by the Firms cannot fairly be said to amount to the giving of independent advice. We found that the only service that any of the customers received from the Firms was a recommendation to invest in the Products, which was the predetermined outcome provided the customer had indicated a desire for capital protection and/or a fixed return – a likely consequence due to the leading questions in the Fact Find that we have identified above. If such a recommendation did not follow because, for example, the criteria for inclusion in the process were not met or the customer did not express a desire for a fixed return or capital protection, then none of the Firms intervened to carry out a further review of the customer’s financial situation and recommend an alternative suitable product. The customer was simply left without any further services provided by the Firm.

Consequently, we have found that the statements in the Service Proposition and the Brochure that customers would, by entering into an agreement with the relevant Firm, receive bespoke advice from an IFA that was individually tailored to their individual needs and aspirations, that the Firms provided an independent advice service, operated independently, provided a comprehensive and fair analysis of the market, and that the Firms would place no restrictions on the investment markets that they would consider were all false and misleading.

Based on the test for dishonesty, as discussed at [60] to [64] above, in relation to the allegation of dishonesty against Mr Page, as set out above, we need to establish Mr Page’s knowledge and belief as to the facts that we have found, as summarised above. We then need to consider whether in the light of Mr Page’s knowledge and belief, his conduct was dishonest by ordinary standards.

Mr Page said in his evidence that by signing the Service Proposition a customer was signing up to receive the full advice model from an independent adviser. He said that those who received a recommendation through the Pension Review and Advice Process had received a recommendation based on a comprehensive and fair analysis of the market and that this had led Mr Page to believe that the Loan Notes were the best investments available for those who had indicated that they wished a fixed return with capital protection. He said that the Pension Review and Advice Process did meaningfully assess an individual’s needs on the basis of the questions asked during the Fact Find. This in turn established if the client needed bespoke advice.

Those customers who the process identified as requiring bespoke advice, and who were not recommended the Loan Notes (which Mr Page says amounts to 65% of customers), were not at that stage offered any further service and did not receive a recommendation relating to any other product. Mr Page said that it was his intention to move to a position where he could service those clients and had started the process of trying to recruit another adviser to assist. However, this had not progressed due to the delays in the adviser concerned obtaining approval from the Authority.

Mr Page’s evidence was that the Brochure was not sent to FPL customers. He said he saw boxes of printed Brochures at CAL’s premises, but they were never sent out.

We do not accept Mr Page’s evidence and submissions on this point.

It is clear that Mr Page recognised that the business generated through the Pension Review and Advice Process was an entirely separate line of business with different characteristics to the traditional IFA business that he had been involved in before FPL entered into a relationship with HJL. That is apparent from what he said in answer to a question from Mr Walmsley at the Authority’s visit in June 2015. He acknowledged that his previous business was quite different in that generally he had known the client for years, went to see them in person, obtained an idea of what they wanted, and carried out the fact-finding process himself. That business clearly met Mr Page’s description of what he did as an independent financial adviser, whilst business generated through the Pension Review and Advice Process clearly did not. As Mr Page told Mr Walmsley, it involved nothing more than a fact find process conducted by someone else and which he did not need to go through in any detail as it was “uniformed/similar”.

As far as the Brochure is concerned, Mr Page’s evidence is quite clearly contradicted by the contemporaneous documents. He was taken to two transcripts of calls between the Authority and consumers, both of whom referred to a brochure with FPL’s name on it. Mr Page’s only response when that evidence was put to him was to say that the consumers must have lied. That suggestion is simply not credible and we reject it.

The Service Proposition makes it absolutely clear that it related only to services in relation to pension switches. It said that if the customer required any other services then a separate service proposition would be put to them. Therefore, Mr Page’s contention that the services of his pre-existing independent advice service were available to customers introduced through the Pension Review and Advice Process was not correct. The Service Proposition made it clear that a separate agreement would be provided, and there is no evidence of FPL having entered into any such arrangements.

The evidence shows that there were some 860 customers who received a recommendation to invest in the Loan Notes during the Relevant Period. All those customers received automated Pension Recommendation Reports recommending that they switch their pension with the Loan Notes being the only product recommended as an appropriate investment. That was a quite different process to an individually tailored recommendation considering all investment markets. The number of customers processed could not realistically have been dealt with during the Relevant Period had they been given bespoke advice given the resources that Mr Page had available at the time. None of the customers were made aware that the recommendation they had received was as a result of this semi-automated process in which the IFA played no significant part. The customer did not know that if they indicated a preference for a fixed return and/or capital protection they would almost inevitably be recommended the Loan Notes.

Furthermore, none of the customers who did not receive such a recommendation were subsequently contacted with a view to offering them different services, i.e. bespoke advice of the kind that the Service Proposition suggested would be offered. Accordingly, it was not correct to say, as Mr Page submitted, that there was no restriction on the customer being offered another product. No other product was ever recommended to a customer who went through the Pension Review and Advice Process.

Therefore, to summarise the facts known by Mr Page as to how the process worked in practice:

What Mr Page understood to be the essence of the process was identified by him at a very early stage. When the Execution-Only Process was proposed to him, he identified that all he was being asked to do was to put his name to the business. Mr Page did not look at it any differently when HJL moved to an advised model. As Mr T Ward explained it in his email to Mr Page on 8 March 2014, set out at [547] above, “it will simply be a case of putting our name to it and effecting the transfer”. Mr Page clearly accepted that characterisation when replying to Mr T Ward as he said that he would have a “good process and system in place to knock them out as and when, serious money too…”.

Mr Page had identified in the meeting with the Authority in June 2015 that what he had to do was entirely different to when he met a client using his traditional business model. As Mr Purchas submitted, the possibility that at some later point in time Mr Page might be able to offer what was articulated in the Service Proposition to those customers who were “parked” reinforces the falsity of the statements in the Service Proposition and the Brochure. As Mr Page accepts, these customers were never considered for a recommendation let alone advised to invest in any other investments.

Therefore, we conclude in relation to Mr Page’s knowledge, that he knew that the reality of the service provided through the Pension Review and Advice Process was that it provided restricted advice, namely advice that would be confined to considering whether or not a recommendation should be made to invest in the Loan Notes; a product which Mr Page regarded as suitable for a customer who indicated in the Fact Find that he wished to have a product which offered a fixed return and capital protection. Mr Page knew that a true description of the service being offered would be that the Firm was recommending a particular product which it regarded as being suitable for customers who met certain criteria, and that the suitability of the product for the customer concerned would be assessed through an automated process.

Based on his knowledge as an experienced IFA and his knowledge of how a truly independent adviser operates, as shown by his description to the Authority at the meeting on 3 June 2015 of how the rest of FPL’s business operated, Mr Page clearly knew that the customer was not going to receive bespoke tailored independent advice according to the terms of the Service Proposition.

We now turn to the question of whether in the light of knowledge as to the falsity of the statements in the Service Proposition and the Brochure, Mr Page acted dishonestly in holding out the Pension Review and Advice Process as providing bespoke, independent investment advice based on a comprehensive and fair analysis of the whole market.

As the legal test for dishonesty requires, that question is to be answered objectively. It does not matter that Mr Page himself does not believe that he acted dishonestly in that regard. We accept that he genuinely believes that he was not dishonest.

In our view, by the standards of ordinary decent people Mr Page’s actions were dishonest. In our view, by the standards of ordinary decent people Mr Page’s actions were dishonest. Ordinary decent people would regard a person’s pension pot, particularly if a modest pension pot, as being very important property rights. They would regard a person as having acted dishonestly when that person made a statement to such a person that they would receive an independent review of their individual circumstances and receive a bespoke tailored recommendation based on that review, when that person knew that the true position was that they were being offered something quite different. Mr Page never addressed that difference in either his evidence or his submissions.

We therefore conclude that Mr Page acted dishonestly by causing FPL to hold out the Pension Review and Advice Process to customers as FPL providing bespoke, independent investment advice based on a comprehensive and fair analysis of the whole market and thereby breached Statement of Principle 1 by failing to act with integrity.

Whether Mr Page acted recklessly in relation to FPL’s adoption and use of the Pension Review and Advice Process

Risks attaching to the Products

As we concluded at [293] above, a reasonably competent IFA could form a view of the risk associated with investment in the Products by a careful but not exhaustive review of the various Information Memoranda and Fact Sheets. We concluded that a reasonably competent IFA who undertook such a review would conclude that the Products were evidently high risk. The fact that a small firm like FPL did not have the resources that would be available to a large firm, such as a bank, to undertake detailed due diligence on the Products, and those who were responsible for managing them, is not relevant.

We also said at [294] that, if the IFA could not form a judgment on the basis of documentation referred to above and could not easily find out what he needed to know to make that judgment, then the decision should be not to recommend the products in question.

It is readily apparent to us from what Mr Page said about his own experience and what he would expect to do as regards to due diligence on the products that FPL was to recommend, that he was not equipped to do the detailed due diligence on the Products that would be necessary to satisfy himself that the Products would be suitable to be recommended to retail investors.

We found at [301] that Mr Page did not carry out a careful balancing exercise having considered all the relevant risk factors to assess whether the Products were high risk, relying primarily on the fact that he considered that the fixed returns were assured because of the nature of the underlying investments and that the principal amount, in the case of the Loan Notes, was guaranteed because of the existence of insurance.

We found at [304] that Mr Page appeared to take it as read that there was no risk that the relevant Cells would not be able to generate sufficient returns to service the interest payments, meet the significant costs of running the Cells and repay the principal amount of the Loan Notes.

At [310] we found that Mr Page placed undue reliance on insurance and that even where there was insurance in place, that it was of limited value.

We therefore concluded at [339] to [340] above that that it would have been obvious to any reasonably competent IFA who did no more than use his expertise to review the various Information Memoranda and Fact Sheets that the Products were high risk. We found that the features of the Products that are indicative of an investment carrying a high risk of loss are overwhelming, that is the risk of the issuer not being able to deliver the expected return over the life of the product and to repay the principal in full at the end of the term.

As a result, we found that a reasonably competent IFA would have concluded that the Products were not suitable to be recommended to retail investors except in very limited circumstances. Those circumstances might be where the investor, having been warned appropriately about the risks involved, was prepared to commit a small part of his investment portfolio on the basis that the assets concerned were those that he was willing to lose in the hope that the higher returns promised were achieved.

Our assessment is that Mr Page is a reasonably competent IFA. Our findings at [582] to [586] demonstrate that Mr Page’s due diligence on the Loan Notes was woefully inadequate. He did not engage in any material respect with the features of the Loan Notes as set out in the Information Memoranda. As we have said, Mr Page’s starting point should have been a careful review of the AIGO IM. As we found at [582] it was only in October 2014, some months after starting to recommend the Loan Notes, that Mr Page received the AIGO IM from Guinness Mahon and gave it some attention. It is not, however, readily apparent that Mr Page gave the AIGO IM anything other than a cursory review. He appeared to have relied on Guinness Mahon having undertaken a review and decided that the Loan Notes were suitable for inclusion in the GM SIPP. As we found at [322] above, Mr Page’s heavy reliance on the fact that Guinness Mahon had accepted the Loan Notes as being suitable for inclusion in a SIPP was misplaced. We have also found that Mr Page’s reliance on advice from Mr Tunkel was misplaced: see [319] to [322] above. Mr Page accepted in cross examination that the only advice he had ever seen was the advice given by Mr Tunkel on 12 March 2014 that related to whether the Loan Notes were standard or non-standard and that advice did not address their suitability for retail customers, as Mr Page accepted.

Mr Page accepted in cross-examination that he did not find any equivalent product to the Loan Notes and so had nothing with which to compare what was being offered through the Loan Notes.

In our view, Mr Page acted recklessly in the following respects:

As the authorities indicate, in the regulatory context, a reckless failure to consider whether something is a risk may be found to amount to a lack of integrity. That is exactly what happened in this case. Mr Page closed his mind to the need to make any kind of significant assessment of the risk factors attaching to the Products and did not make any serious attempt to analyse the features of the Products, as disclosed in the Information Memoranda. Had he done so, as we have found, it would have been obvious to him that the Products were high risk and unsuitable to be recommended to retail investors except in limited circumstances. The fact that Mr Page invested his own pension in them in our view makes no difference. He is much more experienced as regards investment matters than the typical customer who invested in the Loan Notes and Liquid Assets Bonds through the Pension Review and Advice Process. He may therefore have had an entirely different attitude to risk and capacity for loss.

The deficiencies with the Pension Review and Advice Process

Mr Page sought to defend the Pension Review and Advice Process robustly. He contended that the documents used in the process were fully compliant and of an industry standard. He said that he had generated numerous pension recommendation reports over the years and that those generated through the Pension Review and Advice Process were on a par with those if not better.

In relation to the Fact Find, with respect to the absence of soft facts, Mr Page contended that it was a “focused fact find” and asked enough questions to warrant the recommendations that were made. With respect to the absence of detail about the customer’s other investments, Mr Page said this was not an issue because the process only dealt with the customer’s pension arrangements and the rest of their investments would be dealt with later when he came to provide them with other services. He did not accept that the questions regarding the fixed rate of return and the capital protection arrangements were leading questions.

Mr Page contested Ms Tibbetts’s assessment of the suitability of FPL’s files but gave no specific details in response.

He was taken to FPL Customer File 1, which we have assessed as set out in the Appendix to this Decision. Mr Page suggested that there was other information available to the field agent which would have justified the recommendations made, despite the fact that this was not recorded on the system.

Mr Page was also taken to one of his own recommendations from June 2013, prior to FPL adopting the Pension Review and Advice Process. That was a very detailed report which was described as a focused review of pensions. The recommendation contained considerable detail on the customer’s personal financial circumstances and advised him to remain with his current pension provider. The report went through alternative investments in some detail and rejected them all for clear reasons that were given.

We reject Mr Page’s submissions. Mr Page is, as we have found, a highly experienced independent financial adviser. The pension recommendation report that he used before 2014 was, in our view, on the basis of the example we were taken to, an impressive document which clearly indicates that Mr Page knew what was necessary in order to prepare a compliant pension recommendation report. His contention that the report generated through the Pension Review and Advice Process was better than other reports that he had generated is simply not credible. Based on his previous experience of producing compliant reports, it must have been obvious to Mr Page that the reports generated by the Pension Review and Advice Process were not compliant.

The same is true of the Fact Find. Indeed, Mr Page himself admitted that he had told Mr Worrow Jr that the soft facts within the Fact Find needed further exploration, and, as we have found, the same is recorded in the minutes of FPL’s Investment Committee Meeting held on 27 May 2015. Ms Preston-Hoar had raised the same issue when reporting to Mr Page about the failed file reviews in May 2015, and had also raised the issue of the leading questions in the Fact Find, so it was clear that Mr Page, by that stage, was fully aware of the risks involved in continuing to use the documentation that was in use at the time.

We accept Mr Purchas’s submission that, given the defects in the Fact Find process, Mr Page would clearly have been aware of the high likelihood that the Pension Recommendation Report could not provide suitable advice.

We also accept that Mr Page would have been aware of the other defects in the templated Pension Recommendation Reports including that (i) they did not engage with an explanation of the advantages and disadvantages of the recommendation, instead referring to just the selected portfolio and cross-referring to the Fact Sheets; (ii) there was no explanation of counterparty risk; (iii) there was no explanation that the Products would not be covered by FOS and the FSCS; and (iv) there was no explanation as to why moving to a SIPP was suitable or an explanation of the risks compared to previous managed arrangements.

None of Mr Page’s submissions or evidence that he gave in cross examination detract from our findings that there were obvious deficiencies with the Pension Review and Advice Process which failed to comply with the Authority’s rules. We find that those deficiencies would have been obvious to Mr Page, bearing in mind his knowledge and experience and yet he failed to give any meaningful consideration to whether or not the Pension Review and Advice Process was compliant with the Authority’s rules.

As set out at [463] to [467] above, we have rejected Mr Page’s contention that Mr Tunkel gave advice to the effect that the Pension Review and Advice Process complied with the Authority’s requirements regarding the suitability of the recommendations that were made through the process.

As we have found at [500] to [510] above, the Pension Review and Advice Process was structured to result in customers switching their pensions to SIPPs investing in assets in which HJL had a material financial interest.

The Authority contends that Mr Page failed to take steps to manage and/or disclose the alleged conflicts of interest arising from (i) the structure of the Pension Review and Advice Process; (ii) HJL’s role in the Pension Review and Advice Process; and (iii) Mr Stephen’s and Mr King’s common directorships.

Mr Page contends that the conflicts that he saw were raised with the parties concerned, clarification was sought and, where appropriate, action was taken.

However, Mr Page’s difficulty is that he either did not recognise a number of the conflicts identified by the Authority or there is no evidence that he took meaningful steps to manage them. He denied that the overall design of the sales and advice process created a conflict of interest. He was, however, clearly alive to the need to identify and manage conflicts of interest. He said that he identified a conflict with CAL working from the same premises as HJL. Mr Page said in his witness statement that he was aware from his first meeting with Mr Stephen and Person A that “HJL were promoting AIGO”. Mr Page also stated in his witness statement that it was unique for him to be building an association with an introducer who was tied to a product and did “put [him] on notice of a potential conflict”. He says that HJL’s involvement in AIGO was openly talked of. It is the Authority’s case that Mr Page knew from the outset that there were conflicts of interest and yet did not take steps to manage them.

Mr Page accepted in his cross examination that he knew that HJL would receive 5% of the total sums raised from customers who were processed through LeadTracker and invested in the Loan Notes, that the Loan Notes were the only product that would be recommended to FPL’s customers, that HJL had been involved with the development of LeadTracker, that HJL was responsible for sourcing the leads for FPL which were submitted to LeadTracker, and that, for the period July to October 2014, HJL undertook the Outsourced Functions on behalf of FPL and thereafter maintained a close involvement with CAL.

Mr Page was aware that Mr Stephen was also a director of AIGO. He was also aware that Mr Stephen was a director of HJ Liquid Assets plc which issued the Liquid Assets Bonds.

Mr Page said that the incentivisation for Mr Stephen and Mr King to ensure that customers were recommended the Products did not create a conflict because he was unaware that Mr Stephen was involved with LeadTracker. However, it was clear that Mr Page knew that HJL was responsible for sourcing leads and that there was a close connection between HJL and CAL. Had Mr Page examined the contractual arrangements between HJL and the marketing companies he would have seen that some of them were incentivised for providing leads by receiving a percentage of the monies raised.

As an experienced IFA, we would have expected Mr Page to have identified and managed the conflicts detailed above. Those are all conflicts that would have been obvious to a person of Mr Page’s knowledge and experience. As we have found, once a conflict had been identified it should have been (i) managed and, if this was not possible, (ii) disclosed. The only attempts Mr Page made to manage the conflicts of interest was in seeking that CAL operate from different premises to HJL. We agree with Mr Purchas that this was not an effective management of the conflicts of interest set out above and did not happen until later on in the process.

Mr Page also relied on the provision of the Information Memoranda to customers. However, as we have found, customers were not provided with the Information Memoranda as a matter of course.

Failure to review advice given through the Pension Review and Advice Process

Mr Page contended that he had personal and direct access to LeadTracker which enabled him to generate his own spreadsheet of business submitted and inspect the progress of files. He says he also received client files at his Loughton office which he inspected, saying that he worked at the Loughton office over long periods to ensure that he had a close and thorough handle on the pipeline of work and full conduct of the advice. He said he would do random checks on Fact Finds.

Unfortunately, we have found no evidence in the materials before us to support Mr Page’s assertions in this regard. Our review of the files, as set out in the Appendix, indicates the most basic of defects in the recommendations made which we would expect a person of Mr Page’s experience to have picked up. We saw no evidence of email traffic between Mr Page and representatives of CAL picking up defects identified by file reviews. The small number of cases where customers entered the Pension Review and Advice Process but were not recommended an investment in the Products is a further indication of the lack of a meaningful review of files where the customer received a recommendation to switch their pension.

We therefore find that Mr Page failed to take reasonable steps to ensure that FPL reviewed in a meaningful way the advice given through the Pension Review and Advice Process.

Failure to carry out adequate due diligence on HJL and CAL

We have set out at [423] to [426] a summary of the various obligations that the Firms had to undertake to oversee the performance of the Outsourced Functions carried out by HJL or CAL, as the case may be, on behalf of the Firms.

We found that there was no evidence that any of the Firms took meaningful steps to exercise due skill, care and diligence when deciding to appoint HJL or CAL, as the case may be, to perform Outsourced Functions. Nor was there any evidence that they took meaningful steps to establish methods for assessing the standard of performance of HJL or CAL, as the case may be, as service providers nor did they take any steps to supervise the outsourced functions and any of the risks associated with the outsourcing. The transfer of functions from HJL to CAL in October 2014 appeared to pass without any questions being asked on the part of FPL as to the reasons for the transfer or the resources of CAL.

In his submissions, Mr Page said that he worked very closely with CAL and “found the entire process to be compliant and professional”. However, Mr Page gave no evidence of what he did by way of due diligence and supervision to come to that conclusion. He said he was informed that CAL’s staff were salaried and he was not aware that they were otherwise incentivised. It would therefore appear that Mr Page simply relied on statements that were made to him rather than seeking to investigate the position for himself. He said he was unsure what due diligence “you would do on an administration service provider”.

That clearly indicates that Mr Page did not regard it as part of his role to investigate the suitability of those who performed outsourced functions on behalf of FPL or monitor how those functions were being carried out in practice.

Consequently, it is an inevitable conclusion that Mr Page closed his mind to the risk that HJL, and then CAL, were not suitable to act as introducers and to the risk that they were unsuitable to conduct the Outsourced Functions for FPL. Such due diligence that Mr Page undertook was limited to establishing that the entities concerned existed and to formally identifying Mr King and Mr Stephen.

While we have concluded at [531] that it is likely that Mr Page became aware of Person A’s background prior to June 2015, we find that if Mr Page was not aware prior to June 2015 Mr Page’s failure to undertake even basic due diligence was illustrated by the fact that he stated that he was unaware of Person A’s history, including both his bankruptcy and criminal convictions, until after the Authority’s visit in June 2015. As we have found, Person A was the individual who initially brought the business model to Mr T Ward. It was clearly easy to investigate Person A’s background, as illustrated by Ms Hallett’s evidence as to how she found out about Person A’s background by simple Internet searches. She quickly came to the view that it would be inappropriate to have a business relationship with a firm where Person A had significant influence and we would have expected Mr Page to have taken the same view had he been aware of Person A’s background at the time the arrangements with HJL were entered into, which was only a relatively short time after Person A’s last conviction.

Failure to establish that leads were generated in an appropriate manner

As we have found, leads were generated by HJL through its use of marketing companies whilst acting in its capacity as an IAR of FPL. It is clear from our findings that the marketing companies represented that they were acting on behalf of FPL. Accordingly, HJL were performing an outsourced function and the obligations in that regard, referred to at [783] above, were applicable to FPL. It was not sufficient or adequate to rely on an IAR making sure that leads were generated properly without the Firm carrying out its own due diligence in this regard. The Authority’s position is that Mr Page did not carry out adequate due diligence in respect of the lead generation of customers who might be introduced to FPL.

As we found at [424] above, there was no evidence that any of the Firms took meaningful steps to understand how HJL was sourcing leads so as to be satisfied that HJL and the marketing companies were behaving in an appropriate manner. Mr Page did not appear to know which marketing companies were providing leads to HJL and were using FPL’s name. A clear example of that is Taylor Barton, as illustrated by Mr Page’s exchange of emails with Mr T Ward on 1 September 2014, as set out at [606] to [611] above, which commenced with Mr Page asking Mr T Ward “Who are Taylor Barton”.

Mr Page took the position that, although HJL was FPL’s introducer, HJL had their own controls in place and contracts with a number of Call Centres. It therefore appears that Mr Page believed that it was entirely HJL’s responsibility to ensure that leads were sourced appropriately and that cold calling was not employed. Mr Page appeared to have paid no attention to the fact that when he was seeking to register HJL as an introducer through Financial Ltd, that firm would not permit the registration to take place until it had received a detailed report from Mr Page setting out the due diligence he had undertaken on HJL, something which never materialised. Mr Page must therefore have been aware that it would be expected that adequate due diligence would be undertaken on an introducer.

Mr Page’s witness statement illustrates that he was alert to the risk of cold calling. He said in that statement that he enquired about leads at his first meeting with HJL and was told that any clients who were called had already expressed a wish to have a pension review and had been told that there was a cost of £250. In the light of these points, Mr Page concluded that “I was satisfied that there was no cold calling involved”. Again, it appears that Mr Page did no more than rely on assurances given by HJL and did not investigate how, in practice, leads were generated. We regard that failure as reckless on Mr Page’s part.

Despite Mr Page’s conclusion, as our findings indicate, it is clear that cold calling did take place, particularly by Taylor Barton. The relevant evidence in the form of transcripts between the Authority and consumers referring to Taylor Barton cold calling them was put to Mr Page and he reluctantly accepted that possibly some cold calling had taken place. That is corroborated by the exchange of emails between Mr Page and Mr T Ward that took place whilst Mr Page was on the call to Mr Raphael and Ms High on 1 September 2014, as set out at [606] to [611] above.

Mr Page’s dealings with IFAC

In our view, in the early stages of FPL’s operation of the Pension Review and Advice Process, Mr Page actively sought to conceal from IFAC the extent of FPL’s business with HJL. We infer that Mr Page took this course of action because he suspected that IFAC would express concerns regarding both the structure of the process and the extent of the business being generated through it. This is demonstrated by Mr Page’s email of 13 June 2014 to Mr T Ward, referred to at [572] above, where he referred to wishing to keep the business “off the radar”. Similarly, our findings set out at [626] to [630] above indicate that Mr Page did not, at that stage, indicate to Ms Preston-Hoar that there were a large number of leads awaiting processing. That followed Mr Page’s email of 8 September 2014 referred to at [624] above where he indicated that he would “just keep quiet about the HJ business” when talking to IFAC.

In our view, this approach of concealing the true position from IFAC demonstrates a failure to act with integrity on Mr Page’s part.

Likewise, Mr Page’s failure to seek to make any alterations to the Pension Review and Advice Process despite receiving the failed file reviews in May 2015, as described at [660] to [667] above, is another example of Mr Page closing his mind to the risks that the Pension Review and Advice Process did not comply with the Authority’s rules. Mr Page only went back to HJL to raise the question of a lack of “soft facts” several months after issues were first raised, even though it was his evidence in cross-examination that he “always thought they needed more soft facts”.

We have found at [748] to [796] above:

In our view, those findings are sufficient to establish that Mr Page acted recklessly in relation to FPL’s adoption and use of the Pension Review and Advice Process. Mr Page closed his mind to the serious risk that the process would (as subsequently transpired) result in FPL’s customers receiving unsuitable advice and investing in products that were not suitable for them.

We have found at [636] to [642] above that the initiative for holders of the Loan Notes to switch the cash element of their Portfolios into the Liquid Assets Bonds came from HJL and that Mr Page agreed to go along with that proposal without having undertaken any significant due diligence on the Liquid Assets Bonds. Shortly after giving his approval, Mr Page attempted to get the consent of the relevant customers by telephone and, for those he could not contact by telephone, a letter was sent with a recommendation to switch stating that if the customer did nothing the switch would take place in any event. We found that no Fact Find was undertaken during this process and that no explanation of the risks attaching to the Liquid Assets Bonds was given or any information given setting out the risks, benefits or costs of the proposed course of action.

Mr Page justified the approach taken on the basis that he considered the Liquid Assets Bonds to be intraday cash bonds. He denied that the Bonds were a high risk, speculative investment, but instead claimed that as they were issued by a fund dealing in assets that were readily converted to cash they were comparable with holding cash. As regards the “negative approval” letter to customers, Mr Page observed that it was open to customers to write back asking FPL not to make the switch.

We have already found that the Liquid Assets Bonds were a high risk investment. At [328] we found that there could be no basis for recommending investment in the Liquid Assets Bonds bearing in mind the capital security offered by a similar yielding gilt and the significant features of a high risk investment identified by Mr Lockie in relation to the Liquid Assets Bonds. We also found that Mr Page did not understand the features of the Liquid Assets Bonds, in particular, he did not appreciate that, just because the assets held were readily realisable into cash, this did not mean that there would be no loss of capital on such a realisation due to the risks involved in the bond issuer’s trading strategy identified by Mr Lockie.

Although Mr Page insisted that he carried out considerable due diligence on the Liquid Assets Bonds, there was no evidence of that before us. When Mr Page was sent the term sheet for the Bonds, the issue date was then only ten days away and Mr Page started advising customers to invest in the Liquid Assets Bonds when they had not yet been listed and had no trading history.

In our view, it was incumbent on Mr Page to assess whether switching the cash element of a customer’s Portfolio into the Liquid Assets Bonds was suitable for that customer. In the absence of a Fact Find, no suitability assessment was undertaken and the script that Mr Page used on the telephone failed to explain the risks of the Liquid Assets Bonds.

It was also inappropriate for FPL to proceed to make the switch in circumstances where the customer had not given their approval, on the basis that they were warned that the switch would happen if they took no action, as in effect this turned FPL into a discretionary fund manager, making the decision on the customer’s behalf, in circumstances where they had undertaken no assessment of the suitability of the investment for the customer.

In our view, it is clear from the evidence that Mr Page proceeded with the switch because it was something that HJL wanted FPL to do. He carried out those wishes without addressing the question as to whether the switch was in the best interests of his customers. As we have found, it would have been obvious to Mr Page had he undertaken appropriate due diligence on the Liquid Assets Bonds that they were high risk investments and were unsuitable for retail investors except in limited circumstances.

Consequently, we find that Mr Page acted recklessly both in recommending the Liquid Assets Bonds to customers and the approach he took to effecting the switch, through telephoning customers and the “negative approval” letter.

We found at [558] above, that the primary motivation for FPL’s application for authorisation was the contemplation of entering into the arrangements with HJL to participate in the Pension Review and Advice Process.

We found at [559] that Mr Page signed the various declarations in the application to the effect that the information provided was accurate and complete to the best of his knowledge and belief. We also found that the declarations on the form told the applicant that the Authority must be notified immediately of any significant changes to the information provided.

At [561] we found that the application did not take into account the potential arrangements for FPL participating in the Pension Review and Advice Process which were, at that stage, well advanced and was the primary motivation for FPL applying to be directly authorised.

In our view, the application should have been answered primarily on a prospective basis so that the Authority could have a clear picture of the nature of the business that FPL intended to carry on when authorised, notwithstanding the fact that the business contemplated had not yet started. It could not of course commence lawfully until authorisation had been obtained. On that basis, the answers given and information provided in support, as detailed at [561] above, gave the Authority a highly misleading picture as to the nature of the business that FPL intended to carry on once it obtained its authorisation. By submitting an application in this form, Mr Page caused FPL to fail to be open and cooperative with the Authority and provide the Authority with the information that was necessary for it to assess the merits of FPL’s application.

Even if, which we do not accept, it was appropriate for Mr Page to complete the application on the basis of FPL’s business as it currently then stood without taking account of the arrangements contemplated with HJL, it was clearly incumbent on Mr Page to notify the Authority about the radical changes to FPL’s business model that occurred when FPL started to participate in the Pension Review and Advice Process, bearing in mind FPL’s obligation to update the information provided in the application. That was never done.

Mr Page did not accept that he should have told the Authority about the proposed business with HJL before it came to fruition. He said that did not happen until nine months after the application was made. He then sought to justify his lack of communication with the Authority on the basis that the Authority had not been helpful to him when he had called them for help.

Once again, Mr Page’s memory seems to be playing tricks with him. As we have found, the application was made in April 2014 and leads started to be processed with a view to recommendations being made by FPL before FPL was authorised in July 2014. That was much shorter than the period of nine months suggested by Mr Page. In any event, we do not accept that Mr Page was entitled to wait until the business started before telling the Authority what was contemplated. The Authority was not told about the extent of the new line of business until its own investigations discovered it shortly before making the short notice visit in June 2015, many months after the business commenced.

The allegation against Mr Page is that he acted dishonestly by causing FPL to make the application with the false and misleading statements, as we found at [561] above, and by not updating information any time thereafter.

Based on the test for dishonesty, as discussed at [60] to [64] above, in relation to the allegation of dishonesty against Mr Page, as set out above, we need to establish Mr Page’s knowledge and belief as to the facts that we have found, as summarised above. We then need to consider whether in the light of Mr Page’s knowledge and belief, his conduct was dishonest by ordinary standards.

It is clear to us that Mr Page knew that, at the time of the application to the Authority, FPL intended to participate in the Pension Review and Advice Process. It had, on 2 May 2014, signed a Standard Service Agreement to that effect with HJL, whilst the application was under consideration by the Authority. During May 2014 the Brochure was being finalised and Pension Summary Reports began to be generated in FPL’s name. Mr T Ward and Mr Worrow Jr were in correspondence regarding estimates of the volume of business that would be coming FPL’s way. Nevertheless, as we have found at [572], Mr Page still felt that it was appropriate to keep the business “off the radar” as far as IFAC was concerned. On 18 June 2014, Mr Page approved the Fact Find documentation.

It is therefore clear that the only obstacle in the way of FPL proceeding to complete the business arrangements with HJL was the granting of authorisation. Mr Page knew that at the time the application was made the arrangements were well advanced. He therefore knew at the time of the application that the answers given and information provided were false and misleading because he knew that the application should have been completed on a prospective basis.

Even if he did not know that, which we do not accept, he certainly knew that once the business had commenced upon FPL obtaining its authorisation, that the information previously provided was incorrect and the Authority should have been updated immediately.

We now turn to the question as to whether in the light of Mr Page’s knowledge as to the falsity of the statements in the application for authorisation and the knowledge that the Authority should have been updated as to changes in the information provided, he had acted dishonestly in causing those statements to be made in the first place and subsequently not updating the Authority as to the changes in the information provided.

As the legal test for dishonesty requires, that question is to be answered objectively. It does not matter that Mr Page himself does not believe that he acted dishonestly in that regard.

In our view, by the standards of ordinary decent people Mr Page’s actions were dishonest. Ordinary decent people would understand the need for the Authority to be given accurate information so that it can assess whether a firm is fit and proper to be authorised. The risk to consumers is considerable if the Authority is not given full and accurate information so as to enable it to carry out its statutory functions. Ordinary decent people would therefore consider that a person seeking authorisation for his firm from the Authority who provided statements to the Authority as to the proposed business of the firm that he knew to be false would thereby be acting dishonestly.

We therefore conclude that Mr Page acted dishonestly by causing FPL to provide false and misleading information on FPL’s application to the Authority for authorisation and, after FPL was authorised, failing to correct the misleading impression that had thereby been created.

We have found at [598] above that, on 20 August 2014, in response to a request from Mr Raphael to provide a copy of FPL’s new business register providing details of all business FPL had arranged via a SIPP or SSAS arrangement, Mr Page, adopting a draft response prepared by Mr T Ward, stated that only six such transactions had been arranged. We found at [597] that by the time of that response a considerable number of transactions had passed through the Pension Review and Advice Process, so that details had been submitted to Guinness Mahon and funds transferred. We found that the only remaining step to be taken was the issue of confirmation from Guinness Mahon that the transactions had been completed.

The Authority contends that at this stage Mr Page was deliberately keeping the Authority in the dark about the business FPL was conducting through introductions made by HJL. Mr Page denies that to be position, saying that his response was a fair description of the business that was being done with HJL at the time because the process was evolving quite quickly. He said that he had answered Mr Raphael’s question correctly because he had asked for business that had been “arranged”. He took the position that business was not to be considered as having been “arranged” until he received confirmation from Guinness Mahon that a “policy number” had been issued. He said that Guinness Mahon would not give any such confirmation in relation to any business introduced through FPL until they had received a copy of Mr Page’s passport to conclude its due diligence on FPL.

In our view no person approved by the Authority to exercise controlled functions who was seeking to answer Mr Raphael honestly would have responded in the way that Mr Page did. It is not credible that Mr Page could have believed Mr Raphael would not be interested in knowing about transactions where, as far as FPL was concerned, everything had been done to complete those transactions and where the last step in the chain was a mere formality which was completely within FPL’s control. It could not realistically have been said that there was any prospect that the transactions that had clearly been “arranged” according to the ordinary meaning of that word would not be, in fact, completed. Mr Page clearly knew that many more transactions involving a SIPP than those he disclosed had been arranged by FPL. He would also have known that Mr Raphael’s purpose in making the request was to understand the nature of FPL’s business at the time the request was made, so purely giving Mr Raphael historic information which took no account of developments since then would not achieve that objective. Accordingly, he deliberately gave an untruthful answer to Mr Raphael in response to his request. He also chose not to update the Authority after the business in question had formally completed.

The same is true of the information given by Mr Page during the telephone call on 1 September 2014 with Mr Raphael and Ms High and the follow-up email sent by Mr Page, drafted by Mr T Ward, after that call.

As we have found, during that call Mr T Ward instructed Mr Page not to inform the Authority that Taylor Barton did in fact cold call clients, when he knew that was the case. The strategy at that time was to tell the Authority as little as possible about FPL’s current business, as demonstrated by Mr T Ward’s email of 4 September 2014 to Mr Page, referred to at [619] above, where he said he had “taken the view that less is more in this situation” when providing Mr Page with a draft response to be sent to the Authority.

As the quotation from Mr Page’s response, as set out at [620] above demonstrates, the response was misleading when it stated that FPL did not recruit any lead generation companies and did not in any sense indicate the scale of the business now being undertaken through the Pension Review and Advice Process. Neither did it disclose the nature of the products that would be recommended through the process. We accept Mr Purchas’s submission that in this response Mr Page deliberately did not tell the Authority that Taylor Barton engaged in cold calling.

The strategy of keeping the Authority in the dark about the arrangements is also illustrated by Mr Page’s and Mr T Ward’s pleasure at learning from Ms Preston-Hoar that the first return due to the Authority would only cover the period from July until the end of September 2014 and therefore a full year’s accounts would not be needed until the following year, as discussed at [626] to [630] above.

Mr Page therefore knew that he had provided false information to the Authority, as described above. As was the case with the false information that Mr Page provided to the Authority in respect of FPL’s application for authorisation, ordinary decent people would regard such behaviour as dishonest.

Accordingly, we find that Mr Page acted dishonestly by deliberately providing false and misleading information, or omitted to provide relevant information, to the Authority about FPL’s business arrangements.

We found at [705] to [707] above, that, on his own admission, Mr Page lied to Guinness Mahon in order to disinvest his funds, despite having been requested by the Authority not to do so. Clearly, that behaviour was dishonest and his behaviour is not excused by his assertion that he made the request due to a threat from a Guinness Mahon executive. There are other legitimate ways of dealing with a threat of that kind, if it occurred, for instance informing the Authority who clearly had an interest in the matter.

We have found at [714] above that the agreement pursuant to which Mr Page handed custodianship of FPL’s client base to Mr T Ward in the event of FPL ceasing to carry on business was entered into in January 2016, after the Authority’s intervention and after FPL had agreed to a Voluntary Requirement pursuant to which FPL agreed not to deal with or dispose of any of its assets otherwise than in the ordinary course of business without the consent of the Authority.

Arguably, the agreement with Mr T Ward falls within the scope of the restrictions in the Voluntary Requirement. At the very least, Mr Page should have notified the Authority of the proposal to enter into the agreement so that the matter could be discussed and determined. Mr Page did not act in the best interests of customers in entering into the agreement without considering the possible implications for the restrictions in the Voluntary Requirement.

In any event, we do not consider that this agreement was an appropriate way of dealing with succession to FPL’s client base in the event of it ceasing to carry on business. Mr T Ward was not an approved person, was not a qualified investment adviser and he had a criminal conviction for obtaining money transfers by deception. We therefore agree with the Authority that it was reckless on the part of Mr Page to enter into such an agreement with Mr T Ward which was clearly not in the interests of FPL’s customers.

As we found at [716] to [720] above, Mr Page caused FPL to enter into an agreement whereby Mr Worrow Sr agreed to lend Mr Page £25,000, secured over FPL’s client base. We found that agreement to be a valid legal agreement and the loan to Mr Page was made.

Although, as we found, the agreement is not to be construed as an outright sale of FPL’s client base, it is clear to us that by providing the client base as collateral, FPL was “dealing with” its assets in breach of the Voluntary Requirement as it did not obtain the consent of the Authority to the transaction.

It appears that Mr Page gave no thought to the question as to whether the agreement breached the Voluntary Requirement. He therefore acted recklessly in causing FPL to enter into the agreement without seeking the consent of the Authority.

Likewise, in our view it is arguable that the agreement between FPL and Get Claims Advice, described at [721] to [724] above, was entered into in breach of the Voluntary Requirement. The agreement provided for FPL to receive payment for information concerning part of its client base and was therefore potentially dealing with its assets by entering into that agreement. Again, Mr Page failed to consider whether the agreement was in breach of the Voluntary Requirement and should have sought to clarify the position with the Authority before entering into the agreement. However, he gave no thought to the question as to whether the agreement breached the Voluntary Requirement. He therefore acted recklessly by causing FPL to enter into the agreement without discussing the matter with the Authority.

The findings that we have made as set out above demonstrate overwhelmingly that Mr Page breached Statement of Principle 1 (Integrity) of the Authority’s Statements of Principle for Approved Persons when carrying out his functions as an approved person throughout the Relevant Period.

In our view Mr Page’s failings are very serious. We would go as far to say that the allegations made against him are the most serious that we have encountered in respect of a small IFA firm in terms of (i) the number of separate allegations of acting without integrity; (ii) the impact that Mr Page’s actions have had in relation to a large number of unsophisticated consumers; and (iii) the impact on other IFA firms in terms of the effect on the calls on the FSCS to which all authorised firms in the relevant category have to contribute.

In our view, the imposition of a very substantial financial penalty in this case is justified and appropriate. As the Authority’s penalty policy states, the principal purpose of imposing a financial penalty is to promote high standards of regulatory conduct by deterring persons who have committed breaches from committing further breaches and helping to deter other persons from committing similar breaches and demonstrating generally the benefits of compliant behaviour.

We are particularly concerned by the approach Mr Page took to his dealings with the Authority. Had he disclosed in his application for authorisation full details of the proposed business model, and in particular how the Pension Review and Advice Process was intended to operate, then the misconduct which has been the subject of is reference may never have occurred. Likewise, had he made full disclosure of the situation to Mr Raphael, the latter would not have been lulled into taking the comfort that he did from Mr Page’s answers to his requests about the nature of the business FPL carried on. Once the Authority did obtain enough information about the way that FPL was operating, it acted swiftly to intervene following the short notice meeting held in June 2015. We have no doubt that had it known in August 2014 what it knew then, FPL’s operation of the Pension Review and Advice Process would have been “nipped in the bud” and much of the consumer detriment that has occurred probably would not have happened.

It is a personal tragedy for Mr Page that he allowed his instincts and values as a respected IFA who had practised without blemish for many years to be overridden as a result of the volume of business and consequent high levels of remuneration participation in the Pension Review and Advice Process offered, well beyond what he had previously been used to earning in his small business. We have no doubt, as submitted by the Authority, that Mr Page was motivated by the financial gain to be obtained through a volume of business that he had never experienced before.

Consequently, he had allowed his judgment to be seriously compromised by the business proposal, as put to him by Mr T Ward, and closed his mind to the risks that in doing so he was putting his own interests above those of FPL’s customers. In effect, he allowed his business, under the influence of Mr T Ward, who on his own admission was a much more forceful and shrewd character than Mr Page himself, to be used as a vehicle for HJL to promote its Products under the veneer of bespoke advice given by an IFA. Mr Page’s assessment at the outset of the relationship with HJL was that there was a lot of money to be made by simply putting his firm’s name to the process and his actions thereafter during the Relevant Period illustrate that his mindset did not change. This was despite the fact that he appreciated that the Authority and his own compliance consultants may take a different view as to the merits of the Pension Review and Advice Process. He therefore sought to conceal the nature and full extent of the business that FPL was undertaking and ignored the signals that came from IFAC after it undertook the file reviews that all may not be well.

The Authority seeks the same level of financial penalty that it set out in the Decision Notice, which was calculated by applying the five-step framework set out [102] above.

We received no challenge from Mr Page to that approach and, therefore, in accordance with the usual practice, we should pay that policy due regard when carrying out our overriding objective of doing justice between the parties.

We see no reason to dispute the calculations made by the Authority to determine the financial penalty which Mr Purchas set out in detail in his closing submissions. In summary:

Consequently, the Authority seeks a financial penalty of £321,033. That is a very large sum to be imposed on the director of a small IFA firm. However, FPL took on a large amount of business during the Relevant Period and, in our view, the figure is justified by reference to the scale of the business conducted during that period, the seriousness of the breaches and the need to dissuade any other IFA firm from taking a similar path in the future.

We therefore determine that it will be appropriate for the Authority to impose a financial penalty of £321,033 on Mr Page, plus continuing interest on the amount of the benefit received by Mr Page, as calculated above.

Mr Page made no submissions challenging the imposition of a prohibition order were the allegations made against him to be established.

As we have found, Mr Page has been found to be lacking in integrity as a result of a series of breaches committed over a lengthy period. It is clear that the imposition of a prohibition order by the Authority under s 56 FSMA on the grounds that Mr Page is not a fit and proper person to perform any function in relation to any regulated activity carried on by an authorised person, exempt person or exempt professional firm is a course of action reasonably open to the Authority on the basis of the findings that we have made. We therefore see no basis on which we should interfere with the Authority’s decision in that regard.

We now turn to the issues to be determined on Mr T Ward’s reference. We approach each of the issues in turn, dealing with each of the key allegations made by the Authority in relation to the issues concerned, as set out at [13] above.

Section 63A(1) FSMA provides that if the Authority is satisfied that:

Section 63A (2) provides that a person performs a controlled function without approval at any time if at that time:

Section 59(10) FSMA provides that an arrangement means any kind of arrangement for the performance of a function of an authorised person which is entered into by the authorised person or any contractor of theirs with another person; and includes, in particular, that other person’s appointment to an office, their becoming a partner or their employment (whether under a contract of service or otherwise).

In order to satisfy the second limb of a contravention of section 63A (1) FSMA, it is necessary to show that either:

DEPP 6.2.9A sets out additional considerations that the Authority will have regard to when deciding whether to take action against a person under s.63A FSMA. These include the extent to which the person could reasonably be expected to have known that he was performing a controlled function without approval. The circumstances in which the Authority would expect to be satisfied that a person could reasonably be expected to have known that he was performing a controlled function without approval include:

In this case the Authority contends that Mr T Ward performed the controlled function of “director” without approval. Section 417(1) FSMA, in relation to a body corporate, provides that a “director” includes:

The Glossary in the Authority’s Handbook defines “director” when used in relation to a body corporate as follows:

“any person appointed to direct its affairs, including a  person who is a member of its governing body and (in accordance with section 417(1) of the Act):

a person occupying in relation to it the position of a director (by whatever

The definition in the Glossary set out above is identical, or almost identical, to the definition of “director” in the Companies Acts, Company Directors Disqualification Act 1986 and for the purposes of the Insolvency Act 1986. As was common ground, the case law that has built up in relation to the term may be “read across” into the different statutory context of FSMA and the controlled functions that the Authority seeks to regulate through the approved persons regime.

As the Authority submitted, under this regime a director of an authorised firm which is a body corporate is considered one of the persons responsible for directing its affairs, that is one of the persons responsible for the governance of the body, and such persons require to be approved under s 59 FSMA as a CF1 in order to carry out that function.

The question we have to determine is whether Mr T Ward can be regarded as a “director” of FPL because of the actions he took and whether, in particular, he could be regarded as one of the persons responsible for directing FPL’s affairs. If that were so, Mr T Ward could be properly described as a “de facto” director. As we have said, it was common ground that the case law on de facto directors, which has built up in the context of the other legislation referred to at [861] above, can be read across into the relevant provisions of FSMA and the Authority’s regulatory provisions and the principles to be derived from those cases applied accordingly.

In broad terms, a de facto director is a person who purports to act as a director, whether or not held out by the company as such, but who has not been validly appointed as a director.

The authorities were reviewed in detail in the Supreme Court’s decision in Holland v HMRC [2010] UKSC 51, which concerned proceedings under s 212 Insolvency Act 1986 and raised questions as to whether directors of a corporate director of certain companies were de facto directors. Lord Collins’ judgment in Holland contains a detailed discussion of the evolution of the concept of de facto director. He referred at [91] to the "very difficult problem" that emerged of "identifying what functions were in essence the sole responsibility of a director or board of directors", noting the various formulations that had been suggested, including whether the individual was acting on an equal footing with others in directing the company’s affairs, whether there was a holding out by the company of the individual as a director, and whether the individual was part of the corporate governing structure. He noted that in previous cases a number of judges had declined to formulate a single test and commented that it was just as difficult to define "corporate governance" as to identify those activities which are the sole responsibility of the board. At [93] he said that it did not follow that the concept of de facto director must be given the same meaning in different contexts, but in that context, namely the fiduciary duty of a director not to dispose wrongfully of a company’s assets, the crucial question was whether the person had “assumed the duties of a director”: was he “part of the corporate governing structure”, and had the claimants proved that he "had assumed a role sufficient" to make him responsible?

In Re UKLI Limited [2013] EWHC 680 Hildyard J set out at [41] a number of characteristics of a de facto director that were relevant, although stressing that not every one is required to be established and there is inevitably some overlap between them. He said:

In Smithton Ltd (formerly Hobart Capital Markets Ltd) v Naggar [2014] EWCA Civ 939 Arden LJ, with whom Elias and Tomlinson LJJ agreed, referred to the judgment of Lord Collins in Holland and set out the following points as being potentially relevant in determining whether someone is a de facto director at [33] to[45]:

Mrs Justice Falk, sitting in the High Court, addressed the issue of de facto directors in the recent case of The Official Receiver v Batmanghelidjh & others (The Matter of Keeping Kids Company) [2021] EWHC 175 (Ch). The judgment cites with approval the cases referred to above. At [167] she summarised the key points of most relevance to that case, as follows:

“(a)

Guidance should be obtained from looking at the purpose of the provision in question (Holland at [39]). The primary purpose of the disqualification legislation is the protection of the public. Those who assume the status and functions of a company director should be held to certain minimum standards in the public interest. The legislation has both a deterrent element and serves as an encouragement to improve standards of behaviour …I do not think that the purpose of the disqualification legislation is sufficiently different from the purpose of the legislation considered in Holland materially to affect the force of the observations in that case in a disqualification context.

(b)

There is no single test, but an important starting point is the company's corporate governance structure. The court is seeking to identify functions that were the sole responsibility of a director or board of directors, that is, the highest level of management of the company. Those who assume and exercise powers and functions that can only properly be exercised or discharged at that highest level of management will, consistent with the purpose of the disqualification legislation, be within its scope as de facto directors. Those who are subordinate and accountable to that highest level of management will not be.

(c)

The test has been described as whether the individual was participating, or had the ability to participate, in decision-making as part of the corporate governing structure (which I take to mean the highest level of management decision-making). Another way of putting it is to ask whether the individual was on an "equal footing" with others in directing the affairs of the company.

(d)

There is a distinction between being consulted about, advising on or otherwise being involved in, decision-making in some other capacity (even in circumstances where real influence is exerted) and actually participating in making a decision as a director.

(e)

The question is one of fact and degree. It must be determined objectively, by reference to what the relevant individual actually did (including, for example, whether they were held out as a director and whether they took major decisions), and looking at the cumulative effect of the activities relied on in their overall factual context.”

As regards the purpose of the provision in question, referred to in the first of the key points set out by Falk J, the purpose of the relevant provisions in this case are to ensure that only persons who are fit and proper to do so exercise governing functions on behalf of an authorised firm. It is clearly in the public interest that directors of a firm authorised to carry on regulated activities are fit and proper to do so and the penalty provisions of s 63A FSMA act as a deterrent from persons performing those functions without approval. We do not consider that the purpose of the financial services legislation is sufficiently different from the purpose of the legislation considered in Holland and The Kids Company to materially affect the force of the observations in those cases in a financial services context.

Mr Purchas invited us, in the light of the authorities, to consider the following in our assessment of whether Mr T Ward constituted a de facto director namely:

We agree that the factors identified by Mr Purchas are relevant factors to take into account in deciding whether, as a matter of fact and degree, Mr T Ward was a de facto director of FPL, but they are not exhaustive. We must carry out a multifactorial assessment, weighing up all relevant factors and decide whether on balance the facts demonstrate that Mr T Ward was acting as a de facto director.

Mr Lloyd, in his brief submissions on the legal principles, correctly identified that one of the important issues is the extent to which Mr T Ward acted as subordinate to, and only with the authority of, Mr Page which spoke to the broader point of his place, if any, in the corporate governance structure. That issue is clearly relevant to our consideration of where Mr T Ward fitted into the corporate governance structure of FPL.

The Authority’s position was that Mr T Ward did act as a de facto director in respect of FPL’s adoption and operation of the Pension Review and Advice Process. There is no suggestion that Mr T Ward acted as a de facto director in respect of FPL’s business as a whole, or in relation to that part of FPL’s business that did not relate to the Pension Review and Advice Process.

The Authority relies on the matters set out at [876] below that Mr T Ward was the relevant decision maker in relation to a number of important decisions taken by FPL regarding the adoption and use of the Pension Review and Advice Process. The Authority’s position is that these facts demonstrate that Mr T Ward was acting as a de facto director and making decisions at a corporate level. The Authority says that these are not the types of decision that are consistent with Mr T Ward’s account that he did not act at a directorial level, but rather as a business manager.

The Authority’s position is that the matters relied on principally relate to the decision by FPL to adopt and use the Pension Review and Advice Process, where it contends that Mr T Ward took the decision on a joint basis with Mr Page. The Authority also relies on Mr T Ward’s role in the control and management of FPL’s interactions and communications with others involved in the Pension Review and Advice Process, including HJL and Guinness Mahon.

The matters relied on by the Authority can be summarised as follows:

Mr T Ward took the position throughout his cross-examination that no decision was taken without Mr Page’s approval and that all proposals would have been referred to Mr Page, either by email or by telephone beforehand. Mr T Ward said that they were in constant touch with each other because they sat in the same office, but, if Mr Page was not there and the matter was urgent, he would contact him on the telephone.

Accordingly, Mr Lloyd submitted that all of the functions that Mr T Ward exercised were carried out by him in his role as Head of Operations, the functions that he performed not being the sort that only directors can perform. Simply because Mr T Ward was a lone point of contact on a matter does not mean that he controlled the process and giving instructions on behalf of FPL as Head of Operations was not a function exclusive to a director. Mr Lloyd submitted that the issue is whether Mr T Ward acted under Mr Page’s authority, and was therefore subordinate to him. Mr Lloyd submitted that there was a distinction between influencing Mr Page, which was part of Mr T Ward’s role as Head of Operations, and controlling him and there was clear evidence that Mr Page was not in fact controlled by Mr T Ward.

In our view, our findings of fact at [529] to [557] (in relation to points (1) to (3)), at [563] to [577] (in relation to points (4) and (5) ), at [632] to [635] (in relation to points (6) and (7)), at [636] to [645] (in relation to points (6),(8) and (9)) and [668] to [681] (in relation to point (10)) are sufficient to establish, as a matter of fact, the matters relied on by the Authority, as set out at [874] above.

We are also of the view that those matters are sufficient to warrant the finding that Mr T Ward was directly involved in the making of the key decisions regarding the adoption and operation of the Pension Review and Advice Process by FPL; and, in that area of FPL’s business, which came to be its dominant business activity, Mr T Ward is properly characterised as having acted as a de facto director, albeit he was not held out as such. In that area of FPL’s business, and also in relation to its proposals to expand its business into other areas, Mr T Ward exercised decisive influence in the management of FPL.

FPL had no formal governance structure and there was no formalisation of Mr T Ward’s role within the company. Mr Page says that Mr T Ward was given the title of “Head of Operations” but in our view that was simply a label and did not properly describe the functions that Mr T Ward undertook. Nevertheless, the key decisions in which Mr T Ward participated were clearly decisions that would be expected to be taken at the highest level of management decision-making in a company such as FPL. The adoption of the Pension Review and Advice Process had a transformational effect on the nature of FPL’s business changing the entire business model of the Firm.

It is clear to us from our findings of fact that Mr T Ward was the key link between HJL and FPL and was instrumental in making all the decisions that FPL needed to make in order that the Pension Review and Advice Process would operate in a way that met HJL’s own requirements. That is consistent with our key finding that the whole process was designed as a means of promoting HJL’s products.

Mr T Ward clearly bought into that concept entirely. He was asked by HJL to identify an IFA who might cooperate in the process. Having identified FPL, Mr T Ward then embedded himself into FPL’s business, taking a 50% share in the income generated through the process, a higher proportion than that taken by Mr Page when account is taken of the fact that Mr T Ward did not bear any of the expenses of running FPL. He therefore had a clear interest in ensuring that the process generated maximum returns for FPL and he looked at all the proposals that came from HJL in relation to amending the process or changing the range of investments from the point of view of protecting the income flow that was coming his way. Mr T Ward therefore faced both ways; he helped HJL to achieve its objectives whilst at the same time ensuring that he achieved his own financial objectives through his arrangements with FPL. This explains why Mr T Ward took the initiative in drafting and agreeing the key documents to be used in the process, in particular the Brochure and the Service Proposition.

Against that background, Mr T Ward needed to ensure that the affairs of FPL were run in such a way as not to prejudice his interests. He was unlikely to take a back seat and leave all the key decisions to Mr Page alone. Everybody who has assessed the characters of both Mr Page and Mr T Ward has observed that he was a forceful and confident character who tended to take the lead on key matters and that Mr Page tended to stay in the background when Mr T Ward was present. That was the assessment of Ms Hartley, who observed Mr T Ward at the meeting with the Authority on 7 July 2015, as detailed at [699] above, and the subsequent telephone call which took place on 13 July 2015, as detailed at [702] above. It was also the assessment of Ms Hallett (see [670] above) and Ms Preston-Hoar who described Mr T Ward as Mr Page’s “go to man” and Mr Walmsley, based on his experience at the short notice visit of June 2015. Ms Hallett also, correctly in our view, formed the impression that it was Mr T Ward who was driving the business and the process, while Mr Page was signing off the regulated advice. Her evidence, which we accept, was that she saw Mr T Ward as part of FPL, mainly because it was Mr T Ward who would lead all the conversations on the process including what they did from a transfer point of view, who signed what documents and the investments that FPL were going to make.

Despite his many protestations in his cross-examination that he knew nothing about regulatory matters and left all of that side of the business to Mr Page, it is clear that Mr T Ward took the initiative in the strategy to be followed in FPL’s dealings with the Authority.

In a small firm such as FPL, we would expect the governance arrangements to be such that decisions in respect of fundamental matters relating to the relationship of the Firm with its regulator would be taken at the highest level of management. That, in particular, would be the case in relation to how, as a matter of strategy, to deal with the Authority’s enquiries regarding a fundamental matter going to the heart of the Firm’s business.

How to respond to Mr Raphael’s enquiries and how to deal with the Authority in respect of the matters raised on the call of 1 September 2014 would clearly fall into that category. Our findings of fact, at [590] to [625] and [652] to [667], demonstrate that Mr T Ward took the lead in deciding the strategy to be followed in dealing with the Authority. He took the initiative in the drafting of the response to Mr Raphael’s email request, including only presenting details of the small number of historic pension switches carried out by FPL. He gave clear instructions to Mr Page as to how to respond to the Authority’s questions raised during the call between Mr Raphael and Ms High. In relation to the response to Mr Raphael on 4 September 2014 he set the strategy by telling Mr Page “I have taken the view that less is more in the situation and provide the draft for discussion attached”. He sought Person A’s views on the draft, once again indicating his concern for the interests of HJL. Likewise, he sought to interfere in relation to the file reviews undertaken by IFAC, notwithstanding his position that he had no expertise in relation to the giving of investment advice.

In our view, Mr T Ward sought to take a leading role in relation to these matters in order to protect both HJL’s and FPL’s business model and thereby protect his own interests. In those circumstances, he was unlikely to leave the decision-making entirely to Mr Page and there is no evidence that Mr Page did anything other than go along with Mr T Ward’s proposals. The governing functions in relation to the relationship with the Authority were therefore exercised by Mr Page and Mr T Ward together, with Mr T Ward being the dominant figure. His role went well beyond merely influencing Mr Page; he was part of the decision-making process.

Furthermore, dealing with Guinness Mahon on major issues, agreeing to novate a large number of customers, changing the date for the payment of ongoing service fees, changing the investments to be made through the process, and establishing relationships with, or considering the acquisition of, a SIPP provider are all major decisions for a firm of FPL’s size and go well beyond mere operational matters. As our findings show, Mr T Ward was at the heart of the decision-making process relating to those matters and implementing the decisions which ensued.

These conclusions are supported by Mr Page’s characterisation of Mr T Ward as his business partner in a number of his communications, as we have found. He said in interview that he could not do what he did without Mr T Ward which confirms that Mr Page would not have been able to make the key decisions regarding the adoption and operation of the Pension Review and Advice Process on his own.

There are other points which are of relevance but on which we have placed little weight. The first is the role of Mr T Ward on FPL’s Investment Committee. Whilst we have found that Mr T Ward had a more prominent role on that committee than he represented, the committee only operated for a short period of time and we do not believe that, as an organ of governance, it superseded in any way the role taken by Mr Page and Mr T Ward jointly in making the major decisions on behalf of FPL in relation to the Pension Review and Advice Process.

Likewise, although we have found that Mr T Ward had access to FPL’s bank account and was able to effect transactions, the evidence shows that he did not do so without either getting the approval of Mr Page or notifying him after the event so that he could intervene. What he did was not consistent only with the making of decisions of a directorial nature.

We have also placed no weight on Mr Stephen’s evidence regarding the letter that he wrote to the Firm on 10 December 2015 to the effect that, in HJL’s dealings with FPL, the business had been consistently presented and represented either by Mr Page in tandem with Mr T Ward or by Mr T Ward alone and that it was possible that Mr T Ward might be operating as a shadow director of FPL. In his evidence to the Tribunal, Mr Stephen said that he only wrote this letter for “commercial leverage”. In our assessment, Mr Stephen was not a credible witness generally, and it is impossible for us to say whether he genuinely believed that Mr T Ward was a de facto director, based on his dealings with FPL or, whether, as he now contends, that was not and is not, his genuine belief. Mr Stephen is clearly someone who will say whatever he thinks will suit his purposes at the relevant time.

It follows from our findings that we reject Mr Lloyd’s submission that Mr T Ward acted under Mr Page’s authority and was therefore subordinate to him in matters relating to the Pension Review and Advice Process. As we have said, we have found that Mr T Ward’s actions went beyond merely influencing Mr Page. We do not go so far to say that Mr T Ward controlled Mr Page. That is not the relevant test. Our findings are based on the fact that the major decisions relating to the Pension Review and Advice Process were taken by Mr T Ward and Mr Page jointly, that Mr T Ward took the lead in formulating proposals for consideration and the strategy to be followed in relation to the decisions that needed to be made, and he then participated in the making of those decisions.

We also reject Mr T Ward’s evidence that no decision was taken without Mr Page’s approval and that all proposals would have been referred to Mr Page, either by email or by telephone.

We have found very few emails that are consistent with the approach that Mr T Ward says that he took. However, as Mr Purchas submitted, there was a clear change of approach after the Authority intervened. Before sending a document to Mr Page for discussion, Mr T Ward’s email normally started with Mr T Ward saying that he attached a draft for discussion, clearly indicating that he had prepared the draft himself.

That is to be contrasted with an email that Mr T Ward sent to Mr Page on 22 January 2016 where the email started as follows:

“Following our call of this am I now attach the final draft of the FCA response as per your instruction.”

Likewise on 1 February 2016 he sent an email where he said:

“I now attach the above as dictated over the weekend. Please check it is as you wanted mate.”

By this time, Mr T Ward was clearly astute enough to realise that one of the Authority’s lines of investigation may be whether he was exercising controlled functions without approval.

We therefore conclude that Mr T Ward did act as a de facto director in respect of FPL’s adoption and operation of the Pension Review and Advice Process. Consequently, Mr T Ward performed a controlled function on behalf of FPL, namely the CF 1 function, without the necessary approval.

From our findings at [522] to [528] above, it is clear that:

We have also found that Mr T Ward changed his approach to his communications with Mr Page once he was aware that FPL was under investigation, having realised that the role he performed at FPL without approval may be subject to scrutiny by the Authority.

In our view, these findings are sufficient to warrant the conclusion that Mr T Ward knowingly performed a role as a director of FPL without approval and chose not to seek such approval from the Authority.

Alternatively, he clearly had such knowledge and experience that he could reasonably be expected to have known that he was performing such a role.

Whether Mr T Ward demonstrated a lack of integrity

It is clear that Mr T Ward demonstrated a lack of integrity in acting as a de facto director without the necessary approval in circumstances where he knew, or had such knowledge and experience that he could reasonably be expected to have known, that he was performing a role which required approval, as we have found above. In carrying out his functions without approval, Mr T Ward failed to meet the higher standards which are expected of financial services professionals and failed to meet the ethical standards which are expected of somebody in that position.

In those circumstances, it is not strictly necessary for us to consider whether in addition Mr T Ward acted without integrity in performing the functions that he did without the necessary approval in order for the Authority to make out its case on the integrity issue.

However, as the points were argued fully before us, we shall deal briefly with the other key allegations made against Mr T Ward, as set out at [13] above. These matters are also relevant when considering the financial penalty.

The position that Mr T Ward took in relation to all of these matters is that regulatory matters were purely for Mr Page to consider and deal with and they were not matters for him.

That is not a credible position. As this Tribunal said in Alistair Burns v FCA [2018] UKUT 0246 (TCC) at [285], even if a governing body rests prime responsibility for matters such as compliance in one of their number who is more expert than the others on such matters, that does not absolve the other members of the governing body from obtaining a sufficient understanding of the business of the firm which they are ultimately responsible for managing, the key issues that are likely to arise out of its business model, and the manner in which they are being addressed. It is not acceptable for a director to rely entirely on another director having undertaken the necessary work to be satisfied that the firm is compliant with the Authority’s regulatory requirements without himself taking a close interest in the manner in which those functions were being discharged.

Consequently, Mr T Ward acted recklessly by closing his mind to the risks to FPL’s business which arose out of the following matters:

Mr T Ward states that he “completely” rejects this allegation, but, as Mr Purchas submitted, right from the outset Mr T Ward expressed this willingness. As set out at [547] above, in an email dated 7 March 2014, Mr T Ward stated that Mr Page and he would earn 3% on all transfers and that it would “simply be a case of putting our name to it and effecting the transfer”. He goes on to say in the same email “that would generate us gross a ridiculous £200k plus per month!!!!!”

We also accept that Mr T Ward did not have due regard to customers’ interests in FPL’s communications regarding the proposed change in customers’ investments from cash to the Liquid Assets Bonds and the reinvestment of interest generated into those Bonds. Our findings at [640] demonstrate that Mr Ward had a leading role in preparing the “negative approval” letter that was drafted in early February 2015 which, as we found in relation to Mr Page’s reference, was an inappropriate way in which to proceed. As we found at [641] Mr T Ward took the lead in dealing with Guinness Mahon on the arrangements for recording the switches.

It was also the case that Mr T Ward regularly reported to HJL, in particular Person A, on the progress of the switching process.

We have concluded that Mr T Ward had a dual role in that he assisted HJL in making or proposing changes to the existing arrangements which affected FPL as well as assisting with the implementation of those arrangements within FPL, without regard to customers interests. For example:

It is the Authority’s case that Mr T Ward deliberately provided, on behalf of FPL, false and misleading information, and omitted to provide relevant information, to the Authority about FPL’s business arrangements. The Authority contends that Mr T Ward intentionally did this to try to prevent the Authority from identifying misconduct by him and FPL, and in so doing acted dishonestly.

The Authority relies on the response given to Mr Raphael in August 2014 to his request for details of FPL’s new business register, Mr T Ward’s participation in the call with the Authority that took place on 1 September 2014, and the subsequent follow up email sent on 5 September 2014.

We have already dealt with these matters in relation to Mr Page’s reference, finding at [823] to [831] above that Mr Page acted dishonestly by deliberately providing false and misleading information to the Authority, or omitted to provide relevant information to the Authority about FPL’s business arrangements.

We come to the same conclusion in relation to Mr T Ward in respect of those matters.

We have found that the new business register sent to the Authority on 20 August 2014 was incomplete and created a misleading impression.

As we found at [594] above, Mr T Ward took the initiative in the drafting of the response that was provided by Mr Page to the Authority on 20 August 2014. In our view, Mr T Ward deliberately drafted a new business register that he knew was incorrect and knew that Mr Page would provide it to the Authority and would thereby be providing false information to the Authority. Mr T Ward stated that he understood the request to be for work that was completed rather than in the pipeline. As we found in relation to Mr Page, this is not credible given the wording of the request namely to provide a “detailed new business register stating all business the Firm has arranged via a SIPP or SSAS arrangement”. As we found in relation to Mr Page’s reference, many more transactions had clearly been “arranged” according to the ordinary meaning of that word and Mr T Ward knew that to be the case. In particular:

We therefore reject Mr T Ward’s position that a new business register only indicates completed business and so there was nothing misleading. Mr T Ward accepted that he was “absolutely” aware of the requirement to be open and cooperative with the Authority, but his position was that FPL “answered the question”. However, Mr T Ward knew that the request for the information was in connection with SIPP switching. As Mr Purchas submitted, and in common with our findings in relation to Mr Page, if he was seeking to be open and cooperative with the Authority, Mr T Ward should have made the Authority aware of the business that was in the pipeline. We therefore agree with Mr Purchas that Mr T Ward was equally culpable alongside Mr Page in that Mr T Ward prepared the false and misleading information that was provided to the Authority.

As set out above in respect of Mr Page, a telephone call took place on 1 September 2014 between Mr Page and the Authority. We have addressed the emails that we have found were sent during this call at [605] to [614] above.

Mr T Ward states that he wrote “DONT SAY THAT THEY COLD CALL MATE” on the basis that they “should not confirm any information about the marketing company until we knew what the true position was”. This was not a credible reading of the email. As we found at [827] above, Mr T Ward instructed Mr Page not to inform the Authority that Taylor Barton did in fact cold call clients, when he understood that to be the case. As we also found, Mr T Ward’s strategy was to tell the Authority as little as possible about FPL’s current business.

As we found at [619] to [621] above, on 5 September 2014, an email was sent by Mr Page, but drafted by Mr T Ward, to the Authority relating to the possible use of cold calling in the Pension Review and Advice Process. It also stated that FPL did not use the services of unauthorised firms and described the activities FPL was involved in, but in so doing did not correct the misleading impression given by the new business register previously provided.

As we found in relation to Mr Page’s reference, the email was deliberately intended to mislead the Authority about FPL’s business.

As we found at [618] above, before Mr Page sent the email to the Authority, Mr T Ward sent the draft to Person A and Mr Page. The cover email stated "I [Mr T Ward] have taken the view that less is more in this situation…” It was clear from this email that the intention was not to give the full picture to the Authority and that Person A was involved in reviewing the draft that was ultimately sent to the Authority.

As Mr Purchas submitted, the email was a clear opportunity to be open with the Authority and to correct the misleading impression given by the information in the new business register previously provided. Mr T Ward not only misled the Authority but failed to take the opportunity to be open and honest with the Authority.

We have found that Mr T Ward deliberately encouraged Mr Page to provide false and misleading information to the Authority and he knew that such false information would be provided to the Authority by Mr Page. Ordinary decent people would regard such behaviour as dishonest.

Accordingly, we find that Mr T Ward took deliberate steps to control and influence the content and flow of information that FPL disclosed to the Authority. He encouraged Mr Page to withhold important information from the Authority and deliberately drafted communications and instructed Mr Page to provide communications to the Authority that were false and/or misleading.

Conclusion on integrity

The findings that we have made as set out above demonstrate overwhelmingly that Mr T Ward acted without integrity in performing functions for FPL during the Relevant Period. Had he been approved by the Authority to undertake the CF 1 function he would have breached Statement of Principle 1 (Integrity) of the Authority’s Statements of Principle for Approved Persons when carrying out his functions as an approved person throughout the Relevant Period.

We find that Mr T Ward performed the CF 1 controlled function without approval in breach of s 63A FSMA and his conduct would have amounted to a breach of Statement of Principle 1 had he been so approved.

In our view Mr T Ward’s failings are very serious. They are as serious as those of Mr Page, bearing in mind that we have found that Mr T Ward took all the major decisions relating to the adoption and use of the Pension Review and Advice Process jointly with Mr Page. Consequently, we repeat the observation that we made in relation to Mr Page’s failings, namely that the allegations made against Mr T Ward are the most serious that we have encountered in respect of a small IFA firm in terms of (i) the number of separate allegations of acting without integrity; (ii) the impact that Mr T Ward’s actions have had in relation to a large number of unsophisticated consumers; and (iii) the impact on other IFA firms in terms of the effect on the calls on the FSCS to which all authorised firms in the relevant category have to contribute.

In our view, the imposition of a very substantial financial penalty in this case is justified and appropriate. As we said in relation to Mr Page, the Authority’s penalty policy states that the principal purpose of imposing a financial penalty is to promote high standards of regulatory conduct by deterring persons who have committed breaches from committing further breaches and helping to deter other persons from committing similar breaches and demonstrating generally the benefits of compliant behaviour.

In common with what we said about Mr Page, we are particularly concerned by the approach Mr T Ward took to FPL’s dealings with the Authority. He set the strategy of disclosing as little as possible about FPL’s participation in the Pension Review and Advice Process and encouraged Mr Page to provide false and misleading information to the Authority. As we said in relation to Mr Page’s reference, had the Authority not been misled then much of the consumer detriment that has occurred probably would not have happened.

The Authority seeks the same level of financial penalty that it set out in the Decision Notice, which was calculated by applying the five-step framework set out [102] above.

We received no challenge from Mr T Ward to that approach and, therefore, in accordance with the usual practice, we should pay that policy due regard when carrying out our overriding objective of doing justice between the parties.

We see no reason to dispute the calculations made by the Authority to determine the financial penalty which Mr Purchas set out in detail in his closing submissions. In summary:

Consequently, the Authority seeks a financial penalty of £416,558. That is a very large sum to be imposed on a person performing functions in a small IFA firm. However, FPL took on a large amount of business during the Relevant Period and in our view the figure is justified by reference to the scale of the business conducted during that period, the seriousness of the breaches and the need to dissuade any other IFA firm from taking a similar path in the future. We also believe that a penalty which is larger than that imposed on Mr Page is justified bearing in mind Mr T Ward’s pivotal role in bringing the opportunity to work with HJL to FPL, his actions in putting the interests of HJL before those of FPL’s customers and the fact that he received a greater financial benefit than Mr Page.

We therefore determine that it will be appropriate for the Authority to impose a financial penalty of £416,558 on Mr T Ward, plus continuing interest on the amount of the benefit received by Mr T Ward, as calculated above.

Mr T Ward made no submissions challenging the imposition of a prohibition order were the allegations made against him to be established.

As we have found, Mr T Ward has been found to have acted as a de facto director of FPL without approval and to all be lacking in integrity as a result of a series of breaches committed over a lengthy period. It is clear that the imposition of a prohibition order by the Authority under s 56 FSMA on the grounds that Mr T Ward is not a fit and proper person to perform any function in relation to any regulated activity carried on by an authorised person, exempt person or exempt professional firm is a course of action reasonably open to the Authority on the basis of the findings that we have made. We therefore see no basis on which we should interfere with the Authority’s decision in that regard.

We start with our findings of fact which are specific to Mr Henderson’s reference. These are to be read in conjunction with the findings that we have made on matters which are common to all of the references, as set out above.

Mr Henderson has worked in the financial services industry since leaving university in 2004, including working at Legal and General and Bates Investment Services. He accepted in cross-examination that he was aware of the regulatory requirements relied on by the Authority in these references.

HCA was a small firm with its registered address in Neston, Merseyside. It was supervised by the Authority as a flexible portfolio firm and was authorised by the Authority on 15 February 2010 with permission, among other things, to provide investment advice (excluding Pension Transfers and Pension Opt Outs) and arranging (bringing about) deals in investments.

Between 30 October 2013 and 8 July 2015, Mr Henderson was the only CF 1 Director approved by the Authority at HCA. Mr Henderson was approved to perform the CF 1 (Director), CF 11 (Money Laundering Reporting) and CF 30 (Customer) controlled functions at HCA on 15 February 2013 and the CF10 (Compliance Oversight) controlled function on 17 July 2013. Prior to that time Mr Eric London performed the Compliance Oversight controlled function and continued to work on the compliance side part-time for a period after that date. Mr Henderson was the only CF 30 at HCA during the Relevant Period to have responsibility for the pension switches/transfers to the Loan Notes. Mr Henderson holds a Level 4 diploma in Financial Planning from the Chartered Insurance Institute and other qualifications related to investment risk and financial planning.

It was during the middle of 2013 that Mr Henderson was introduced to Mr Stephen and Mr King through Mr N Maynard. Mr Henderson and Mr N Maynard were involved in developing the technologies that led to LeadTracker.

Mr Stephen and Mr King described their relationship with Guinness Mahon to Mr Henderson, saying that they had a product investing in real estate projects on Guinness Mahon’s approved investment list and were looking to transact more business for retail pension clients. That product became the Loan Notes.

The extent to which Mr Henderson carried out any independent due diligence on the Loan Notes is unclear. He says he relied on Mr N Maynard’s pre-existing relationship with Mr Stephen and that Guinness Mahon had undertaken its own due diligence on the Loan Notes. Mr Henderson appears to have relied heavily on information provided by HJL. Mr Henderson accepted in his cross-examination that the majority of the due diligence materials in HCA’s files were from HJL. Mr Henderson says that he reviewed the AIGO IM, although no copy of the final version of the Information Memorandum is to be found in in his due diligence files; only a draft dated 30 October 2013. We accept that Mr Henderson reviewed the AIGO IM before entering into any arrangements with HJL, albeit in draft form.

HJL and CAL were newly incorporated entities when HCA agreed to work with them. It appears that Mr Henderson carried out limited due diligence on those entities and their officers. As we have said, this was largely focused on establishing that the entities existed and establishing the identity of the officers.

Mr Henderson appears to have relied on EFP’s relationship with HJL and Mr N Maynard’s relationship with HJL and says he was a “good judge of financial services companies”. He said he had the feeling that HJL was a well-run organisation, based on his visit to their offices, and he had looked up Mr Stephen on the Internet.

As regards Mr Henderson’s due diligence on HJL itself, Mr Henderson stated that he had looked at Mr Stephen and Mr King’s CVs. No copies of Mr Stephen or Mr King’s CVs are found in Mr Henderson’s due diligence files. Mr Henderson also stated that in September 2013 he checked Companies House. However, the printout from Companies House shows that the first entries relating to HJL were made after September 2013 and so Mr Henderson could not have carried out the due diligence described on those dates.

Mr Henderson stated that he knew of Person A’s background in around November or December 2013. Mr Henderson did not think it necessary to carry out any due diligence on Person A. He said that there was no reason to be alarmed by Person A’s background because he was not an employee of HJL the time, he was simply a consultant to that company.

On 30 October 2013, HCA entered into an agreement with HJL whereby HJL was appointed as HCA’s IAR. In an email to Mr Stephen and Person A informing them that he had signed the agreement, Mr Henderson said “here’s to a fruitful relationship and us all making a nice amount of money!” Mr Henderson accepted in his cross-examination that at that stage he knew that HJL would receive a commission from AIGO of 5% of the amount of each investment made in the Loan Notes.

On the same day Mr Henderson emailed Mr N Maynard attaching draft template letters and the client agreement to be used for the Execution-Only Process.

The final version of the client agreement referred to the fact that the customer had been introduced to HCA from HJL who was an IAR of HCA as HJL were not themselves permitted to conduct financial planning business.

The agreement said that the customer had requested HCA to review and submit the application to the Global SIPP administered by Guinness Mahon and that the customer had not requested HCA to provide financial advice in relation to investments.

However, the agreement also provided for the customer to permit HCA to contact them to perform a full financial planning review at any point in the next twelve months. This was to enable HCA to present its services to the customer with the hope that, by so doing, it would expand its client base within the UK. The agreement went on to state that HCA’s typical fee would be £500 to deal with an execution only transaction, however, the fee would be waived on the proviso that the customer confirmed that they were happy for HCA to contact them in the future relating to other areas of financial planning.

No disclosure of any conflicts of interest was made in the customer agreement. However, in the covering email sending the draft to Mr N Maynard, Mr Henderson asked who HCA would invoice and how they would get paid. He said “It would look extremely suspect if we were being paid by Hennessy Jones would it not and I assume this represents a conflict in interest?”

In his evidence, Mr Henderson said that the conflict he was referring to was the fact that HCA were to be paid by HJL for the provision of training services. However, that explanation was given for the first time in his live evidence and in our view it is clear from Mr Henderson’s email that his real concern was the potential conflict of interest if HCA were paid by HJL for providing the execution only services pursuant to the client agreement. This demonstrates that Mr Henderson was aware that there were potential conflicts between the interests of HJL and the interests of those who became customers of HCA through the client agreement. In addition, HCA had a conflict of interest policy which required it to notify a customer of any identified actual or potential conflict so the customer could make an informed decision about whether or not they wished to proceed.

By this time, Mr Henderson had read a draft of the AIGO IM and so would have been aware of the fact that HJL would be receiving a 5% commission and that HJL was promoting the Loan Notes in order to provide funding for its real estate activities. He accepted that he was also aware that Mr Stephen was identified as the main individual associated with the Commercial Property Fund and was part of the management team in relation to the Natural Resources Fund and the Residential Property Fund. However, he denied that the 5% commission acted as an incentive to HJL to procure investment into the Loan Notes, which is not credible.

Mr Henderson was aware that HJL would be involved in finding potential customers for investment in the Loan Notes through the Execution-Only Process and that these customers would receive no other advice. He accepted that there was a risk of customers being encouraged to invest in the Loan Notes for reasons of which he would not have been aware.

He did, however, deny that the incentives that HJL had for getting customers to invest in the Loan Notes could create a stark divergence of interest between HJL and the customer given that it was in HJL’s financial interest for customers to invest, but the customer risked switching their pension assets into something that was unsuitable.

Mr Henderson declined to comment further on that proposition and denied that it was something that he was aware of at the time, saying that it was something he just did not think about. We do not find that explanation credible in the light of his email to Mr N Maynard which clearly identified that there was a potential conflict. We therefore find that Mr Henderson was aware of the divergence of interest described at [959] above. He also said in his evidence that he wished he had disclosed the fact that HJL would be receiving a 5% commission in the execution only client agreement.

The first execution only pension switch into the Loan Notes facilitated by HCA took place on 12 December 2013. On 18 December 2013, HJL was registered as an IAR of HCA.

HCA’s Compliance Officer’s Annual Report for the period ended 28 February 2014, which was prepared by Mr Henderson and presented to and considered by HCA’s Board, made reference to the arrangements agreed with HJL. The Report referred to the fact that HJL was an IAR which had introduced potential clients who wanted a pension review. These leads had been obtained through marketing companies who contacted people who had entered their details online in response to an offer of a free review of their retirement plans. The report said:

“we still maintain HCA do not cold call or contact Clients through unsolicited post for example”

Mr Henderson confirmed that he did not check the marketing agreements used by HJL and did not check regularly whether cold calling was going on. However, Mr Henderson denied that HJL were cold calling, saying that he did not know what he could have done to monitor HJL’s introducer agreements with the marketing companies, but that he was fully under the impression that the marketing companies were told not to cold call. As we found in relation to Mr Page’s reference, some of the marketing companies did cold call, notably Taylor Barton, who referred to HCA as being an IFA on whose behalf they were acting during some of the calls they made.

The last HCA execution only transactions were completed on 11 August 2014.

On 30 January 2014, HCA signed an agreement for a licence to use LeadTracker. During February and March 2014, Mr Henderson assisted with the preparation of the scripts and other documentation to be used in the Pension Review and Advice Process. Mr Henderson also undertook compliance training for staff at HJL during this period.

During 2013, HCA had been the subject of enquiries by the Authority into their advisory practices where clients used a SIPP to invest in underlying non-standard investments. The Authority’s concerns arose because of HCA’s activity in relation to arranging for their clients to invest in carbon credits through a SIPP.

On 6 March 2014, the Authority wrote to Mr Henderson expressing its concerns that HCA’s sales processes may not have complied with the Authority’s requirements when it advised clients about moving money into SIPPs to invest in non-standard investments.

The Authority went on to say:

“We take the view that advice should not be treated as being confined to a consideration of the advantages or disadvantages of a particular investment without considering the wider financial or investment context in which the advice is given. Advisers should consider whether the entire replacement contract, including the investments that will be held within it, is more suitable for the customer than the original investment; if it is not, the SIPP is unlikely to be suitable.”

The Authority’s letter noted that HCA had been open and transparent by disclosing the relevant activities and noted that HCA had stopped doing that type of business of its own accord. However, the Authority also said that its concerns about HCA’s sales processes and advice were sufficiently serious that the Authority considered it necessary to invite HCA voluntarily to vary its permission.

Accordingly, on 14 March 2014, HCA agreed to a Voluntary Requirement to the effect that it would not carry on any regulated activities in relation to pension switches and/or pension transfers to any SIPP except where the member’s funds are to be invested wholly in “standard investments”. The Voluntary Requirement defined “standard investments” as being assets which must be capable of being: (i) accurately and fairly valued on an ongoing basis; and (ii) readily realised whenever required (up to a maximum of thirty days) for an amount that can be reconciled with the previous valuation.

This document was signed shortly after Mr Tunkel had written his letter of advice of 12 March 2014 to Mr Henderson on the question of whether the Loan Notes could be regarded as “standard assets”, as referred to at [319] to [322] above. As we found at [320] above, Mr Tunkel’s advice was heavily caveated and, in our view, a reasonably competent IFA would not have relied on it as definitive advice.

On 12 March 2014, the activities of HCA and HJL in relation to the Execution-Only Process came to the attention of the Authority. Mr Ali opened a case on that day following reports to the Authority of consumers having been contacted by representatives of HJL to discuss their pension planning and one consumer being recommended to move his pension from Scottish Widows to a SIPP with Guinness Mahon. The matter became linked to HCA because of the fact that HJL was registered as an IAR of HCA. In his evidence Mr Ali confirmed that he was aware of that link at the time.

On 9 May 2014, Mr Ali called Mr Henderson asking him to call him back. Mr Ali’s evidence was that the purpose of telephoning Mr Henderson would have been to ask him to look into the reports and provide an explanation. There is no record of Mr Henderson having called Mr Ali back. On or about 27 May 2014, Mr Ali drafted an email to Mr Henderson which was not ultimately sent, but was preserved on the Authority’s records relating to the case opened by Mr Ali. The draft email stated that it had been brought to the Authority’s attention that HJL may have been involved in pension-related activities, such as advising on SIPPs, but were only listed as an IAR on the Authority’s register. The draft email asked Mr Henderson to provide Mr Ali with information as to what actions he was taking to address the issue as HCA was the principal for this firm; and what systems and controls HCA were going to put in place to ensure that all appointed representatives or IARs taken on in the future only used the correct permissions which the principal had been granted by the Authority.

The reason the email was not sent was because Mr Ali became aware that another case had been opened relating to Mr Henderson. This was opened on 30 May 2014 because the Authority had received an email on 22 May 2014 from a regulated firm reporting that one of the firm’s clients had been approached by Taylor Barton about the possibility of transferring their pension to a new provider and that the client had then been referred to HCA.

It does not appear that Mr Ali or anybody else at the Authority took any further action in relation to this matter at the time. We address below what took place between the Authority and HCA before it intervened in relation to HCA in July 2015.

On 2 April 2014, Mr Henderson asked Ms Farrell to visit HCA in order to conduct a compliance review. On 10 April 2014, that visit took place and was followed up by a written report from Ms Farrell. The report makes no reference to the arrangements with HJL, the Loan Notes or HCA’s plans to participate in the Pension Review and Advice Process. Although Mr Henderson said at first in his cross examination that he thought that Ms Farrell was aware of the Loan Notes in April 2014 there is no evidence to support that assertion and he agreed that he did not discuss with Ms Farrell the processes that were being used with HJL or the Pension Review and Advice Process at that time. Ms Farrell confirmed in her witness statement that she did not recall during the meeting on 10 April 2014 that there was anything not standard or contentious about the business being conducted. She also recalled no mention of an automated model for producing pension recommendations or any conversation regarding the underlying investments that HCA was recommending. The compliance report notes that customer files were not reviewed during the visit.

Bearing in mind Mr Henderson’s admission regarding the processes, and the fact that there is no reference in the compliance report to either the Loan Notes or the Pension Review and Advice Process, we find that the matter was not discussed with SimplyBiz at that time and that Ms Farrell was not aware of the Loan Notes at the time of the visit and the preparation of her report.

On 2 May 2014, HCA entered into a Standard Service Agreement with HJL pursuant to which HJL commenced acting as the provider of the Outsourced Functions as well as continuing to source leads for HCA. That agreement was in similar terms to the agreement signed between HJL and FPL on the same day, as described at [359] above. The first pension switch conducted on an advised basis by HCA took place on 8 May 2014.

On 2 September 2014, Mr Raphael telephoned Mr Henderson seeking information regarding HCA’s business in respect of SIPPs. It would appear that the call was prompted because of an external complaint to the Authority. On 3 September 2014, Mr Raphael provided Mr Henderson with links to the two alerts issued to IFAs in relation to SIPPs and underlying unregulated investments, together with links to the consumer alert and accompanying leaflet that had recently been issued.

Also on 3 September 2014, Mr Henderson replied to Mr Raphael saying that he would ensure that the material provided by Mr Raphael would be passed on to HCA’s IARs and he confirmed that “we no longer advise on unregulated, non standard investments...” Mr Raphael responded thanking Mr Henderson for his confirmation and matters were not pursued any further at that stage.

As we found in relation to Mr Page’s reference, on 13 October 2014 the Pension Review and Advice Process changed with HJL no longer being both introducer and performing the Outsourced Functions. HJL continued to act as introducer, whilst CAL performed the Outsourced Functions for the Pension Review and Advice Process. Unlike FPL, HCA did not appear to enter into a new agreement with CAL, but as we found at [361] above, in practice CAL did provide administration services to HCA.

In December 2014, Mr Slater was assigned a case concerning HCA and its pensions-related business. The Authority had received information regarding HCA’s activities through its Contact Centre. There was a concern as to whether HCA was breaching the terms of the Voluntary Requirement that it entered into in March 2014 to the effect that it would not carry on any regulated activities in relation to pension switches and/or pension transfers to a SIPP except where the member’s funds were to be invested wholly in standard investments. The information concerning HCA’s activity in this area, which would have been available to Mr Slater at the time through the Authority’s systems but which he does not specifically remember reviewing, included the following:

It was therefore clear that by March 2014 the Authority had some information regarding the nature of the Loan Notes and the Execution-Only Process. In October 2014, it knew that HCA was still involved in pension switches and that concern had been expressed to the Authority by another regulated firm that those switches may be being made into unregulated investments.

Mr Slater confirmed in his cross-examination that it would appear that “red flags” were in existence in March 2014 and known to the Authority as regards to HCA’s involvement in execution only business relating to the Loan Notes.

On 8 January 2015, Mr Slater emailed Mr Henderson by way of a follow-up to the communications that Mr Henderson had had with Mr Raphael in September 2014 and the earlier communications regarding the Voluntary Requirement. Mr Slater asked Mr Henderson for HCA’s new business register covering the period from 1 January 2014 to date and a copy of the firm’s current PII certificate.

In response to a request for clarification by Mr Henderson as to what was to be provided, Mr Slater gave further information as to what he wanted in order for him to build a picture of what products were being recommended, both in terms of the pension provider and the underlying investment, as well as the source of the business. Mr Slater explained that he wanted to understand whether the firm had arrangements with any introducers and that the involvement of one introducer in a high number of cases would be a trigger for further investigation, particularly where the introducer had links to the proposed underlying investment. Mr Slater also requested Mr Henderson confirm whether in each case advice was provided on the underlying investment and on the SIPP arrangement.

On the same day Mr Henderson responded to confirm that he would provide the information requested. He also noted that HCA did not undertake any pension transfers and that it only recommended standard investments in line with the requirements of the Voluntary Requirement.

On 23 January 2015, Mr Henderson provided Mr Slater with a copy of the firm's new business register by email. Mr Slater noticed that a very significant proportion of the business undertaken by HCA involved switches to one SIPP provider, namely Guinness Mahon. The “investment” column of the new business register described the investments as either “Loan Note” or “Standard Asset”. This did not give Mr Slater all the information he needed because it did not enable him to assess properly the investments being recommended and the nature of the business being undertaken by HCA. He therefore asked for more information on the new business register, including copies of the documents given to customers in relation to Guinness Mahon and clarification of the reference to standard assets. Mr Slater also asked Mr Henderson to provide copies of three named client files.

In response to the query about standard assets, on 6 February 2015, Mr Henderson simply provided a copy of the Authority’s own guidance on standard assets. Mr Slater said he would have expected Mr Henderson to provide him with details of the underlying investment recommended in each case and he thought Mr Henderson was being evasive in failing to respond properly to his request.

Mr Slater said that as a result of the nature of Mr Henderson’s replies he strongly suspected that this might be a case of pension mis-selling. Although he had a strong sense that something was not right at HCA, he did not understand specifically what or why. He suspected that Mr Henderson had been providing inadequate advice to customers, but had not got to the bottom of this and had not taken the view that there had definitely been breaches of the Authority’s rules or what had been breached. He kept an open mind at this stage.

On 9 February 2015, Mr Slater asked Mr Henderson to provide an explanation of the underlying assets included in each SIPP and repeated his request for copies of the client files.

On 13 February 2015, Mr Henderson provided a limited explanation of the underlying investments. He repeated that the investment was “classed as a standard asset” as it was a structured product. He said “the actual investment notes are a series of ten year 8% coupon loan notes with a 30 day realisation. If you require further information then please let me know what it is you require and I will do my best to provide you with these.” He also provided the client files.

For each customer file Mr Henderson included a file review sheet headed “ADVICE REVIEW – PENSION SWITCH RELATED CONTRACTS”. They each purported to be a detailed file review undertaken of each of the customer files concerned undertaken by Mr Henderson in March, April and August 2014 respectively.

When providing the files to the Authority, Mr Henderson also told the Authority that he reviewed around 30% of high-risk customer files, which would include pension switches, to confirm they were compliant.

It is the Authority’s case that Mr Henderson specifically created the file review sheets for provision to the Authority to give a false impression that compliance checks were being conducted on a regular basis, an issue we return to later at [1143] to [1147] below.

Mr Slater’s review of the client files led him to be “fairly certain” that there were failings in the advice given by HCA, namely that the advice did not match customers’ circumstances. Mr Henderson also provided Mr Slater with a memorandum explaining that he had identified 19 cases in which HCA had provided pension transfer advice outside the Firm’s permissions. Mr Henderson explained that in the course of responding to Mr Slater’s request for client files he had identified that pension transfer advice had been given to one of the customers. That prompted him to review other customer files which resulted in Mr Henderson identifying a total of 19 cases in which HCA had acted outside of its permissions.

Mr Slater was concerned on reading Mr Henderson’s memorandum. He did not believe it was credible that Mr Henderson, as the sole adviser, could have given pension transfer advice in 19 cases and not noticed. That suggested to Mr Slater that Mr Henderson did not have control over what business was being done by his firm and that there might be another person or party involved. He said that there was sufficient information now for the Authority to think that it needed to look closer at the position. He could see that there were potential connections with other parties, but it was not 100% clear.

Mr Henderson had provided some explanation as to the software, namely Lead Tracker and that it was an issue with LeadTracker that led the firm to give pension transfer advice. However, Mr Henderson’s memorandum did not provide a full explanation as to the function of LeadTracker and did not make clear exactly what Mr Henderson’s role was in the advice process. The memorandum also did not include an explanation as to the role of third parties in the advice process. Mr Slater was concerned by the use of software given that it resulted in HCA acting outside its permissions in 19 cases, apparently without Mr Henderson’s knowledge.

As a result of the information provided by Mr Henderson on 13 February 2015, Mr Slater now believed that the advice given did not take into account customers’ needs and circumstances and he became aware, through fact sheets included in customer files, of some information about the Cells. Mr Slater also knew about 19 pension transfers conducted outside HCA’s permissions suggesting that Mr Henderson might not have control over the advice being given by HCA. This information further enhanced Mr Slater’s suspicions that HCA and Mr Henderson were involved in pension mis-selling and that it was highly likely that misconduct had occurred.

On 17 February 2015, Mr Slater emailed Mr Henderson asking him:

On 10 March 2015, Mr Henderson answered the second question set out above, confirming that the Loan Notes were the only investments recommended.

Mr Slater continued to correspond with Mr Henderson, obtaining further information from him and other sources, adding to Mr Slater’s understanding of the pensions business being conducted by HCA, including the scale of the business involving the GM SIPP and AIGO, the advice process used by HCA and the nature of the Loan Notes.

Mr Slater maintained a note under the heading “High Risk Cases – Background Research” relating to HCA, recording action taken since Mr Slater’s original request on 8 January 2015. There is an entry in this document for 20 March 2015 when Mr Slater records:

“Whatever the true situation I have serious doubts about the firm’s knowledge or due diligence on the funds albeit I have very little evidence to go on. To try to get a better understanding of the position I have asked the SIPP Operator for their understanding as they would seem to be the trustees to the pension funds… to see if they confirm the applicability of the twelve month notice period. However, if they confirm that the AIGO Bespoke Cautious Portfolio satisfies the thirty day realisation rule then my suggestion that the firm is breaching the VoP probably falls away. At the moment I still think we will prove that the underlying assets are non-standard.

However, even if my worries about breaching the VoP fall away, it would still seem there is a case to consider. Firstly, as the firm has written over 400 of these cases over the last year, and virtually nothing else, it would seem inconceivable that there is not a suitability issue in the advice being given. Furthermore, in submitting information to me the firm has identified 19 pension transfer cases for which it does not have permission.”

Mr Henderson took advice from Ms Farrell as regards the information request from the Authority.

Mr Henderson forwarded to Ms Farrell without comment the email chain of communications between himself and Mr Slater starting with the request for the new business register up to 6 February 2015, that is up to Mr Henderson’s response saying that the underlying investments were standard assets.

On 13 February 2015 at 00.22 Ms Farrell asked:

“ Is he trying to see whether the SIPP recommendation has been based on using the SIPP for a particular asset held by the client?”

At 05.27 Mr Henderson replied “Unsure”.

At 08.17 Ms Farrell asked “Have the pensions you sent them gone into a sipp”. Mr Henderson responded “Yes” at 08.24.

At 08.28 Ms Farrell asked “And have any of them used property”.

Mr Henderson responded to this question at 12.29 saying “the loan note invests in property etc to provide the fixed return”.

Earlier, at 12.24, Mr Henderson said to Ms Farrell:

“Fact [find] States clients wishes for capital protection and fixed returns. There is only one provider and investment which offers this. Guinness Mahon. Their charges are 0.5% p.a. which is very cheap.”

At 12.45 Ms Farrell responded:

“I would say they are trying to find out why a sipp and not a pp and how is it possible without justification. Have you done a cost comparison with a pp”

At 12.57 Mr Henderson said “We have done one for every case and only transferred if cheaper”.

At 17.07 Ms Farrell responded “That’s what they will want to hear”.

A further email exchange occurred on 19 and 20 February 2015. This followed Mr Henderson having forwarded to Ms Farrell Mr Slater’s email of 17 February 2015, which contained the three questions set out at [1003] above, Mr Henderson’s only comment being “???”

At 22.38, on 19 February 2015, Ms Farrell asked Mr Henderson “which question are you not sure of ”. At 22.48 Mr Henderson responded saying “It’s all very strange” and at 23.10 “I don’t understand what they are looking for?”

At 23.18 Ms Farrell responded:

“You need to let them know what information is given to clients in relation to AIGO funds

do all your sipp recommendations go into AIGO funds

And have you advised on any other business not showing on the nbr”

At 23.24 Mr Henderson replied “No not advised on any other business”. At 03.14 on 20 February 2015 Ms Farrell asked “Are the aigo funds an unregulated” to which Mr Henderson replied “Regulated but foreign regulator”.

At 10.07 Ms Farrell asked “What percentage of business goes to that fund” to which Mr Henderson replied “High %”.

At 12.02 Ms Farrell replied:

“So that’s why they’re checking you

!!!”

The final response we have in this chain is from Mr Henderson to Ms Farrell at 12.05 where he says “Really?”

It was put to Mr Henderson in his cross-examination that it was obvious from this email chain that Ms Farrell was not aware of the volume and proportion of HCA’s business which was going into the AIGO Cells. Mr Henderson denied that was the case but said he had no answer to the question as to why Ms Farrell would be asking these questions if she knew what the true position was. As Mr Purchas put it to Mr Henderson, if Ms Farrell had known that 100% of HCA’s SIPP switching business was going to one entity, Ms Farrell would have explained that the reason why the Authority was asking the questions was because a high percentage of HCA’s SIPP business was going to one entity.

Mr Kershaw set out in his evidence all the material interactions recorded on SimplyBiz’s systems in the period October 2013 to July 2015. Mr Kershaw noted that, as referred to above, on 10 April 2014 Ms Farrell conducted a compliance visit to HCA and there was a copy of the resulting report on the system. There were further requests for information and guidance between June 2014 and June 2015, none of which related to the Pension Review and Advice Process.

There are no records of any onsite visits to HCA other than the April 2014 compliance audit, although Ms Farrell herself undertook a number of visits to Mr Henderson which were not recorded, including the on-site visit which took place on 16 May 2015, the report that was generated after that visit also did not appear on SimplyBiz’s records.

There are a number of other interactions between Ms Farrell and Mr Henderson which are not recorded on SimplyBiz’s systems, including the email exchange referred to above and assistance provided by Ms Farrell to Mr Henderson in early June 2015 in advance of the Authority’s short notice visit referred to below.

Ms Farrell is quite open about this in her witness statement. She says that it was not until February 2015 that she began to be provided with additional information from Mr Henderson as to the business model used by HCA and that she was not previously aware of the automated nature of the advice model or the nature of the underlying investments.

Ms Farrell says that she provided Mr Henderson with the help she did in February 2015, and later in May and June 2015, in her personal capacity as a favour to him because he was having money problems and could not afford to pay SimplyBiz for assistance. She says the work was done in her own time, in the evenings and at weekends. We note that 16 May 2015, the date of the report, was a Saturday, and the contemporaneous documents are consistent with that explanation. Ms Farrell also admitted to having received four payments from Mr Henderson in her personal account, one on 24 March 2015, two on 16 May 2015 and one on 7 July 2015. She says these payments were unsolicited, but Mr Henderson wanted to thank her personally for her assistance during 2015. Those payments are consistent with rewarding Ms Farrell for the work she did at the times described above.

In our view, the tone of the emails in February 2015 clearly demonstrate that Ms Farrell knew nothing about the Loan Notes and the Pension Review and Advice Process before that time. Mr Henderson’s denials are not credible and he could offer no alternative explanation as to why Ms Farrell was asking basic questions about HCA’s business if she already knew about it.

Ms Farrell explained why none of the interactions referred to above are to be found on SimplyBiz’s records. In view of the tone of the email exchange in February 2015 we have no good reason to believe that there are other interactions that took place before then that are also not recorded.

On 30 March 2015, HCA terminated HJL’s appointment as its IAR. The last entry on HCA’s new business register in respect of a switch into the GM SIPP is dated 29 May 2015. During the period that HCA used the Pension Review and Advice Process some 800 customers were advised to switch their pensions into the GM SIPP.

As mentioned above, on 16 May 2015 Ms Farrell attended HCA’s office for an onsite visit and produced a report of that visit shortly thereafter. The meeting was arranged to discuss the firm’s systems and controls.

By this point, Ms Farrell had been provided with a lot more details regarding HCA’s business. Consequently, she noted concerns with the advice process used by HCA and the investment selection process. She set out a large number of flaws and recommendations. It was during that meeting that Ms Farrell started to understand the extent of the automation of the process and the issues around the lack of personalised advice.

It is clear from the report that Ms Farrell identified the serious flaws with the Pension Review and Advice Process and the suitability of the Loan Notes, as we have found to be the case. In particular:

Ms Farrell recommended that HCA apply adequate due diligence to check product suitability for its clients and whether that was monitored in advice checks. She also recommended that file reviews demonstrate that, if appropriate, HCA does not assume the product to be suitable for all HCA clients. She also recommended monitoring of the guaranteed element of investment return and the carrying out of ongoing reviews.

The report advised that HCA address the recommendations made as a matter of urgency.

On 3 June 2015, the Authority made a short notice visit to FCA. The team was led by Mr Slater. As explained by Mr Slater, the purpose of the visit was to obtain further information from HCA in relation to the business being undertaken, to assess the risk of consumer detriment and to establish what steps needed to be taken to address any ongoing risks.

In his witness statement, which was not challenged on this point, Mr Slater explained that the visit was critical to the Authority’s understanding of the business model and advice process used by HCA. He explained that during the course of the visit, the Authority obtained additional documentary evidence and also had an extensive meeting with Mr Henderson in which they were able to ask him questions about the nature of HCA’s business, in particular regarding the Loan Notes, the role of HJL and CAL, and the sale and advice process used by HCA. Mr Slater says that it became clear to him during the course of the discussions at the visit how limited Mr Henderson’s role was in the advice process.

On 15 June 2015, Mr Slater wrote to Mr Henderson setting out the Authority’s serious concerns relating to HCA’s business model. Consequently, HCA were invited to agree to the terms of a Voluntary Requirement.

On 8 July 2015 HCA entered into a Voluntary Requirement. Among other things HCA agreed:

On 9 November 2015, Enforcement commenced its investigations into HCA and Mr Henderson.

On 10 February 2016, HCA was placed into administration and into voluntary liquidation on 15 February 2017. On 22 March 2017, the FSCS declared HCA to be in default.

We approach this issue by dealing with each of the key allegations made by the Authority against Mr Henderson, as set out at [15] above.

Our findings at [953] to [967] above demonstrate that:

Mr Lloyd submitted, based on the authorities we have reviewed above, that in a conflict of interest context, to establish recklessness the Authority must show:

We accept that formulation, except that in our view it is not necessary to show that Mr Henderson was aware of the risk that the conflict would not be managed fairly if the risk would have been obvious to a person of his knowledge and experience.

Mr Lloyd submitted that Mr Henderson’s position was that he did not consider the commission arrangements to constitute a conflict of interest because the 5% payment did not “[differ] significantly from the commission arrangements which other providers maintain over their products”. The amount of the commission is not especially significant. Rather, the question is whether there was divergence between the interest of the customer on the one hand, and HJL and/or HCA on the other, in the “outcome” of the Execution-Only Process.

Mr Lloyd submitted that HCA, which received no fee from HJL (save for the provision of compliance and money laundering training), and no fee from AIGO, does not appear to have been in a position of conflict.

As regards to the steps taken to manage any conflicts that were present, Mr Lloyd submitted that Mr Henderson took sufficient steps to ensure that customers were sent the AIGO IM and that was sufficient to suggest that any conflict was managed adequately.

In our view, the conflicts of interest that we identified in relation to the Pension Review and Advice Process, as discussed at [511] to [514] above, are equally applicable to the Execution-Only Process. In addition to the 5% commission payable to HJL, HJL had an overarching involvement in the Outsourced Functions from the beginning to the end of the process, with an interest in the leads generated through the marketing companies that it appointed being invested into the Loan Notes. That created a serious divergence of interest between what HJL wanted, which was customers to invest in the Loan Notes, and what might be in the customers’ interests which was to obtain a better product in which to invest their pension pot, but in circumstances where those customers would not be receiving any advice. In those circumstances, this was a serious conflict of interest that needed to be managed fairly in order that the customer could make an informed decision as to whether or not to proceed with the switch.

In addition, as we have found, further conflicts arose because of Mr Stephen’s position as a director of both HJL and AIGO and because the underlying loans were advanced by the Cells largely to companies associated with Mr Stephen.

As we have found, once a conflict had been identified it should have been (i) managed where possible to prevent it giving rise to a material risk of damage to the interests of HCA’s customers or (ii) disclosed.

No attempt was made by Mr Henderson, on his own account, to manage the conflicts of interest. Mr Henderson’s evidence was that he “just didn’t think” about whether there was a conflict.

Mr Lloyd’s submission regarding the provision of the AIGO IM is not relevant. Mr Henderson’s evidence was that the AIGO IM was provided to all customers related to the Pension Review and Advice Process and we have seen no evidence that the AIGO IM was provided to customers who participated in the Execution-Only Process.

Accordingly, we accept Mr Purchas’s submission that there is no evidence that customers were informed about the conflicts or given details about HJL’s material financial interest in the amount invested by customers into the Loan Notes.

Mr Henderson is an experienced IFA. As we have found, he was clearly aware that there was a conflict of interest. That conflict arose regardless of whether HCA was paid by HJL for undertaking its work, although HCA in effect expected to get a benefit in kind through access to clients who could be offered other services. Therefore, to a person of Mr Henderson’s experience, it would be obvious that there was a material and unacceptable risk of damage to customers participating in the Execution-Only Process if the relevant conflicts were not managed fairly, or disclosed. He closed his mind to the risks involved.

Accordingly, we find that Mr Henderson’s conduct in failing to manage the obvious conflicts of interest that arose was reckless.

For the reasons set out at [482] to [498] above, we have concluded that the service which was provided by the Firms cannot fairly be said to amount to the giving of independent advice. We found that the only service that any of the customers received from the Firms was a recommendation to invest in the Products, which was the predetermined outcome provided the customer had indicated a desire for capital protection and/or a fixed return – a likely consequence due to the leading questions in the Fact Find that we have identified above. If such a recommendation did not follow because, for example, the criteria for inclusion in the process were not met or the customer did not express a desire for a fixed return or capital protection, then none of the Firms intervened to carry out a further review of the customer’s financial situation and recommend an alternative suitable product. The customer was simply left without any further services provided by the Firm.

Consequently, we have found that the statements in the Service Proposition and the Brochure that customers would, by entering into an agreement with the relevant Firm, receive bespoke advice from an IFA that was tailored to their individual needs and aspirations; that the Firms provided an independent advice service, operated independently, and provided a comprehensive and fair analysis of the market; and that the Firms would place no restrictions on the investment markets that they would consider were all false and misleading.

Based on the test for dishonesty, as discussed at [60] to [64] above, in relation to the allegation of dishonesty against Mr Henderson, as set out above, we need to establish Mr Henderson’s knowledge and belief as to the facts that we have found, as summarised above. We then need to consider whether in the light of Mr Henderson’s knowledge and belief of those facts, his conduct was dishonest by ordinary standards.

Mr Henderson’s position was that he genuinely believed that customers introduced through the Pension Review and Advice Process received bespoke, independent investment advice, that is advice that is tailored specifically to their own circumstances. He said that it was bespoke because if certain criteria were met they would receive a recommendation for a particular product, that product being the Loan Notes and which would be recommended provided the customer had expressed a preference for capital protection and a fixed return. He said that he did not think that it was necessary to have told customers that the recommendation that they received had been arrived at through an automated process as he did not think HCA needed to mention their “report writing system”. With regard to the statements in the Brochure to the effect that an IFA would contact them to discuss the recommendation, Mr Henderson said that he did call a number of customers.

Mr Henderson said that he did not capitalise on the opportunity to contact customers who did not get a recommendation through LeadTracker for whatever reason. He accepted that the only recommendation that would materialise through the LeadTracker process was a recommendation to invest in the Loan Notes, provided the criteria mentioned above were met. He accepted that no customer who received the Service Proposition invested in another product.

In his short submissions on this issue, Mr Lloyd maintained the position that the advice given could be regarded as independent because Mr Henderson had the ability to remove the customer from the process uninfluenced by HJL. He also submitted that the fact that customers would only be recommended the Loan Notes and no other product through the process does not demonstrate that a whole of market approach had not been taken. Only, if the customers met certain criteria would they be recommended the Loan Notes and it was not a foregone conclusion that everybody would be invested in the Loan Notes from inception.

Mr Lloyd submitted that LeadTracker did meaningfully assess the customer’s needs; of 4,433 customers who entered the process, 2,263 did not proceed, thus demonstrating that the process involved an assessment of the needs of each customer.

It is clear that Mr Henderson knew there was no whole of market assessment that would take place. There was no evidence before us of a whole of market assessment taking place before Mr Henderson agreed that the Loan Notes would be the only product recommended to customers through the Pension Review and Advice Process. Neither was there any evidence from Mr Henderson that he kept monitoring the market through the time he used the Pension Review and Advice Process to ascertain whether there was now a better product on the market.

As we have said, the only products available for recommendation to HCA’s customers through the Pension Review and Advice Process were the Loan Notes. While Mr Henderson states that it was anticipated that LeadTracker would be developed to “offer a wider suite of products”, he accepts that it was not.

Consequently, Mr Henderson must have known that the statement regarding a whole of market assessment set out in the Service Proposition was not an accurate description of the process. Mr Henderson’s evidence was that it was not a foregone conclusion that everybody would be invested in Loan Notes. However, as Mr Purchas submitted, that is not the issue. The issue is the substantial difference between what was set out in the Service Proposition about there being a whole of market review or a review of all standard assets opposed to consideration of one product only.

Mr Henderson knew that a customer would only be presented with the Service Proposition after they had been identified as suitable for the Pension Review and Advice Process and after production of the Pension Summary Report. As such the prospect of a customer being recommended into any product other than the pre-selected Loan Notes depended on (i) that customer not indicating a preference for fixed returns or capital protection; (ii) that customer not otherwise being rejected by LeadTracker; and (iii) that customer being onward referred to him.

As Mr Henderson accepted, he did not take any steps in relation to any customer who fell into the third category mentioned above. Accordingly, he knew that the process as operated by him could not result in any customer receiving bespoke advice if they were not recommended the Loan Notes. Mr Henderson was also aware that the process was not independent in that HJL had been involved in the structuring of it and had a clear interest in as many customers as possible being recommended the Loan Notes, for the reasons that we have previously set out.

That conclusion is reinforced by the fact that each customer who signed the Service Proposition would, after completion of the Fact Find conducted by HJL/CAL, have their answers entered into LeadTracker so that the Pension Recommendation Report could be generated. There was no bespoke consideration of each client.

The fact that Mr Henderson said there was no need to mention LeadTracker in the Service Proposition does not, as Mr Purchas submitted, address the difference between what customers were told, namely that they would receive an independent review of their individual circumstances, and receive a bespoke tailored recommendation based on their individual circumstances, when that was not going to happen.

Mr Henderson did reconsider the wording of the Service Proposition, but did not modify it to reflect the true operation of the Pension Review and Advice Process. As we found at [376] above, HCA amended the document to reflect the terms of the Voluntary Requirement that HCA agreed to on 14 March 2014, as referred to at [973] above. However, the revised document still maintained that HCA would “recommend investments based on a comprehensive and fair analysis of the market” and would “place no restrictions on the Investment Markets we will consider…”

Mr Henderson maintains that he understood that the revised description was an accurate description of the service offered. However, as Mr Purchas submitted, in light of the number of leads who were advised to invest in the Loan Notes, and the fact that no customer who received the Service Proposition invested in another product, this is not credible.

Finally, turning to Mr Lloyd’s other submissions, we rejected at [488] above the proposition that because Mr Henderson was in control of who could be taken out of the process that meant that he was acting independently. Neither does the large number of customers who did not proceed indicate that the process assessed the needs of each customer. The statistics provided indicate that, of those cases that did not proceed, the main reasons for not proceeding were not advice related, but rather because the customer switched IFA, was no longer interested or could not be contacted.

As a result of our findings set out above as to Mr Henderson’s knowledge, we conclude that he knew that the reality of the service provided through the Pension Review and Advice Process was that it provided restricted advice, namely advice that would be confined to considering whether or not a recommendation should be made to invest in the Loan Notes, a product which Mr Henderson regarded as suitable for a customer who indicated in the Fact Find that he wished to have a product which offered a fixed return and capital protection. Mr Henderson knew that a true description of the service being offered would be that the Firm was recommending a particular product which it regarded as being suitable for customers who met certain criteria, and that the suitability of the product for the customer concerned would be assessed through an automated process.

Based on his knowledge as an experienced IFA and his knowledge of how a truly independent adviser operates, Mr Henderson must have known that the customer was not going to receive tailored independent advice according to the terms of the Service Proposition.

We now turn to the question as to whether in the light of knowledge as to the falsity of the statements in the Service Proposition and the Brochure, Mr Henderson acted dishonestly in holding out the Pension Review and Advice Process as providing bespoke, independent investment advice based on a comprehensive and fair analysis of the whole market.

As the legal test for dishonesty requires, that question is to be answered objectively. It does not matter that Mr Henderson himself does not believe that he acted dishonestly in that regard. We accept that he genuinely believed that he was not dishonest.

In our view, by the standards of ordinary decent people Mr Henderson’s actions were dishonest In our view, by the standards of ordinary decent people Mr Henderson’s actions were dishonest. Ordinary decent people would regard a person’s pension pot, particularly if a modest pension pot, as being very important property rights. They would regard a person as having acted dishonestly when that person made a statement to such a person that they would receive an independent review of their individual circumstances and receive a bespoke recommendation based on their individual circumstances, when that person knew that the true position was that they were being offered something quite different.. Mr Henderson never addressed that difference in his evidence.

We therefore conclude that Mr Henderson acted dishonestly by causing HCA to hold out the Pension Review and Advice Process to customers as HCA providing bespoke, independent investment advice based on a comprehensive and fair analysis of the whole market. He thereby breached Statement of Principle 1 by failing to act with integrity.

Whether Mr Henderson acted recklessly in relation to HCA’s adoption and use of the Pension Review and Advice Process.

As we concluded at [293] above, a reasonably competent IFA could form a view as to whether the Loan Notes were high risk simply by a careful but not exhaustive review of the various Information Memoranda and Fact Sheets. We concluded that a reasonably competent IFA who undertook such a review would conclude that the Loan Notes were evidently high risk. The fact that a small firm like HCA did not have the resources that would be available to a large firm, such as a bank, to undertake detailed due diligence on the Loan Notes and those who were responsible for managing them is not relevant.

We also said at [294] that if the IFA could not form a judgment on the basis of documentation referred to above and could not easily find out what he needed to know to make that judgment, then the decision should be not to recommend the products in question.

It is readily apparent to us from what Mr Henderson said about his own experience that he was not equipped to do the detailed due diligence on the Loan Notes that would be necessary to satisfy himself that they would be suitable to recommend to retail investors. Mr Henderson accepted in his cross-examination that a new product should be subject to additional scrutiny due to a lack of a measurable track record. He accepted that HCA did not have internal analysts to consider the risk profile of the Cells. He accepted that there was no analysis in HCA’s files of why the Loan Notes had been selected compared to any other product. Mr Henderson said the reason for that was because he had not identified any other product that had a captive insurance policy and which paid an 8% coupon.

Mr Henderson also accepted that most of the materials received for him to carry out his due diligence were provided by HJL and he relied heavily on the information provided by HJL. The extent to which Mr Henderson carried out any independent due diligence is unclear. He says he relied on Mr N Maynard’s pre-existing relationship with Mr Stephen and that Guinness Mahon had undertaken its own due diligence on the Loan Notes. As we have said, it is for an IFA to undertake his own diligence so as to satisfy himself that investments are suitable for customers who are being advised to invest in them.

No copy of the final version of the AIGO IM was found in Mr Henderson’s due diligence files; just a copy of a draft dated 30 October 2013. It is not clear whether Mr Henderson undertook a detailed review of the AIGO IM.

We found at [301] that Mr Henderson did not carry out a careful balancing exercise, having considered all the relevant risk factors, to assess the risk associated with investment in the Loan Notes. He relied primarily on the fact that he considered that the fixed returns could be assured because of the nature of the underlying investments and that the principal amount of the Loan Notes was guaranteed because of the existence of insurance.

We found at [302] that there was no evidence that Mr Henderson gave any weight to any of the factors that led Mr Lockie to conclude that a reasonably competent IFA would have placed the Loan Notes within the “high risk” category.

We found at [304] that Mr Henderson appeared to take it as read that there was no risk that the relevant Cells would not be able to generate sufficient returns to service the interest payments, meet the significant costs of running the Cells and repay the principal amount of the Loan Notes.

At [305] we rejected Mr Henderson’s view that the lack of regulatory oversight was not a significant risk factor and found that he was wrong in his assessment that neither the FOS nor the FSCS provide cover in respect of investment products, as opposed to advice.

At [310] we found that Mr Henderson placed undue reliance on insurance and that, even where there was insurance in place, it was of limited value. At [312] we found that there was no proper basis for Mr Henderson’s assessment that the Nevis regulatory regime was not meaningfully different to that of the United Kingdom.

We therefore concluded at [339] to [340] above, that it would have been obvious to any reasonably competent IFA who did no more than use his expertise to review the various Information Memoranda and Fact Sheets that the Loan Notes were high risk. We found that the features of the Loan Notes that are indicative of an investment carrying a high risk of loss - that is the risk of the issuer not being able to deliver the expected return over the life of the product and to repay the principal in full at the end of the term - are evident and overwhelming.

As a result, we found that a reasonably competent IFA would have concluded that the Loan Notes were not suitable to be recommended to retail investors except in very limited circumstances. Those circumstances might be where the investor, having been warned appropriately about the risks involved was prepared to commit a small part of his investment portfolio on the basis that the assets concerned were those that he was willing to lose in the hope that the high returns promised were achieved.

Our assessment is that Mr Henderson is a reasonably competent IFA. None of the evidence before us demonstrates that Mr Henderson carried out anything other than very superficial due diligence on the Loan Notes. There is no evidence that he was engaged in any material respect with the features of the Loan Notes as set out in the AIGO IM. Mr Henderson’s starting point should have been a careful review of the AIGO IM. He appeared to have relied on Guinness Mahon having undertaken a review and decided that the Loan Notes were suitable for inclusion in the GM SIPP. As we found at [322] above, Mr Henderson’s heavy reliance on the fact that Guinness Mahon had accepted the Loan Notes as being suitable for inclusion in a SIPP was misplaced. We have also found that Mr Henderson’s reliance on advice from Mr Tunkel was also misplaced: see [319] to [322] above. The only advice that HCA appears to have received is that given by Mr Tunkel on 12 March 2014 that related to whether the products were standard or non-standard, but did not address the suitability of the Loan Notes for retail customers.

Mr Henderson was unable to provide any evidence that he had found any equivalent product to the Loan Notes and so had nothing with which to compare what was being offered through the Loan Notes.

In our view, Mr Henderson acted recklessly in the following respects:

As the authorities indicate, in the regulatory context a reckless failure to consider whether something is a risk may be found to amount to a lack of integrity That is exactly what happened in this case. Mr Henderson closed his mind to the need to make any kind of significant assessment of the risk factors attaching to the Loan Notes and did not make any serious attempt to analyse the features of the Loan Notes, as disclosed in the AIGO IM. Had he done so, as we have found, it would have been obvious to him that the Loan Notes were high risk and unsuitable to be recommended to retail investors except in limited circumstances.

As we have found, leads were generated by HJL through its use of marketing companies and acting in its capacity as an IAR of HCA. It is clear from our findings that the marketing companies represented during their calls that they were acting on behalf of HCA. Accordingly, HJL were performing an outsourced function and the obligations in that regard referred to at [783] above were applicable to HCA. It was not sufficient or adequate for HCA to rely on an IAR making sure that leads were generated properly without it carrying out its own due diligence on the manner in which leads were generated. The Authority’s position is that Mr Henderson did not carry out adequate due diligence in respect of the lead generation of customers who might be introduced to HCA.

As we found at [424] above, there was no evidence that any of the Firms took meaningful steps to understand how HJL was sourcing leads so as to be satisfied that HJL and the marketing companies were behaving in an appropriate manner.

Mr Henderson accepted in evidence that HCA should not be cold calling clients and that it was not something that should be done on behalf of the Firm either. He was alert to the risk of cold calling.That is demonstrated by the assertion made in HCA’s Compliance Officer’s Annual Report for the period ended 28 February 2014, referred to at [965] above, that HCA did not cold call potential clients. Nevertheless, as we found at [966] above, Mr Henderson did not check the marketing agreements used by HJL and did not check regularly whether cold calling was going on. He appeared to have relied entirely on the impression he formed that the marketing companies were told not to cold call. As we found, cold calling did in fact take place, particularly by Taylor Barton, who referred to HCA as being an IFA on whose behalf they were acting during the calls they made.

We regard Mr Henderson’s failure to consider the need to monitor how leads were being generated as reckless on his part. As Mr Purchas submitted, where leads are being sourced by an entity which is seeking to encourage them to invest into products in which that entity has a financial interest, that part of the process needs to be understood and monitored carefully to ensure that the customer is treated fairly throughout.

As we have found at [500] to [510] above, the Pension Review and Advice Process was structured to result in customers switching their pensions to SIPPs investing in assets in which HJL had a material financial interest.

The Authority contends that Mr Henderson failed to take steps to manage and/or disclose the alleged conflicts of interest arising from (i) the structure of the Pension Review and Advice Process; (ii) HJL’s role in the Pension Review and Advice Process; and (iii) Mr Stephen’s role as a director of HJL and the issuer of the Loan Notes.

Mr Henderson was live to the issue of considering conflicts of interest. During the Relevant Period, HCA had a conflict of interest policy which stated that it would take into account any conflicts of interest in the outcome of a transaction carried out on behalf of a customer.

The HCA Compliance Officer’s Report for the period ended 28 February 2014 recorded that, with respect to HCA’s pension business, there was no evidence of any conflicts of interest.

Mr Henderson was also aware of HJL’s control over the lead introduction process, its involvement in the development of the Pension Review and Advice Process, its interest in leads investing in the Loan Notes through the Pension Review and Advice Process and Mr Stephen’s common directorship of HJL and AIGO.

Mr Henderson was aware that HJL would receive 5% of the proceeds of the issue of the Loan Notes, as stated in the AIGO IM. Despite this, he stated that he did not think there was a risk that a customer could be inappropriately influenced (given HJL’s involvement in the process) as HCA was providing the advice. This was even though the advice was actually being generated by LeadTracker and not by HCA. He said that it did not occur to him to check how the lead generators were remunerated and he did not see that, although HJL received a percentage of the proceeds of the Loan Notes, there was therefore an incentive for HJL to get customers that were being introduced to HCA to invest in the Loan Notes.

Mr Henderson knew the Fact Find element of the Pension Review and Advice Process involved asking questions that favoured the particular characteristics of the Loan Notes and that the Fact Finds were being undertaken by HJL and then CAL, but with a continuity of employees.

Despite these matters being known to him, Mr Henderson maintained in his oral evidence that there was no conflict in there being a potential divergence of interest between the interests of HJL in having customers invest in the Loan Notes and the customers wanting to invest in something that was suitable for them. However, as we have found, there was in fact a clear conflict of interest in that HJL wanted customers (which they had paid marketing companies to source) to switch their pensions into an investment in the Loan Notes; whereas those customers were seeking, and thought they had been offered, independent advice considering the whole investment market. What customers were getting, in effect, was restricted advice tied to a single set of products. As Mr Purchas submitted, there was an objectively unreasonable risk of substantial harm to those customers arising from the involvement of HJL in the design and structure of the process and its operation of the outsourced services.

As an experienced IFA, we would have expected Mr Henderson to have identified and managed the conflicts detailed above. Those are all conflicts that would have been obvious to a person of Mr Henderson’s knowledge and experience. As we have found, once a conflict had been identified it should have been (i) managed, and if this was not possible, (ii) disclosed. We do not accept that Mr Henderson did not recognise these conflicts of interest and accordingly we must conclude that he closed his mind to his obligations to consider them.

The only evidence that Mr Henderson could refer to as demonstrating that he sought to manage or disclose the conflicts of interest that arose was his assertion that a hardcopy of the AIGO IM was attached to the Pension Recommendation Reports. However, as we have found, customers were not provided with the Information Memoranda as a matter of course.

Mr Henderson sought to defend the Pension Review and Advice Process.

In relation to the Fact Find and the absence of soft facts, Mr Henderson contended that it asked all the relevant questions.

However, Mr Henderson was taken to one of HCA’s own documents, which was headed “Guidance on standards for Pension Switch Related Contracts” which was dated October 2013. This document was created from a template provided by SimplyBiz, adapted for use by HCA, and it sets out detailed guidance as to how the fact finding process should be addressed.

Under the heading “ Know Your Customer – guidance” the document states:

“No advice should be given to a client, and no transaction should be executed for a client… unless the adviser has on file, sufficient personal data about the client to provide evidence that the advice or the transaction is appropriate.”

Further on, the document states in bold:

“It is important through all fact-finding for the file/adviser to demonstrate the use of soft facts. Whilst fact finds gather key information even when completed well they do not tend to give a true picture of the clients circumstances and more importantly their objectives from the meeting. Reference should be made specifically to soft facts in the file review feedback.”

In a similar vein, the document goes on to say:

“The fact find should document the client’s current personal and financial details, and should gather sufficient soft facts about the client to be able to demonstrate a suitable knowledge of the clients’ circumstances and objectives. Reference should be made to emergency funds and how client’s circumstances would impact on this.”

In that context, reference was made to the need to obtain sufficient information to justify a recommendation, such as income, expenditure, affordability, details of existing products and attitude to risk.

Reference was also made to obtaining details of the client’s objectives. It said:

“The clients’ financial objectives, goals and purpose of investment should be clearly and appropriately prioritised by both the adviser and the client. There should be sufficient hard and soft facts are noted in the Fact Find to clearly demonstrate how these objectives and priorities have been reached.”

As we have found, the Fact Find used in relation to the Pension Review and Advice Process clearly did not comply with this guidance. In her report, in May 2015, Ms Farrell identified the deficiencies in the Fact Find making reference to the absence of any procedure for obtaining soft facts and more details of the customer’s objectives and circumstances.

Mr Henderson was asked by the Tribunal why he did not benchmark the Fact Find against the guidance he already had in the document referred to above. He gave no explanation as to why that exercise was not undertaken, but said that it was his intention to incorporate the guidance into the LeadTracker system.

Mr Henderson therefore must have known that there were obvious deficiencies in the Fact Find. Likewise, he must have known that the Pension Recommendation Report did not provide bespoke individual advice. He would have been aware that answers to the questions in the Fact Find were often not explored further or addressed in the Pension Recommendation Report, such as those relating to ethical views. Mr Henderson was taken to a file relating to an HCA customer where that was the case. In view of his long experience as an IFA, Mr Henderson must have been aware of these defects or chose not to investigate them any further.

Given the defects in the Fact Find process, and his knowledge of them, Mr Henderson would clearly have been aware of the high likelihood that the Pension Recommendation Report could not provide suitable advice. As submitted by Mr Purchas, he would also realise that there were other defects in the templated Pension Recommendation Reports including that:

None of Mr Henderson’s evidence given in cross examination detract from our findings that there were obvious deficiencies with the Pension Review and Advice Process which failed to comply with the Authority’s rules. We find that those deficiencies would have been obvious to Mr Henderson, bearing in mind his knowledge and experience, and yet he failed to give any meaningful consideration to whether or not the Pension Review and Advice Process was compliant with the Authority’s rules.

We have rejected Mr Henderson’s evidence that any part of the Pension Review and Advice Process was subject to review by Ms Farrell at any time before May 2015.

Failure to take control of the Pension Review and Advice Process

Mr Henderson states that he performed spot checks on 5-10 Pension Recommendation Reports per week and listened to samples of recordings of Fact Find meetings on LeadTracker. Mr Henderson stated that he “intermittently” checked files, but the numbers he checked reduced as the process became more automated. Mr Henderson says he received a hard copy of the Pension Recommendation Report before it was sent to the customer, but we have not seen any evidence to that effect.

Mr Henderson says, on his own account, that he did not read and check every single Report, and what he did do appeared to focus on correcting numerical and spelling errors rather than the suitability of the recommendations made.

We have not seen any evidence of Mr Henderson’s file reviews or any records of which files he checked, other than the review sheets sent to the Authority with the three files in 2015, as referred to above.

As we have found, Fact Sheets accompanied Pension Recommendation Reports. These were originally prepared by HJL who also updated them from time to time. Mr Henderson’s evidence was that any change would have to be authorised by him, but we have seen no evidence of Mr Henderson having given instructions to that effect.

On the basis of the lack of evidence as to the steps that Mr Henderson took in practice to review the advice given through the Pension Review and Advice Process, we find that Mr Henderson failed to take reasonable steps to ensure that HCA reviewed in any meaningful way the advice given through the Pension Review and Advice Process.

Failure to have in place appropriate systems and controls

In this regard, the Authority relies on the fact that HCA gave investment advice with respect to a number of potential pension transfers, as opposed to pension switches. As we found at [1002] above, Mr Henderson himself identified cases in which HCA had provided pension transfer advice outside the Firm’s permissions. As a consequence, HCA was in contravention of s 20 FSMA by carrying on the regulated activity of advising on pension transfers without the relevant permission.

It would therefore appear that Mr Henderson had not checked what arrangements were in place to ensure that pension transfer cases were filtered out through the LeadTracker process and he did not argue otherwise. Neither was it clear what processes HCA had in place to check whether recommendations were being made in respect of pension transfers.

This was a serious failing and it appears that Mr Henderson gave no thought to the obvious risk that pension transfers could be recommended and what systems and controls ought to be in place to mitigate that risk.

Failure to carry out adequate due diligence on HJL and CAL

We have set out at [423] to [426] a summary of the various obligations that the Firms had to undertake to oversee the performance of the Outsourced Functions carried out by HJL or CAL, as the case may be, on behalf of the Firms.

We found that there was no evidence that any of the Firms took meaningful steps to exercise due skill, care and diligence when deciding to appoint HJL or CAL, as the case may be, to perform Outsourced Functions. Nor was there any evidence that they took meaningful steps to establish methods for assessing the standard of performance of HJL or CAL, as the case may be, as service providers nor did they take any steps to supervise the Outsourced Functions and monitor any of the risks associated with the outsourcing. The transfer of functions from HJL to CAL in October 2014 appeared to pass without any questions being asked on the part of HCA as to the reasons for the transfer or the resources of CAL.

As we have found, Mr Henderson carried out very limited due diligence on HJL, Mr Stephen and Mr King and no due diligence on Person A. We also found that Mr Henderson relied on EFP’s relationship with HJL and Mr N Maynard’s relationship with HJL. He said that he was a “good judge of financial services companies”. He was therefore really relying on his own intuition and in our view that was a reckless way to approach the matter.

We agree with the Authority that Person A was a key point of contact for Mr Henderson and that his role was of such significance that Mr Henderson should have undertaken due diligence on him.

In respect of the change from HJL to CAL, Mr Henderson did not appear to take any steps to consider if CAL were suitable to perform the services on behalf of HCA. Mr Henderson failed to carry out adequate due diligence and there is no evidence to suggest that Mr Henderson consulted SimplyBiz’s opinion on outsourcing the services to HJL in May 2014 or CAL in October 2014.

Consequently, it is an inevitable conclusion that Mr Henderson closed his mind to the risk that HJL, and then CAL, were not suitable to act as introducers and to the risk that they were unsuitable to conduct the Outsourced Functions for HCA.

We have found at [1083] to [1140] above that:

In our view, those findings are sufficient to establish that Mr Henderson acted recklessly in relation to HCA’s adoption and use of the Pension Review and Advice Process. Mr Henderson closed his mind to the serious risk that the process would (as subsequently transpired) result in HCA’s customers receiving unsuitable advice and investing in products that were not suitable for them.

The Authority contends that the file review sheets sent with each of the three files provided to the Authority on 13 and 14 February 2015 purported to be a detailed file review undertaken of those customer files by Mr Henderson in March, April and August 2014 respectively. When providing the files to the Authority, Mr Henderson also told the Authority that he reviewed around 30% of high risk customer files, which included pension switches, to confirm they were compliant.

The Authority contends that Mr Henderson specifically created the file review sheets for provision to the Authority to give a false impression that compliance checks were being conducted on a regular basis.

Mr Henderson’s evidence was that the review sheets were created from handwritten notes and that they were typed up to make them easier to decipher. In his covering email to Mr Slater, he said that he had tried to keep the files for each client as compact as possible.

In our view the evidence is not sufficiently cogent and compelling that we should rely on it to find the serious allegation of dishonesty against Mr Henderson. The Authority was unable to produce metadata which would show when the review sheets were created and accepts that they may have been created after the event.

We therefore find that the Authority has not made out its case on this point.

The findings that we have made, as set out above, demonstrate overwhelmingly that Mr Henderson breached Statement of Principle 1 (Integrity) of the Authority’s Statements of Principle for Approved Persons when carrying out his functions as an approved person throughout the Relevant Period.

Mr Henderson contends that the Authority had the requisite knowledge of his misconduct relied on in the Decision Notice prior to 9 February 2015. It is contended on his behalf that the Authority’s action in imposing a financial penalty against Mr Henderson is time barred in some respects. As a consequence, he pleads that the Authority is not entitled to impose a financial penalty on him pursuant to s 66 FSMA in respect of his alleged misconduct from 30 October 2013, which is the start of the Relevant Period.