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FINAL NOTICE

To:

Bank House Investment Management Limited (in liquidation)

Address:
C/o Wilkin Chapman Business Solutions Limited
Cartergate House
26 Chantry Lane
Grimsby
North East Lincolnshire
DN31 2LJ

Date:
16 May 2022

1.
ACTION

1.1.
For the reasons given in this Notice, the Authority imposes on Bank House

Investment Management Limited (“BHIM”) a financial penalty of £311,639 pursuant

to section 206 of the Financial Services and Markets Act 2000 (the “Act”) for

contravening
regulatory
requirements
between
9
September
2014
and

12 December 2016 (the “Relevant Period”).

2.
SUMMARY OF REASONS

2.1.
The Authority has determined that, during the Relevant Period, BHIM breached

Principle 1 (Integrity) of the Authority’s Principles for Businesses by acting

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dishonestly and recklessly in relation to its pension advice business, and breached

section 20 of the Act by carrying on the regulated activity of advising on Pension

Transfers without the relevant permission.

2.2.
Pensions are a traditional and tax-efficient way of saving money for retirement. The

value of someone’s pension can have a significant impact on their quality of life

during retirement and, in some circumstances, may affect whether they can afford

to retire at all. Customers who engage authorised firms to provide them with advice

in relation to their pensions place significant trust in those providing the advice.

Where a firm fails to act with integrity and puts its interests above those of its

customers, it exposes its customers to a significant risk of harm.

2.3.
Further, where elements of a pension advice process are outsourced to a third party

service provider, the authorised firm remains responsible for the advice given and

all decisions and actions in relation to regulated activities provided in its name. It

is therefore essential that, in such circumstances, the authorised firm maintains

control of the advice process and provides effective oversight of the activities

carried out by the service provider on its behalf.

2.4.
BHIM is a small firm that, during the Relevant Period, was authorised by the

Authority with permission to conduct regulated activities, including advising on

investments (excluding Pension Transfers) and arranging (bringing about) deals in

investments. During the Relevant Period, the most senior individuals at BHIM were

Tristan Freer and Robert Ward, who were the only individuals at BHIM with any

meaningful involvement in the matters set out in this Notice.

2.5.
During the Relevant Period BHIM adopted and used the Pension Review and Advice

Process. This process was based on a pension switching advice model, the

development of which was initiated and influenced by a third party, HJL. The

Pension Review and Advice Process:

(1)
involved HJL sourcing leads from lead generation companies and introducing

customers to BHIM;

(2)
involved HJL and CAL (a third party service provider which was closely

connected to HJL) being provided with BHIM’s logo and Mr Freer’s electronic

signature so that they could perform functions (the Outsourced Functions)

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on BHIM’s behalf. HJL was responsible for performing the Outsourced

Functions prior to 13 October 2014, and from that date they were performed

by CAL. The Outsourced Functions included:

(a)
contacting customers that had been introduced to BHIM by HJL;

(b)
conducting fact-finds with these customers;

(c)
inputting the results of those fact-finds into the Software (an

automated client management system designed to produce

Suitability Reports);

(d)
sending the Suitability Reports to the customers; and

(e)
calling the customers to ask whether they wished to proceed in

accordance with BHIM’s advice;

(3)
was structured to result in customers who met certain pre-set criteria

approved by Mr Freer being advised to switch their pensions to SIPPs

investing in high risk, illiquid assets not regulated by the Authority (the

Bonds). HJL had a material financial interest in a number of the Bonds, which

was not disclosed to customers; and

(4)
involved little meaningful oversight by BHIM of HJL’s activities as an

introducer or of HJL and CAL’s performance of the Outsourced Functions.

2.6.
BHIM was aware of what the Pension Review and Advice Process involved and how

it was structured. Nevertheless, it held itself out to customers as providing bespoke,

independent investment advice based on a comprehensive and fair analysis of the

whole market. BHIM knew that this was misleading to customers as it did not

reflect the reality of the service that it would provide using the Pension Review and

Advice Process. In holding itself out in this way, BHIM acted dishonestly. The

Authority considers this to be particularly serious because customers were not

made aware of the true nature of the service being provided, including the fact that

HJL’s involvement in the process and financial interest in a number of the Bonds

created a conflict of interest. Customers were therefore denied the opportunity to

make an informed decision on whether to use the Firm’s services and on whether

to invest in the products recommended to them.

2.7.
BHIM’s actions in relation to its adoption and use of the Pension Review and Advice

Process, summarised in paragraphs 2.8 to 2.15 below, were reckless. The Pension

Review and Advice Process put BHIM’s customers at serious risk of receiving

unsuitable advice and therefore at serious risk of investing in products that were

not suitable for them, but BHIM closed its mind to these risks and unreasonably

exposed its customers to them by adopting and using the Pension Review and

Advice Process.

2.8.
BHIM failed to carry out adequate due diligence on the Bonds to ensure that it had

a proper understanding of them, including their risks and benefits, before deciding

that they should be recommended to customers. BHIM relied solely on documents

provided to it by HJL, despite knowing that HJL had a material financial interest in

a number of the Bonds, and did not take any actions to address the risk that the

information provided by HJL could be misleading or incomplete.

2.9.
In any event, it should have been obvious to BHIM from the limited information

that it considered that the Bonds were high risk investments that were unlikely to

be suitable for BHIM’s customers, except in very limited circumstances. However,

BHIM failed to give due consideration to the risk that the Bonds were unsuitable.

2.10. BHIM knew of HJL’s involvement in the Pension Review and Advice Process, that

the process was structured to result in customers switching their pensions to SIPPs

investing in the Bonds, and that HJL had a material financial interest in a number

of the Bonds. Further, BHIM knew that two of the directors of HJL during the

Relevant Period (Mark Stephen and James King) were directors of each of the

companies issuing the Bonds. There was therefore an obvious risk that HJL might

seek to influence inappropriately the advice provided to customers. However, BHIM

took no steps to ensure that the common directorships and how HJL was

remunerated were disclosed to customers.

2.11. BHIM was a firm with experienced and qualified financial advisors. It therefore

should have been obvious to BHIM that it needed to give due consideration to the

documents to be used in the Pension Review and Advice Process, and to how the

process would operate in practice, before deciding to adopt the process. However,

BHIM failed to do so, and therefore failed to identify significant obvious deficiencies

in the Pension Review and Advice Process, including that: the fact-find contained

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leading questions intended to steer customers towards the features of the products

that would be recommended; the Suitability Reports did not include sufficient

information to provide customers with a compliant personal recommendation; and

information provided to customers about the Bonds did not adequately inform them

of their costs, benefits and risks.

2.12. In any event, it should have been obvious to BHIM, from the information available

to it, that the Pension Review and Advice Process did not comply with the

Authority’s rules. BHIM was aware that it would have no meaningful involvement

in the advice to be given, and that the documents to be used in the process would

mislead customers about the service that would be provided. However, BHIM failed

to give any meaningful consideration to whether or not the Pension Review and

Advice Process was compliant.

2.13. BHIM failed to maintain control of the Pension Review and Advice Process and

allowed important parts of the process, such as the conduct of fact-finds, to be

performed in a way that failed to obtain and/or take into account relevant

information about BHIM’s customers. Further, BHIM failed to review in a meaningful

way the advice given through the Pension Review and Advice Process, for which it

was responsible, whether before recommendations were sent to customers or at

all.

2.14. BHIM failed to put in place appropriate systems and controls and compliance

arrangements to oversee and monitor the Pension Review and Advice Process. As

a result, BHIM did not have adequate management information on HJL’s and CAL’s

activities, and there were no independent compliance reviews of the advice given

through the Pension Review and Advice Process.

2.15. BHIM agreed to work with HJL and CAL without giving any proper consideration to

whether they were suitable to perform services on its behalf. BHIM carried out no

due diligence on HJL other than in connection with its role in relation to the

companies issuing the Bonds, and the Firm’s due diligence on CAL consisted simply

of checking the company’s details on the Companies House website and visiting

CAL’s office to satisfy itself that the company existed and was operating.

2.16. BHIM’s reckless actions in relation to the adoption and use of the Pension Review

and Advice Process, in particular the fact that it allowed HJL and CAL to perform

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the Outsourced Functions on its behalf without adequate supervision, failed to

review in a meaningful way advice given through the Pension Review and Advice

Process, and failed to put in place and operate appropriate systems and controls in

relation to the process, exposed it to the risk of breaching section 20 of the Act by

carrying on a regulated activity without the relevant permission, as in fact

happened. The Pension Review and Advice Process failed to distinguish properly

between Pension Transfers (which include the transfer of deferred benefits from an

occupational pension scheme into a SIPP) and Pension Switches (which involve the

movement of funds from one personal pension scheme to another where no

safeguarded benefits are involved). As a result, despite BHIM not having the

necessary permission to provide advice on Pension Transfers, in at least five cases

advice about Pension Transfers was given to customers in BHIM’s name in breach

of section 20 of the Act.

2.17. In addition to the clear deficiencies in the Pension Review and Advice Process, the

Authority has identified that unsuitable advice was provided to BHIM’s customers

in all 20 BHIM customer files it has reviewed. Further, each of the 20 customer files

failed to comply with applicable Handbook rules. As the same advice process was

used for all customers who were advised to invest in the Bonds, the Authority

considers it is likely that the advice provided to most, if not all, of BHIM’s customers

through the Pension Review and Advice Process was unsuitable.

2.18. During the Relevant Period, 265 customers switched or transferred pension funds

totalling approximately £8.5 million to SIPPs investing in high risk, illiquid assets

that were unlikely to be suitable for them, thereby exposing them to a significant

risk of loss.

2.19. BHIM adopted the Pension Review and Advice Process in order to generate fees and

to increase the number of customers that it could advise about other investments,

and thereby generate further fees. In doing so, BHIM put its own interests before

those of its customers.

2.20. BHIM also acted dishonestly or recklessly in several other ways during the Relevant

Period, as described in paragraphs 2.21 to 2.24 below.

2.21. BHIM recklessly breached a term of a requirement which, on its application, had

been imposed on it on 17 September 2015 (the Voluntary Requirement). The

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Voluntary Requirement included a term requiring BHIM not to carry on any activities

in relation to Pension Switches and/or Pension Transfers to any SIPP until

independent verification was provided to the Authority confirming that a robust and

compliant advisory process was in place for pension switching advice. However, in

breach of this term, between 5 October 2015 and 10 November 2016, BHIM advised

77 customers to switch pension funds totalling £2.9 million to SIPPs. BHIM was

aware of the risk that it might breach the terms of the Voluntary Requirement but,

by closing its mind to that risk, recklessly failed to take reasonable steps to ensure

that these transactions were permitted.

2.22. BHIM provided the Authority with false and misleading information about its

business arrangements with HJL and CAL. The Firm did so to try to prevent the

Authority from identifying misconduct by the Firm, Mr Ward and Mr Freer, and

thereby acted dishonestly.

2.23. The Firm dishonestly told the Authority that it did not have minutes of board

meetings when, in fact, the Firm kept formal minutes of meetings which Mr Ward

and Mr Freer (and others) approved.

2.24. The Firm failed to be open and cooperative with the Authority, and provided it with

incomplete and inaccurate information. BHIM closed its mind to the risk that the

information it was providing to the Authority might be incomplete or inaccurate,

and recklessly failed to take reasonable steps to ensure that it provided complete

and accurate responses to requests by the Authority for information and documents

relating to its business. In particular, BHIM:

(1)
failed to provide the Authority with certain emails which were obviously

relevant to the Authority’s investigation;

(2)
provided the Authority with a copy of the Firm’s new business register which

was materially incomplete; and

(3)
failed to provide the Authority with the full name of a company that the firm

worked with and a copy of the Firm’s agreement with that company.

2.25. The Authority considers BHIM’s failings to be serious because:

(1)
they related to a large number of customers (including some who were

vulnerable due to their age, their inability to replace capital, their medical

conditions or other personal circumstances);

(2)
it should have been obvious to BHIM that the involvement in the Pension

Review and Advice Process of HJL, which had a material financial interest in

a number of the Bonds into which customers’ funds were being invested,

created a clear conflict of interest, yet BHIM took no steps to ensure that

HJL’s financial interest was disclosed to customers;

(3)
it should have been obvious to BHIM that the Bonds were unlikely to be

suitable for retail customers, except in very limited circumstances; and

(4)
on 4 July 2014, the Authority wrote to BHIM and drew its attention to alerts

released by the Authority relating to firms advising on Pension Switches or

Pension Transfers into unregulated products through SIPPs, the risks of non-

mainstream products being unsuitable and the need to protect customers.

Despite this BHIM did not take steps to protect its customers.

2.26. BHIM’s provision of pension advice was subject to examination by the Authority in

July 2015. The Authority had serious concerns about the suitability of BHIM’s

pension advice and, at the request of the Authority, BHIM applied to have

requirements imposed on it. Accordingly, the Voluntary Requirement was imposed

on BHIM by the Authority on 17 September 2015.

2.27. Following BHIM’s contravention of a term of the Voluntary Requirement, the

Authority exercised its own-initiative powers to impose requirements on the Firm

including that, with effect from 12 December 2016, it was not permitted to carry

on any regulated activity.

2.28. The FSCS declared BHIM in default on 27 April 2017 and is investigating claims

made by BHIM’s customers. As at 25 June 2018, the FSCS had determined that

compensation in excess of £500,000 should be paid to BHIMs customers.

2.29. The Authority considers that BHIM’s breach of Principle 1 and section 20 of the Act,

warrants a substantial penalty. Accordingly, the Authority has decided to impose a

financial penalty on BHIM in the amount of £311,639.

3.
DEFINITIONS

3.1.
The definitions below are used in this Notice.

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

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

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

“BHIM” or the “Firm” means Bank House Investment Management Limited

the “Bonds” means bonds, each of 10 years, issued by four unquoted UK companies

incorporated between July and November 2014, into which BHIM’s customers’

pensions were invested

“CAL” means City Administration Limited, the third party service provider that

performed the Outsourced Functions on behalf of BHIM between 13 October 2014

“COBS” means the Conduct of Business Sourcebook, part of the Handbook

“Company X” means the third party to which BHIM sold customer data that the

Firm had obtained as a result of its relationship with HJL, and that also introduced

customers to BHIM during the Relevant Period

“DEPP” means the Authority’s Decision Procedure and Penalties Manual

“EG” means the Authority’s Enforcement Guide

“FOS” means the Financial Ombudsman Service

“FSCS” means the Financial Services Compensation Scheme

the “Handbook” means the Authority’s Handbook of rules and guidance

“HJL” means Hennessy Jones Limited, now known as Reditum Capital Limited. HJL

introduced customers to BHIM under the Pension Review and Advice Process and

also performed certain of the Outsourced Functions on behalf of BHIM prior to 13

“IFA” means independent financial adviser

“Mr Freer” means Tristan Freer

“Mr Ward” means Robert Ward

“Outsourced Functions” means the functions outsourced by BHIM, initially to HJL,

and from 13 October 2014, to CAL, under the Pension Review and Advice Process,

including the functions described in paragraph 2.5(2) of this Notice (but not

including the functions carried out by HJL in its role as introducer)

“Pension Review and Advice Process” means the process described in paragraph

2.5 of this Notice that BHIM adopted on 11 September 2014 and used until 27 July

“Pension Switch” means the movement of funds from one personal pension scheme

to another where no safeguarded benefits are involved

“Pension Transfer” has the meaning given in the Handbook and includes the

movement of funds from an occupational pension scheme to a personal pension

scheme (in this case a SIPP)

“PRIN” means the Authority’s Principles for Businesses

“Relevant Period” means 9 September 2014 to 12 December 2016 inclusive

“SIPP” means self-invested personal pension

“SIPP Providers” means the firms providing the SIPP accounts to BHIM’s customers

under the Pension Review and Advice Process

“Software” means the automated client management system that was used by CAL

during the Pension Review and Advice Process to manage customer information

and generate Suitability Reports for customers

“Suitability Report” means the report which a firm must provide to its client under

COBS 9.4 which, among other things, explains why the firm has concluded that a

recommended transaction is suitable for the client

“SYSC” means the Senior Management Arrangements, Systems and Controls

Sourcebook, part of the Handbook

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

the “Voluntary Requirement” means the requirement imposed on BHIM on 17

the “Warning Notice” means the warning notice given to BHIM dated 5 March 2018

4.
FACTS AND MATTERS

Background

4.1.
BHIM is a small firm based in Cheltenham, Gloucestershire which, since 29 June

2006, has been authorised by the Authority with permission to conduct regulated

activities, including advising on investments (excluding Pension Transfers) and

arranging (bringing about) deals in investments.

4.2.
During the Relevant Period, Tristan Freer, an experienced and qualified financial

adviser, performed the CF1 (Director), CF10 (Compliance Oversight), CF11 (Money

Laundering Reporting) and CF30 (Customer) controlled functions at BHIM.

Between 16 October 2014 and 12 December 2016, Robert Ward performed the CF1

(Director) and CF3 (Chief Executive) controlled functions at BHIM, although Mr

Ward had active management and day-to-day responsibility for the business of the

Firm from around the summer of 2014. Mr Freer and Mr Ward were the most senior

individuals at BHIM and were the only individuals at BHIM with any meaningful

involvement in the matters set out in this Notice.

4.3.
From around 11 September 2014 until 27 July 2015, the Firm used the Pension

Review and Advice Process, which involved:

(1)
HJL sourcing leads from lead generation companies and introducing

customers to the Firm;

(2)
certain of the Outsourced Functions being performed on behalf of BHIM by

HJL prior to 13 October 2014;

(3)
the Outsourced Functions being performed on behalf of BHIM by CAL, a third

party service provider closely connected to HJL, from 13 October 2014; and

(4)
little meaningful oversight by BHIM of HJL’s activities as an introducer or of

HJL and CAL’s performance of the Outsourced Functions.

4.4.
The Pension Review and Advice Process was structured to result in customers who

met certain pre-set criteria approved by Mr Freer being advised to switch their

pensions to SIPPs investing in high risk, illiquid assets not regulated by the

Authority (the Bonds). Mr Ward was aware that HJL had a material financial interest

in a number of the Bonds, and that HJL’s financial interest was not disclosed to

customers.

The business proposition

4.5.
On 9 September 2014, Mr Ward was introduced to a representative from HJL. Mr

Ward described the meeting in an email sent to Mr Freer later the same day.

According to the email, Mr Ward understood that:

(1)
HJL had ‘large numbers of people wanting to invest in [its] normal bond type

of funds’;

(2)
HJL was not authorised by the Authority and did not wish to become so

because it would have a conflict of interest;

(3)
HJL had a pension switching advice model which involved ‘a suite of

compliant documents’ and the outsourcing of functions in the pension advice

process to HJL’s staff ‘who see the clients and complete the paperwork’, and

which was intended to result in customers being advised to switch their

pensions to SIPPs investing in HJL’s ‘bond type of funds’; and

(4)
HJL was seeking an authorised IFA to put its name to the advice given to

customers through this process.

4.6.
Mr Ward understood that HJL would ‘actually do everything including the reports

and suitability paperwork in [BHIM’s] name’ in return for compliance sign-off and

the signature of a qualified financial adviser to append to the documents used in

the process. BHIM would also be required to do regular compliance visits to HJL to

check the customer files.

4.7.
Mr Ward understood from the initial meeting that the pension switching advice

model had the potential to generate ‘significant earnings’ because it was low paying

but high volume work. He was told to expect 100 cases per month moving quickly

to 100 cases per week.

4.8.
At the initial meeting, the representative from HJL provided Mr Ward with fact

sheets for a number of the Bonds and specimen documents which it proposed to

use in the Pension Review and Advice Process. Mr Ward understood that other IFAs

had already adopted the same pension switching advice model. Mr Ward gave Mr

Freer the fact sheets and specimen documents to review.

Decision to work with HJL and adopt the Pension Review and Advice Process

4.9.
Within 24 hours of receiving Mr Ward’s email referred to above, Mr Freer confirmed

to Mr Ward that he was willing for the Firm to adopt the Pension Review and Advice

Process and approved the specimen documents to be used by HJL, on behalf of

BHIM. Mr Ward confirmed Mr Freer’s consent in an email to HJL.

4.10. Later on 10 September 2014, the Firm provided HJL with a copy of its company

logo and team biographies to enable the specimen documents to be finalised.

4.11. On 11 September 2014, two days after the initial meeting with the HJL

representative, Mr Ward provided HJL with an electronic copy of Mr Freer’s

signature to use as the qualified signatory in the reports and paperwork to be

produced by HJL on behalf of the Firm.

4.12. At 11:40 on 12 September 2014, HJL provided Mr Ward and Mr Freer with a number

of the finalised documents to be used in the Pension Review and Advice Process.

Mr Freer approved the documents within four hours. He told HJL that he was ‘happy

with all of the documentation’ although he thought some of the wording in the

brochure for the Firm ‘could be better […] but this is not a compliance issue’. In

fact, the Firm’s brochure held out the Firm as providing customers with independent

advice from qualified financial advisers and stated that “Independent advice means

taking advice from an expert who is not tied to offering the products of one

particular pension provider and does not receive payments in the form of

commission for recommending that you move your pension. This means they can

act entirely in your best interests to advise a pension portfolio that best matches

your needs.” As Mr Freer, and therefore BHIM, was aware, these statements were

highly misleading and did not reflect the reality of the service that the Firm would

provide using the Pension Review and Advice Process. Mr Freer told the HJL

representative that no amendments were necessary to any of the documentation

he had reviewed because he understood that other IFAs were already using the

same documents and ‘if it aint broke don’t fix it!’.

4.13. Also on 12 September 2014, the HJL representative sent Mr Ward and Mr Freer an

email attaching a service agreement to sign. The services which were intended to

be performed by HJL on behalf of the Firm included:

(1)
sourcing leads from lead generation companies;

(2)
gathering information from the customers’ current pension providers;

(3)
visiting and/or contacting customers to conduct the fact-find in the name of

the Firm; and

(4)
producing reports in the name of the Firm, including Suitability Reports.

4.14. The Firm did not sign this agreement, but HJL began contacting customers on behalf

of the Firm at the latest from 25 September 2014 and, throughout the period that

BHIM used the Pension Review and Advice Process, HJL was responsible for

sourcing leads and acting as an introducer for the Firm in connection with the

process.

Work with CAL

4.15. On 13 October 2014, the Firm entered into an agreement with CAL, for CAL to

provide substantively the same services as those detailed in the unsigned

agreement with HJL, with the exception of sourcing leads and introducing

customers to the Firm (which HJL continued to do).

4.16. CAL was closely connected to HJL. The two firms initially shared the same address.

HJL’s representative at the 9 September 2014 meeting with Mr Ward moved to CAL

but continued to email the Firm from an HJL email address until 13 November 2014

at the earliest. BHIM was copied into an email sent by HJL to one of the SIPP

Providers in January 2015 in which HJL referred to CAL as ‘our outsourcing

company’.

4.17. CAL performed the Outsourced Functions on behalf of the Firm until 27 July 2015,

when the Firm ceased using the Pension Review and Advice Process and terminated

its business relationship with CAL as a result of intervention by the Authority. BHIM

also took over the employment of a number of staff previously employed by CAL.

By this time, BHIM had begun working with another firm, Company X, which had

close links to HJL.

The Bonds

4.18. The Pension Review and Advice Process resulted in customers’ pensions being

switched or transferred to SIPPs with a portfolio of underlying assets which took

the form of bonds, each of 10 years, issued by four unquoted UK companies

incorporated between July and November 2014 by HJL.

4.19. Customers’ SIPPs were invested in three portfolios which were misleadingly

described as being ‘cautious’, ‘moderate’ and ‘adventurous’, and which were made

up of differing proportions of the Bonds and, in some cases, a small percentage of

cash. The portfolios were meant to align to a customer’s attitude to risk, but in

practice there was little difference between the risks and returns of the ‘cautious’

portfolio when compared to the ‘adventurous’ portfolio. As such, the terms used to

describe the three portfolios failed to reflect the reality that a customer would be

exposed to high levels of risk whichever portfolio their SIPP was invested in.

4.20. Customers were told that the portfolios offered fixed returns and capital protection.

In fact, the Bonds within the portfolios are high risk, illiquid and unlikely to be

suitable for retail investors except in very limited circumstances due to:

(1)
the investment strategies of the issuing companies, which include investing

in distressed residential and commercial property and other speculative

investments, including unlisted equities; and

(2)
the limited regulatory oversight of the issuing companies, which are not

subject to the Authority’s rules governing, for instance, investment and

borrowing powers, disclosure of fees and charges, management of conflicts

of interest, a prudent spread of risk and other investor safeguards.

4.21. The information memorandums for the Bonds state that capital protection is meant

to be provided by way of floating charges on the assets of the issuing companies

and by way of a cash amount, to be held in a separate segregated account and

invested in cash instruments. For the Bonds issued by three of the four issuing

companies, the cash amount is limited to a maximum of 20% of the aggregate

principal amount of the Bonds plus accrued interest (no limit is specified for the

Bonds issued by the fourth issuing company).

4.22. The Bonds are listed on an overseas exchange and the value of the Bonds is

dependent on whether there is a market for them. As such, customers may realise

less than their original investments if they sell them prior to the redemption date.

Repayment of the principal sum and interest is also dependent upon the four issuing

companies generating sufficient income and returns. Further, the Bonds are not

regulated by the Authority and are not covered by FOS or FSCS protection.

Failures in the Firm’s due diligence on the Bonds

4.23. A firm is required to take reasonable steps to ensure that the investments that are

recommended to its customers are suitable for those customers (COBS 9.2.1R). In

order to determine whether an investment is suitable for a customer, a firm needs

to undertake due diligence on the investment to understand how it works. This is

the process a firm carries out to assess, among other things, the nature of the

investment and its risks and benefits.

4.24. Mr Freer knew that the only products available for recommendation to BHIM’s

customers through the Pension Review and Advice Process were the Bonds. As a

financial adviser, director and compliance officer of the Firm, he had a responsibility

to take reasonable steps to ensure that the Firm undertook adequate due diligence

on the Bonds to ensure that they were suitable for the Firm’s customers. However,

Mr Freer, and therefore BHIM, failed to carry out adequate due diligence on them.

For example:

(1)
Mr Freer, and therefore BHIM, relied solely on documents provided to it by

HJL. Despite the fact that he knew that HJL had a material financial interest

in the Bonds (issued by three of the four issuing companies), Mr Freer did

not take any actions to address the risk that the information provided by

HJL could be misleading or incomplete.

(2)
Mr Freer, and therefore BHIM, failed to obtain information about the assets

that the issuing companies intended to invest in, which would be relevant to

assessing the risk of investing in the Bonds. For example, one of the Bonds

was issued by a company intending to invest in commercial property. The

Firm took no steps to find out in which types of commercial property

investments would be made, where the property would be based and what

industries it would support. It should have been obvious to Mr Freer, as an

experienced and qualified financial adviser, that this information was needed

in order to assess properly the suitability of the Bonds for customers.

4.25. Had BHIM carried out adequate due diligence on the Bonds, it could have assessed

on an informed basis whether the composition of the portfolios of Bonds (which had

been designed by HJL) were suitable for customers with particular risk profiles (for

example, whether the ‘cautious’ portfolio was suitable for customers with a cautious

attitude to risk). Mr Freer said his assessment was based on his ‘experience’ and

was limited to reading through the fact sheets for each portfolio. In January 2015,

Mr Ward instructed CAL to change the weightings in two of the portfolios. However,

he did so after reading only a few pages of information prepared by HJL. If BHIM

had carried out a proper assessment, it should have concluded that the various

portfolios of Bonds would not be suitable for the majority of retail customers except

in very limited circumstances.

4.26. BHIM also failed to assess properly the information of which it was aware. For

example, it was apparent from the information memorandums for the Bonds (which

Mr Freer claimed he reviewed) that:

(1)
the companies issuing the Bonds were all recently incorporated with no track

record, all operated from the same registered address and had two common

directors; and

(2)
the Bonds were unregulated and, at the time that the Firm began advising

customers to invest in them, unlisted (the fact the Bonds might not achieve

a listing was noted as a risk factor).

4.27. As Mr Freer was an experienced and qualified financial adviser, it should have been

obvious to him, and therefore BHIM, on the basis of this information that the Bonds

were high risk investments which were unlikely to be suitable for retail customers

except in very limited circumstances (for example, in some circumstances they may

be suitable for high net worth investors or sophisticated investors looking for some

exposure to less traditional investments). However, Mr Freer, and therefore BHIM,

failed to give due consideration to the risk that the Bonds were unsuitable.

4.28. Under the Pension Review and Advice Process, advice was given in BHIM’s name to

customers to use one of two SIPP Providers that had been suggested to the Firm

by HJL. BHIM’s main reason for using one of these SIPP Providers was that they

were willing to accept the Bonds for retail customers. In April 2015, the Firm

approached other SIPP providers, but those SIPP providers were not prepared to

accept the Bonds in SIPPs for retail customers. For example, one SIPP provider told

BHIM that the Bonds were “not for retail use”. This should have been a red flag to

the Firm about the high risk nature of the Bonds. However, BHIM took no steps at

this time to ensure the Bonds were suitable for its customers and continued to

recommend the Bonds to customers until the Authority intervened in July 2015.

The Pension Review and Advice Process

4.29. The Pension Review and Advice Process was based on a pension switching advice

model that had previously been adopted by other IFAs. HJL had initiated and

influenced the development of this model, as it had been seeking an efficient

process, to be adopted by an authorised IFA, for advising customers who met

certain criteria to switch their pensions to SIPPs investing in underlying assets in

which HJL had a material financial interest. When BHIM adopted the Pension

Review and Advice Process in September 2014, the underlying assets in which

customers’ SIPPs were to be invested were the Bonds (issued by three of the four

issuing companies).

4.30. BHIM was responsible for the advice given to customers through the Pension

Review and Advice Process. However, a number of important functions were

outsourced to third parties. At the outset, it was intended that these functions

would be outsourced to HJL, and initially certain of the functions (in particular those

in the early stages of the process, such as obtaining information about the

customer’s existing pension arrangements) were performed by HJL. However, from

13 October 2014, these functions, with the exception of lead generation, were

performed by CAL. The decision that the Outsourced Functions should be performed

by CAL rather than HJL appears to have been agreed between them without the

involvement of, or any consultation with, BHIM.

4.31. The description of the Pension Review and Advice Process in the following

paragraphs describes the process that was in place from 13 October 2014.

4.32. Under the Pension Review and Advice Process, leads were sourced by HJL from a

number of lead generation companies. Customers were invited to request a free

pension review. If a customer made such a request, they would be contacted by

CAL, which would obtain information about the customer’s existing pension

arrangements. CAL would then input the information into the Software, which would

generate a Pension Summary Report. The Pension Summary Report would give

the customer an indication of whether they might be better off if they changed their

pension arrangements. CAL would call or attend a face-to-face meeting with the

customer to present the Pension Summary Report and promote BHIM’s advice

service.

4.33. If the customer signed a service proposition confirming that they wished to receive

advice from BHIM, CAL would collect relevant documents from the customer and

conduct a scripted fact-finding exercise. CAL would input the results of the fact-

find into the Software, which would determine, based on pre-set criteria approved

by BHIM, whether the customer should be advised to invest in the Bonds and

produce a Suitability Report containing a personal recommendation. CAL would

send the Suitability Report to the customer and call the customer to ask them

whether they wished to proceed in accordance with the advice they had received.

Customers were not always told they were being contacted by a third party, so

some customers may have been given the impression that they were dealing with

staff from BHIM itself.

4.34. BHIM allowed CAL (and initially HJL) to perform the Outsourced Functions with little

or no oversight. Although the Suitability Reports were issued on behalf of BHIM and

in Mr Freer’s name as the qualified financial adviser, Mr Freer had no involvement

in the assessment of suitability for individual customers or in the production of the

Suitability Reports. Mr Freer’s electronic signature and the Firm’s logo were simply

added to documents provided by CAL to customers, including the Suitability

Reports. As such, BHIM did not have control over the advice given in its name.

4.35. Between 3 November 2014 and 15 July 2015, BHIM advised 265 customers to

switch or transfer their pensions to a SIPP investing in the Bonds through the

Pension Review and Advice Process. This amounted to customer funds totalling

approximately £8.5 million.

4.36. BHIM received an advice fee of 3% of a customer’s pension assets when a Pension

Switch or Pension Transfer to the SIPP was completed. For any customer who

opted to have ongoing servicing, BHIM would also receive an annual fee of 0.5% of

the customer’s pension assets paid by the SIPP Provider from the customer’s

pension assets. Between 2 January 2015 and 16 June 2016, BHIM received

£350,425 in advice or ongoing servicing fees. BHIM paid over £163,240 to CAL for

its role in the Pension Review and Advice Process.

Failures relating to BHIM’s adoption and use of the Pension Review and

4.37. BHIM adopted the Pension Review and Advice Process despite knowing that

customers would be given misleading information about the service they would

receive. For example, the template documents that Mr Freer reviewed and

approved included the service proposition which customers had to sign to confirm

they wished to receive advice from BHIM and that they agreed with the terms of

the service offered. The service proposition stated, “…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…We operate independently and therefore provide investment

services from the whole market”.

4.38. BHIM knew these statements were untrue. It knew that advice would be given

through an automated process without any meaningful assessment of individual

customers’ needs and that the only products that would be recommended to

customers through the Pension Review and Advice Process were the Bonds.

Further, BHIM was aware when it decided to adopt the Pension Review and Advice

Process that the Outsourced Functions were intended to be performed on its behalf

by HJL, which had a material financial interest in the Bonds issued by three of the

issuing companies, and it was later aware that, from 13 October 2014, they would

be performed by CAL, which was closely connected to HJL.

4.39. Mr Freer reviewed and approved various documents to be used in the Pension

Review and Advice Process, including fact-find scripts and template Suitability

Reports. He also approved the pre-set criteria which would be the basis for the

Software’s determination of whether a customer should be advised to invest in the

Bonds. However, he spent very little time scrutinising the documents to be used in

the Pension Review and Advice Process before agreeing that BHIM should adopt the

process only two days after Mr Ward’s initial meeting with the HJL representative.

Mr Ward told the Authority that he relied on Mr Freer to satisfy himself that the

Pension Review and Advice Process complied with regulatory requirements.

However, other than asking Mr Freer if he was happy with his own review of the

process and asking Mr Freer to let him know if he had any concerns, Mr Ward did

nothing to ensure that Mr Freer’s review of the Pension Review and Advice Process,

and the documents to be used in the process, was adequate.

4.40. There were other significant obvious deficiencies in the Pension Review and Advice

Process which BHIM would have identified if it had given due consideration to the

documents to be used in the Pension Review and Advice Process, and to how the

process would operate in practice, including:

(1)
The fact-find script contained leading questions which were intended to steer

the customer towards the features of the Bonds that would be

recommended.

For example, customers were read a statement which included the following:

‘Pension money can be held in a range of different investments offering

different features. Some will experience highs and lows while others may

perform in a much less volatile manner.’ They were then asked if they would

prefer their pension fund to ‘Grow at a fixed and known rate each year?’ or

to ‘Go up and down in value depending on the underlying investments’

performance?’

Customers were also asked ‘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?’ and given the option

of answering ‘yes’ or ‘no’.

These questions were likely to lead customers to say they would prefer fixed

returns and a capital guarantee. Where customers stated either or both of

these preferences, they were advised to invest in the Bonds. The customers’

stated preferences for fixed returns and/or a capital guarantee were used to

justify recommending the Bonds, which customers were told offered fixed

returns and ‘an element of capital protection’ (see paragraph 4.20 above).

Customers were not asked any other questions about their investment

objectives.

(2)
The fact-find only allowed for certain specified information to be gathered

from the customer, which was insufficient to establish the suitability of

recommendations. The fact-find was conducted by CAL staff, working from

a script, who were not permitted to depart from the script and probe for

further information. Even when a customer did disclose additional relevant

information, it was not taken into account as a result of the way in which

the Suitability Reports were prepared. Further, a suitably qualified financial

adviser should oversee the fact-find process. However, neither Mr Freer nor

any other qualified financial adviser at BHIM supervised the conduct of fact-

finds, or routinely had any meaningful involvement in the individual

assessment of customers’ circumstances.

(3)
Customers were not given a compliant personal recommendation as the

Suitability Report did not explain why the Bonds were suitable for a

customer’s demands and needs. The Suitability Report also did not include

an analysis of the advantages and disadvantages of the recommended

products compared to the customer’s existing pension.

(4)
The information provided to customers about the Bonds did not fully inform

customers of their costs, benefits and risks. In particular:

(a)
important information about the risks of the Bonds was either not

disclosed to the customer or, where it was disclosed, was

contradictory or unclear;

(b)
the three portfolios that customers invested in were described as

‘cautious’, ‘moderate’, and ‘adventurous’. However, these terms

failed to reflect the reality that customers would be exposed to high

levels of risk whichever portfolio their SIPP was invested in;

(c)
customers were told that the Bonds provided a fixed return and

capital protection. However it was never explained or disclosed to the

customers that there was a risk that they would not get all their

capital investment back. If the bond issuers performed poorly, they

might not be able to make interest payments to customers and/or

repay capital. It was particularly important that customers were

made aware of this risk given the bond issuers had no track record

and the bond issuers’ assets included both illiquid and high risk

assets; and

(d)
whilst the advice provided would be covered by FOS and the FSCS,

customers were not told that, if the Bonds failed, they would be

unable to make a complaint or claim to the FOS and/or the FSCS, as

the bond issuers and the Bonds were not regulated by the Authority.

(5)
HJL’s involvement in the Pension Review and Advice Process created an

obvious conflict of interest because the process was structured to result in

customers being recommended to invest in the Bonds, in a number of which

HJL had a material financial interest. In addition, as BHIM knew, two of the

directors of HJL during the Relevant Period (Mark Stephen and James King)

were directors of each of the companies issuing the Bonds. However,

customers were not made aware of these common directorships or of how

HJL was remunerated. When questioned by the Authority, Mr Ward and Mr

Freer accepted that this conflict of interest could have influenced the advice

process
and
created
a
risk
of
customers
receiving
unsuitable

recommendations to invest in the Bonds. Mr Ward and Mr Freer also

accepted that HJL’s financial interest should have been disclosed to

customers and was not.

4.41. The Firm also failed to identify obvious inaccuracies in the documents used in the

Pension Review and Advice Process. For example:

(1)
Mr Freer approved the specimen Suitability Report which stated that, should

customers wish to disinvest, it could take up to 12 months to access the

funds, despite the fact this statement related to an entirely different product

to those that the Firm agreed should be recommended to customers.

(2)
Mr Freer also approved fact sheets about the Bonds to be provided to

customers which stated that the Bonds were listed, when this was not yet

the case (the issuers of the Bonds had applied for them to be listed).

4.42. The Authority considers that the Pension Review and Advice Process was wholly

and, to an experienced and qualified financial adviser, obviously inadequate and

exposed customers to a significant risk of loss from investments that were unlikely

to be suitable for them. It should have been obvious to Mr Freer from the

information available to him, that the Pension Review and Advice Process was not

compliant with the Authority’s rules. However, as a result of his inadequate

consideration of the documents to be used in the Pension Review and Advice

Process, and of how the process would operate in practice (as well as his inadequate

due diligence on the Bonds and, as detailed below, HJL and CAL), BHIM adopted

and used a non-compliant process without giving any meaningful consideration to

the interests of customers.

4.43. Mr Freer told the Authority that the Pension Review and Advice Process was fit for

purpose largely on the basis that it was structured to result in only the Bonds being

recommended to customers wishing to invest in a fixed return product and that ‘If

ever at any point they said no to any of the particular questions then they [would]

be thrown out the side’. However, it should have been obvious to Mr Freer, as an

experienced and qualified financial adviser, that suitability cannot be assessed

simply by reference to whether a customer wishes to invest in a fixed return product

or not. In addition, the Authority considers the Bonds to be high risk investments

which would be unlikely to be suitable for retail investors except in very limited

circumstances (see paragraph 4.27 above) and this should have been obvious to

Mr Freer.

BHIM’s limited role in the Pension Review and Advice Process

4.44. BHIM had negligible involvement in the Pension Review and Advice Process. For

example:

(1)
BHIM had no involvement in conducting the fact-find with the customer and

had no oversight of that process.

(2)
BHIM had no involvement in preparing the Suitability Report for the

customer. Mr Freer told the Authority that he reviewed each Suitability

Report before it was sent to the customer, but this claim is not supported

by the evidence provided to the Authority. To the extent he did review

Suitability Reports, on the account Mr Freer gave to the Authority, his review

was limited to checking that the details recorded in the fact-find had been

correctly included in the report. He did not give any meaningful

consideration to whether the recommendation was suitable for the

customer. There was also no mechanism for Mr Freer to confirm that he had

reviewed and approved a Suitability Report before it was sent to the

customer.

(3)
BHIM had no involvement in any further work done for customers once the

Suitability Reports had been sent to them, including follow up calls or

meetings with the customer and completing the paperwork to process the

Pension Switch or Pension Transfer if the customer chose to invest in the

Bonds. As a result he did not know which customers completed Pension

Switches or Pension Transfers.

(4)
BHIM had no contact with customers during the Pension Review and Advice

Process unless specifically requested.

4.45. There were obvious risks associated with the Pension Review and Advice Process.

However, the Firm failed to put in place appropriate systems and controls to

address those risks. For example:

(1)
the Firm made no attempt to monitor HJL and did not know if leads were

obtained by unlawful cold calling;

(2)
the Firm failed to ensure that its agreement with CAL required CAL to provide

it with management information. While using the Pension Review and Advice

Process, the Firm had no access to management information about the work

undertaken on its behalf and, as a result, it had no idea of the number of

leads generated, the number of customers at each stage of the process or

the number of customers who did not switch or transfer to the Bonds and

their reasons for exiting the process; and

(3)
the only method the Firm used to monitor CAL’s performance of the

Outsourced Functions was through the compliance file checks that the Firm

conducted (see paragraph 4.46(2) below), which were perfunctory and did

not include listening to calls conducted with customers. When the Authority

showed Mr Ward customer files which included calls made by CAL to

customers, he described some of them as ‘horrifying’.

4.46. The Firm’s compliance arrangements for this business were wholly inadequate.

(1)
Mr Freer was responsible for both the advice provided to customers through

the Pension Review and Advice Process and compliance checks on the same

files. There was a clear risk of errors going undetected and of customers

receiving unsuitable advice as a result. The Firm did not consider this risk

and did not take steps to mitigate it, for instance by engaging the services

of an independent compliance firm. Instead the Firm relied on the internal

compliance checks conducted by CAL, despite having no oversight of its

work.

(2)
To the extent that Mr Freer conducted compliance checks on customer files,

the process consisted of checking a sample of customer files for accuracy

and completeness rather than checking the suitability of the advice.

(3)
The Pension Review and Advice Process had been operating for over four

months before Mr Freer conducted his first compliance check. By then, 112

customers had already switched or transferred their pension to SIPPs with

the underlying investment in the Bonds.

Failures in BHIM’s due diligence on HJL and CAL

4.47. Principle 3 of the Authority’s Principles for Businesses provides that a firm must

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

with adequate risk management systems. Further detailed guidance is set out in

SYSC. In particular, firms such as BHIM, which are not common platform firms (as

defined in the Handbook):

(1)
should take reasonable steps to identify risks relating to the firm’s activities,

processes and systems (SYSC 7.1.2R and SYSC 7.1.2AG);

(2)
when relying on a third party for the performance of operational functions

which are critical for the performance of regulated activities, should ensure

they take reasonable steps to avoid additional operational risk (SYSC 8.1.1R

and SYSC 8.1.1AG);

(3)
should exercise due skill, care and diligence when entering into, managing

or terminating any arrangement for the outsourcing to a service provider of

critical or important operational functions or of any relevant services and

activities (SYSC 8.1.7R and SYSC 8.1.11AG); and

(4)
should take the necessary steps to ensure that any service providers have

the ability, capacity and any authorisation required by law to perform the

outsourced functions, services or activities reliably and professionally (SYSC

8.1.8R(1) and SYSC 8.1.11AG).

4.48. BHIM agreed to HJL acting as introducer and to HJL and CAL performing the

Outsourced Functions on BHIM’s behalf without giving any proper consideration to

whether they were suitable to perform those activities.

4.49. BHIM agreed to work with HJL two days after Mr Ward’s initial meeting with a

representative of the company, having carried out no due diligence on HJL (other

than in connection with its role in relation to the companies issuing the Bonds).

4.50. BHIM’s due diligence on CAL comprised checking the company’s details on the

Companies House website. Mr Ward and Mr Freer also attended meetings at CAL’s

offices, but this was to satisfy themselves that the company actually existed and

was operating rather than to assess whether it was fit to perform the Outsourced

Functions.

Motivation

4.51. In deciding to adopt the Pension Review and Advice Process, Mr Ward and Mr Freer

(and therefore BHIM) focused on the potential for the Firm to earn fees and the

opportunity to generate customer referrals for the Firm. They put the Firm’s

interests before those of its customers and put customers at a significant risk of

harm.

4.52. Mr Ward told Mr Freer at the outset that ‘We actually do nothing but get paid plus

trail’ and that he expected the Pension Review and Advice Process to generate fees

of £10,000 or more a week.

4.53. Mr Ward and Mr Freer (and therefore BHIM) were also motivated by the expectation

that customers who did not wish to invest in the Bonds would be referred by HJL

and/or CAL to the Firm for ‘bespoke’ advice. Mr Freer told the Authority that this

did not happen in practice which meant that the Firm was not getting its ‘part of

the bargain’ that it had agreed with HJL and CAL.

The Authority’s review of 20 customer files

4.54. Given that all of BHIM’s customers were told they were receiving a personal

recommendation based on a comprehensive and fair analysis of the whole market

when in fact they were not, and given HJL’s material financial interest in a number

of the Bonds which was undisclosed to customers, the process clearly put BHIM’s

customers at serious risk of receiving unsuitable advice and therefore at serious

risk of investing in products that were not suitable for them.

4.55. Nevertheless, the Authority has reviewed the advice given to 20 of BHIM’s

customers during the period from 2 December 2014 to 5 June 2015 using

recordings of calls and meetings, where they were available, and copies of the

customer files maintained by CAL.

4.56. The advice given to the customer was unsuitable in all 20 files. As the same process

was used for all advice relating to the Bonds, the Authority considers it likely that

the advice provided to most, if not all, of BHIM’s 265 customers was unsuitable.

4.57. In all 20 files the Authority considers that the gathering of information from the

customer, the product recommendation, the Suitability Report and the disclosure

of information about the product breached the Authority’s requirements, including

(1)
insufficient information was gathered from customers in order to ensure a

suitable recommendation was given to customers. For example, the fact-

finding script was limited and key information was not requested from

customers, including about their investment objectives (other than with

respect to fixed returns and a capital guarantee) and their knowledge,

experience, understanding and ability to accept the risks of speculative

investments (COBS 2.1.1R, 9.2.1R and 9.2.6R);

(2)
the Bonds were not suitable due to the illiquid and high risk nature of the

investments made by the companies issuing the Bonds, and the limited

regulatory oversight of those companies (COBS 2.1.1R, 9.2.1R and 9.3.1G);

(3)
the Suitability Reports failed to give customers a compliant personal

recommendation as they did not explain why the SIPP and the Bonds were

both suitable for a customer’s demands and needs, and did not adequately

explain the possible disadvantages of the recommendation to customers

(COBS 2.1.1R and 9.2.1R); and

(4)
fact sheets provided to customers about the Bonds did not adequately

explain the risks and possible disadvantages of investing in the Bonds and

did not disclose to customers that HJL would receive an initial fee of up to

5% of the funds raised for a number of the Bonds (COBS 2.1.1R and 9.2.1R).

4.58. In addition, the Authority identified:

(1)
two cases where investment advice had been given about a Pension Transfer

outside of BHIM’s permission;

(2)
one case where the recommendation was not suitable as the customer lost

existing benefits (a guaranteed interest rate) (COBS 2.1.1R and 9.2.1R(1));

(3)
five cases where the recommendation was unsuitable for the customer’s

personal
circumstances,
financial
circumstances
and/or
investment

30

objectives (COBS 2.1.1R and 9.2.1R(1)). For example, one customer

confirmed he was disabled and ‘retired’ on medical grounds and his only

source of income was disability welfare benefits. Despite this, he was

recommended to transfer all of his existing pension to the SIPP and to invest

in the ‘moderate’ portfolio of Bonds;

(4)
four cases where the recommendation was unsuitable as the SIPP was more

expensive than one or more of the customer’s existing pensions and there

was no justification for the additional cost (COBS 2.1.1R and 9.2.1R(1)). For

example, a customer was recommended to switch to a SIPP and invest in

the Bonds even though this would be £2,000 more expensive at the medium

return level than remaining in the existing pension scheme;

(5)
17 cases, where audio recordings of the advice process were available for

review by the Authority, where oral statements were made to the customer

during the advice process that were factually inaccurate, unclear, unfair or

misleading (COBS 4.2.1R). Those statements included that:

(a)
after the fact-find an IFA would spend two days reviewing the

customer’s circumstances to make a recommendation, when in fact

the advice process was automated with typically no involvement from

a qualified financial adviser;

(b)
an adviser would search the market for a recommendation tailored

to the customer’s circumstances, when in fact the Bonds were the

only products that were available for recommendation to the

customer;

(c)
the customer’s capital would be guaranteed and the returns were

fixed, without explaining that income and/or capital might be lost if

the investments made by the issuing companies did not perform

adequately; and

(d)
the advice was covered by FSCS, without making it clear that any

losses incurred through the failure of the Bonds would not be covered

by the FSCS; and

(6)
18 cases where the information suggests customers waived their right to

cancel within 30 days (COBS 4.2.1R). There is no evidence that customers

were informed of the implications of waiving their rights and they may not

have been given sufficient time to reflect on the suitability of the investment.

Acting outside the Firm’s permission and breaches of the Voluntary

Requirement

Advising on Pension Transfers

4.59. The Firm was not authorised to advise on Pension Transfers. However, in allowing

HJL and CAL to perform the Outsourced Functions on its behalf, failing to review in

a meaningful way advice given through the Pension Review and Advice Process,

and failing to put in place and operate appropriate systems and controls in relation

to the Pension Review and Advice Process, the Firm exposed itself to the risk of

breaching section 20 of the Act by carrying on a regulated activity without the

relevant permission. This in fact happened when, between 24 November 2014 and

27 July 2015, the Firm gave advice in relation to five Pension Transfers and at least

four customers transferred as a result.

4.60. On 9 February 2015, CAL emailed Mr Freer an internet link to a publication by the

Authority which made clear that pension funds moved from any type of occupational

pension scheme (including defined benefit schemes) to a SIPP fall within the

Handbook definition of a Pension Transfer. Mr Freer noted that he had not

understood this before and confirmed to CAL that the Firm did not have permission

to perform Pension Transfers. Mr Freer took steps to identify if advice had been

given to customers about Pension Transfers, but failed to identify that advice had

been given in BHIM’s name on at least four Pension Transfers through the Pension

Review and Advice Process prior to 9 February 2015 (when he received the email)

and did not prevent the completion of two Pension Transfers after this date.

Breaches of the Voluntary Requirement

4.61. On 17 September 2015, at the request of the Authority, the Firm applied for the

imposition of requirements on it. Accordingly, the Voluntary Requirement was

imposed on the Firm. As a result, BHIM was required:

(1)
to terminate any and all business relationships with HJL and CAL and another

third party such that they could not perform any activities on behalf of the

Firm;

(2)
not to carry on any activities in relation to Pension Switches and/or Pension

Transfers to any SIPP, including completing any business then being

processed which had not been completed, until independent verification was

provided to the Authority confirming that a robust and compliant advisory

process was in place for pension switching advice. The person appointed to

provide independent advice had to be a person appointed with prior

agreement from the Authority; and

(3)
to implement a process of ongoing independent checks on all new pension

SIPP switching advice until such time as the Authority was satisfied the new

advisory process referred to above was embedded into the Firm's processes.

4.62. Between July and December 2015, Mr Ward corresponded with the Authority

regarding the terms of the Voluntary Requirement and what activities the Firm

would be/was permitted to conduct with regard to certain customers. Between

March and 7 September 2016, Mr Ward sought permission from the Authority to

allow the Firm to provide advice to certain customers to switch their pensions to a

SIPP. Each time, on at least six separate occasions, the Authority reiterated that

the Firm could not provide such advice until it had satisfied the terms of the

Voluntary Requirement.

4.63. Despite this, between 5 October 2015 and 10 November 2016, the Firm advised

77 customers to switch their pension to a SIPP, including 72 customers who had

been introduced to the Firm by Company X.

4.64. Mr Ward told the Authority that he relied on assurances from Mr Freer that the

account in which the 72 customers introduced by Company X were advised to invest

was a personal pension (as distinct from a SIPP), but did not take any steps to

verify those assurances or otherwise ensure that switches to the account did not

contravene the Voluntary Requirement. In fact, the account in which customers

were advised to invest was a SIPP account. Mr Freer thought that this account was

a type of personal pension not subject to the restrictions in the Voluntary

Requirement. Had he taken reasonable steps to check the type of pension account,

Mr Freer would have discovered that it was in fact a SIPP and that it did fall within

the terms of the Voluntary Requirement. Mr Freer also told the Authority he relied

on information from Mr Ward that the Firm had permission from the Authority to

advise customers to switch their pensions to certain SIPP accounts. Despite

knowing that this contradicted the written terms of the Voluntary Requirement, Mr

Freer took no other steps to confirm this, such as contacting the Authority himself

or asking to see written confirmation from the Authority.

4.65. The Firm thereby recklessly contravened the terms of the Voluntary Requirement.

In total approximately £2.9 million of customer funds was switched to SIPPs despite

the Voluntary Requirement.

4.66. When the Authority became aware of this, it used its own-initiative powers to

impose further requirements on the Firm such that, with effect from 12 December

2016, it was not permitted to carry on any regulated activity.

Misleading the Authority

Information provided about the Pension Review and Advice Process and HJL and

4.67. BHIM repeatedly provided the Authority with information about the Firm’s business

which was false, incomplete or misleading. The information was provided by Mr

Ward and Mr Freer, each of whom claimed that they had not intended to mislead

the Authority. However, they each provided information which they must have

known at the time was not true. The Authority considers that Mr Ward and Mr Freer

did so to try to prevent the Authority from identifying misconduct by the Firm and

themselves in relation to the Pension Review and Advice Process and the Firm’s

business arrangements with HJL and CAL.

4.68. BHIM provided various false and misleading accounts to the Authority about the

Firm’s business and its business arrangements with HJL and CAL. In particular:

(1)
Both Mr Freer and Mr Ward repeatedly told the Authority they had no idea

that HJL had any involvement in the Pension Review and Advice Process

despite approving documents which clearly showed HJL’s involvement and

both receiving an agreement for HJL to perform the Pension Review and

Advice Process, including introductions, on behalf of the Firm (see

paragraphs 4.9 to 4.14 above).

(2)
Mr Ward and Mr Freer also both gave accounts to the Authority that the Firm

started working with CAL in December 2014, that they quickly identified

concerns with CAL and the Pension Review and Advice Process, and that the

Firm took steps to terminate its agreement with CAL in February or March

2015 as a result. This was not true because the Firm started working with

CAL in October 2014 and continued to work with it until 27 July 2015 (see

paragraphs 4.15 and 4.17 above) and Mr Ward and Mr Freer must have

known this because they continued to communicate with CAL during this

time.

4.69. The Authority considers that BHIM deliberately sought to mislead the Authority on

these points. Mr Ward emailed Mr Freer on 4 August 2015, following receipt of a

letter from the Authority explaining its concerns about the Pension Review and

Advice Process and the Firm’s relationships with HJL and CAL. Mr Ward wrote that

the Authority had, among other things, ‘restricted the whole thing to the work we

were doing with [CAL]’ and ‘said that we were being put into a process led by [HJL]’.

In his email Mr Ward suggested that the Firm could counter those concerns by

telling the Authority that the Firm had identified concerns with the Pension Review

and Advice Process ‘in the preceding feb and stopped the work process’ and that it

had ‘no connection legally or actually’ with HJL. These statements are not

supported by the contemporaneous documentary evidence with which the Authority

has been provided and which would have been available to the Firm at the time.

4.70. BHIM told the Authority that it did not have minutes of board meetings when, in

fact, it kept formal minutes of meetings from 14 July 2014 at the latest. The

minutes were approved by the board at the beginning of the following board

meeting. Mr Ward and Mr Freer must have known this, but both told the Authority

that BHIM did not have minutes of board meetings. The minutes contained

important information about BHIM’s arrangements with CAL. For example, when

copies of the minutes were finally provided to the Authority they included minutes

of a meeting in February 2015 which stated that ‘work with [CAL] has come to

fruition and is to be continued’. None of the minutes provided to the Authority

contained any evidence that the Firm terminated its agreement with CAL prior to

July 2015.

4.71. BHIM failed to comply with a requirement imposed on the Firm by the Authority for

the Firm to provide certain of Mr Ward’s emails. BHIM provided the Authority with

some of Mr Ward’s emails but omitted to provide a large number of highly relevant

emails, including an email dated 9 September 2014 sent by Mr Ward to Mr Freer

which detailed Mr Ward’s meeting with HJL and an email from HJL to Mr Ward and

Mr Freer attaching the agreement between HJL and the Firm (referred to in

paragraphs 4.5 and 4.13 above). The Firm subsequently provided these emails to

the Authority in response to a further requirement imposed by the Authority. If Mr

Ward had taken reasonable steps to check the Firm’s initial response he would have

identified that it was obviously incomplete and omitted relevant material.

Information provided about Pension Switches to SIPPs and Company X

4.72. BHIM provided the Authority with incomplete and misleading information about the

Pension Switches that it had conducted in contravention of the terms of the

Voluntary Requirement. On 21 September 2016 the Firm provided the Authority

with a copy of its new business register which was materially incomplete. The

Firm’s new business register recorded a total of 30 transactions involving pensions

after the date of the Voluntary Requirement. It did not indicate that any of those

transactions involved customers switching to a SIPP account. However, the

Authority obtained information which showed that, in the period covered by the

new business register, the Firm had in fact advised customers on 76 transactions

involving Pension Switches to a SIPP account with a single SIPP provider. The new

business register provided to the Authority recorded only 29% of those

transactions. Both Mr Ward and Mr Freer failed to check the new business register

before it was provided to the Authority. If they had checked it, it would have been

obvious to them that it was incomplete and omitted relevant material.

4.73. BHIM also failed to be open and cooperative with the Authority, and provided the

Authority with incomplete and misleading information, in relation to its relationship

with Company X. The Authority became aware in December 2015 that the Firm had

a business arrangement with Company X. The Authority asked the Firm to provide

details about Company X and its relationship with the Firm. When the Firm

36

responded in January 2016 it did not provide the full company name but rather

indicated that Mr Ward knew Company X by a trading title. However, Mr Ward could

have easily obtained Company X’s name and provided it to the Authority. This

meant the Authority did not identify full details about Company X until around

August 2016. The Authority then established that Company X had close links to

4.74. When questioned by the Authority in February 2016, Mr Ward said that the Firm

had trialled a business arrangement with Company X in November 2015 but that it

had received no leads from Company X since January 2016. In fact:

(1)
Company X started conducting appointments with customers for the Firm

from around the beginning of September 2015.

(2)
As at 11 December 2015, Company X had submitted 225 leads to the Firm

and the Firm had accepted 180 of those leads. The leads included 142

customers referred for pension advice. The Authority has seen nine

Suitability Reports and draft Suitability Reports for customers who were

referred to the Firm for pension advice by Company X. In each case the

customer was advised by the Firm to invest in a SIPP account.

4.75. In August 2015, the Firm entered into an agreement with Company X to sell

customer data to it which the Firm had obtained as a result of its relationships with

HJL. The Firm received a payment of approximately £163,000 for this sale.

4.76. The Firm did not disclose this to the Authority when asked about its relationship

with Company X. It also did not provide a copy of the agreement relating to the

sale when asked to provide any agreements with Company X. This agreement,

which Mr Ward signed on behalf of the Firm, referred to HJL’s role in the Pension

Review and Advice Process in providing leads. Mr Ward said he did not think he

needed to provide the Authority with this agreement because it did not relate to

services being provided to the Firm by Company X. This was not a reasonable

explanation because the Authority had asked for any agreements with Company X.

5.
FAILINGS

5.1.
The statutory and regulatory provisions relevant to this Notice are referred to in

Annex A.

5.2.
Principle 1 required the Firm to conduct its business with integrity. A firm may lack

integrity where it acts dishonestly or recklessly.

5.3.
During the Relevant Period, the Firm breached this requirement in that:

(1)
BHIM acted dishonestly by holding out the Pension Review and Advice

Process to customers as the Firm providing bespoke, independent

investment advice based on a comprehensive and fair analysis of the whole

market. This was dishonest because BHIM knew that this was misleading to

customers as it did not reflect the reality of the service that it would provide

using the Pension Review and Advice Process.

(2)
BHIM’s actions in relation to its adoption and use of the Pension Review and

Advice Process to provide advice to its customers were reckless. The

Pension Review and Advice Process put BHIM’s customers at serious risk of

receiving unsuitable advice and therefore at serious risk of investing in

products that were not suitable for them (which in fact happened), but BHIM

closed its mind to these risks and unreasonably exposed its customers to

them by adopting and using the Pension Review and Advice Process. In

particular:

(a)
BHIM failed to carry out adequate due diligence on the Bonds before

agreeing that they should be recommended to customers. The Firm

relied solely on documents provided to it by HJL, despite knowing

that HJL had a material financial interest in a number of the Bonds,

and did not take any actions to address the risk that the information

provided by HJL could therefore be misleading or incomplete. In any

event, it should have been obvious to BHIM from the limited

information that it considered that the Bonds were high risk

investments that were unlikely to be suitable for its customers,

38

except in very limited circumstances. However, BHIM failed to give

due consideration to the risk that the Bonds were unsuitable.

(b)
BHIM knew of HJL’s involvement in the Pension Review and Advice

Process and that the process was structured to result in customers

switching their pensions to SIPPs investing in assets in a number of

which HJL had a material financial interest. It also knew that two of

HJL’s directors were directors of each of the companies issuing the

Bonds. However, BHIM took no steps to ensure that the common

directorships and how HJL was remunerated were disclosed to

customers.

(c)
BHIM failed to give due consideration to the documents to be used in

the Pension Review and Advice Process, and to how the process

would operate in practice, and therefore failed to identify significant

obvious deficiencies in the process. In any event, it should have been

obvious to BHIM from the information available to it that the Pension

Review and Advice Process did not comply with the Authority’s rules.

However, BHIM failed to give any meaningful consideration to

whether or not it was compliant.

(d)
BHIM failed to maintain control of the Pension Review and Advice

Process and allowed important parts of the process (for example, the

conduct of fact-finds) to be performed in a way that failed to obtain

and/or take into account relevant information about BHIM’s

customers. Further, BHIM failed to review in a meaningful way the

advice given through the Pension Review and Advice Process,

whether before recommendations were sent to customers or at all.

(e)
BHIM failed to put in place and operate appropriate systems and

controls and compliance arrangements to oversee and monitor the

Pension Review and Advice Process.

(f)
BHIM agreed to work with HJL and CAL without giving any proper

consideration to whether they were suitable to perform services on

its behalf. BHIM failed to carry out adequate due diligence on HJL and

CAL before agreeing to work with them.

(3)
The Firm recklessly breached a term of the Voluntary Requirement by

advising 77 customers to switch their pension to a SIPP after the Voluntary

Requirement had been imposed. BHIM was aware of the risk that it might

breach the terms of the Voluntary Requirement but, by closing its mind to

that risk, recklessly failed to take reasonable steps to ensure that these

transactions were permitted.

(4)
BHIM told the Authority that:

(a)
HJL had no involvement in the Pension Review and Advice Process,

when the Firm knew that it did, in particular by introducing customers

to the Firm; and

(b)
it started working with CAL in December 2014 and sought to

terminate its agreement with CAL in February 2015, when the Firm

knew that it in fact started working with CAL in October 2014 and did

not seek to terminate its agreement until July 2015.

The Authority considers the Firm made these false and misleading

statements deliberately in order to try to prevent the Authority identifying

misconduct by the Firm, Mr Ward and Mr Freer, and thereby acted

dishonestly.

(5)
BHIM acted dishonestly by deliberately telling the Authority that it did not

have minutes of board meetings when, in fact, the Firm kept formal minutes

of meetings which were approved by Mr Ward and Mr Freer (and others).

(6)
BHIM recklessly failed to be open and cooperative, and provided the

Authority with incomplete and inaccurate information, in response to

requests made by the Authority to BHIM. BHIM closed its mind to the risk

that the information it was providing to the Authority might be incomplete

or inaccurate, and failed to take reasonable steps to ensure that the

information it provided to the Authority was complete and accurate. As a

result, BHIM:

(a)
failed to comply with a requirement imposed by the Authority to

provide certain of Mr Ward’s emails;

(b)
provided the Authority with a copy of its new business register on 21

September 2016 which was materially incomplete; and

(c)
failed to comply with the Authority’s request to provide it with the full

name of Company X and a copy of the Firm’s agreement with

Company X.

Section 20 of the Act

5.4.
The Firm breached section 20 of the Act by carrying on a regulated activity without

the relevant permission by advising on five Pension Transfers between 24

November 2014 and 27 July 2015.

6.
SANCTION

Financial penalty

6.1.
The Authority considers it is appropriate to impose a financial penalty on BHIM

under section 206 of the Act in respect of its breaches of Principle 1 and section 20

of the Act.

6.2.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of

DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority

applies a five-step framework to determine the appropriate level of financial

penalty. DEPP 6.5A sets out the details of the five-step framework that applies in

respect of financial penalties imposed on firms.

Step 1: disgorgement

6.3.
Pursuant to DEPP 6.5A.1G, at Step 1 the Authority seeks to deprive a firm of the

financial benefit derived directly from the breach where it is practicable to quantify

this.

6.4.
The Firm derived direct financial benefit from the sale to Company X of customer

data obtained as a result of the Firm’s business arrangements with HJL. The amount

received totalled £162,557. It is not practicable to quantify any other benefit that

the Firm derived from its breaches of Principle 1 and section 20 of the Act.

6.5.
In accordance with DEPP 6.5A.1G, the Authority has charged interest on the Firm’s

benefit at 8% per year from receipt, amounting to £41,482.

6.6.
Step 1 is therefore £204,039.

Step 2: the seriousness of the breach

6.7.
Pursuant to DEPP 6.5A.2G, at Step 2 the Authority determines a figure that reflects

the seriousness of the breach. Where the amount of revenue generated by a firm

from a particular product line or business area is indicative of the harm or potential

harm that its breach may cause, that figure will be based on a percentage of the

firm’s revenue from the relevant products or business area.

6.8.
The Authority considers that the revenue generated by the Firm is indicative of the

harm or potential harm caused by its breaches of Principle 1 and section 20 of the

Act. The Authority has therefore determined a figure based on a percentage of the

Firm’s relevant revenue. The Firm’s relevant revenue is the revenue derived by the

Firm from the Pension Switches and Pension Transfers conducted as a result of the

Pension Review and Advice Process and from the Pension Switches conducted in

contravention of the Voluntary Requirement during the Relevant Period. The

Authority considers the Firm’s relevant revenue to be £430,743.

6.9.
In deciding on the percentage of the relevant revenue that forms the basis of the

step 2 figure, the Authority considers the seriousness of the breach and chooses a

percentage between 0% and 20%. This range is divided into five fixed levels which

represent, on a sliding scale, the seriousness of the breach; the more serious the

breach, the higher the level. For penalties imposed on firms there are the following

five levels:

Level 1 – 0%

Level 2 – 5%

Level 3 – 10%

Level 5 – 20%

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

which reflect the impact and nature of the breach, and whether it was committed

deliberately or recklessly. The Authority considers the following factors to be

relevant:

Impact of the breach

6.11. The Firm adopted the Pension Review and Advice Process motivated by the prospect

of making significant financial gain for doing very little (DEPP 6.5A.2G(6)(a)).

6.12. The Firm’s breach of Principle 1 caused a significant risk of loss to a large number

of customers who switched or transferred their pensions to SIPPS investing in the

Bonds (DEPP 6.5A.2G(6)(c)).

6.13. A large number of customers were given advice through the Pension Review and

Advice Process, including some who were vulnerable due to their age, their inability

to replace capital, their medical conditions or other personal circumstances (DEPP

Nature of the breach

6.14. The Firm breached Principle 1 and section 20 of the Act over an extended period of

time (DEPP 6.5A.2G(7)(a) and (b)).

6.15. The breaches of Principle 1 and section 20 of the Act revealed serious systemic

weaknesses in the Firm’s systems and controls (DEPP 6.5A.2G(7)(c)).

6.16. Mr Ward, as the chief executive and a director of BHIM, and Mr Freer, as a director

and the compliance officer of BHIM, held senior positions at the Firm and were

responsible for the Firm’s breaches of Principle 1 and section 20 of the Act (DEPP

6.5A.2G(7)(d)).

6.17. The Firm failed to conduct its business with integrity because it acted dishonestly

and/or recklessly throughout the Relevant Period (6.5A.2G(7)(g)).

Reckless misconduct

6.18. The Firm acted recklessly in respect of the Pension Review and Advice Process, as

described in paragraph 5.3(2) of this Notice (DEPP 6.5A.2G(9)(a)).

6.19. The Firm failed to be open and cooperative and recklessly provided incomplete and

misleading information to the Authority, as described in paragraph 5.3(6) of this

Notice (DEPP 6.5A.2G(9)(a)).

6.20. The Firm recklessly advised customers to switch their pensions to a SIPP in

contravention of the Voluntary Requirement (DEPP 6.5A.2G(9)(a)).

Deliberate misconduct

6.21. The Firm deliberately misled customers by holding itself out to customers as

providing bespoke, independent investment advice based on a comprehensive and

fair analysis of the whole market when, as it knew, this did not reflect the reality

of the service that it would provide using the Pension Review and Advice Process

(DEPP 6.5A.2G(8)(b)).

6.22. The Firm deliberately provided false and misleading information to the Authority

about its business arrangements with HJL and CAL in order to conceal its

misconduct. The Firm also deliberately told the Authority that it did not have

minutes of board meetings when, in fact, the Firm kept formal minutes of meetings

which Mr Freer and Mr Ward (and others) approved (DEPP 6.5A.2G(8)(c)).

Level of seriousness

6.23. DEPP 6.5A.2G(11) lists factors likely to be considered ‘level 4 or 5 factors’. Of these,

the Authority considers the following factors to be relevant:

(1)
the Firm’s breach of Principle 1 caused a significant risk of loss to a large

number of customers (DEPP 6.5A.2G(11)(a));

(2)
the Firm’s breaches of Principle 1 and section 20 of the Act revealed serious

and systemic weaknesses in its procedures, its management systems and

its internal controls relating to its pension advice business (DEPP

6.5A.2G(11)(b));

(3)
the Firm failed to conduct its business with integrity (DEPP 6.5A.2G(11)(e));

and

(4)
the Firm’s breach of Principle 1 was committed deliberately and recklessly

(DEPP 6.5A.2G(11)(f)). The Firm’s breach of section 20 of the Act was

committed recklessly (DEPP 6.5A.2G(11)(f)).

6.24. DEPP 6.5A.2G(12) lists factors likely to be considered ‘level 1, 2 and 3 factors’. The

Authority considers that none of these factors apply.

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

the breach to be level 5 and so the Step 2 figure is 20% of £430,743.

6.26. Step 2 is therefore £86,148.

Step 3: mitigating and aggravating factors

6.27. Pursuant to DEPP 6.5A.3G, at Step 3 the Authority may increase or decrease the

amount of the financial penalty arrived at after Step 2, but not including any

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

aggravate or mitigate the breach.

6.28. The Authority considers that the following factors aggravate the breach:

(1)
the Firm previously acted for customers who invested their pensions in

carbon credits (another high risk unregulated investment). The Authority

had concerns with this business and on 16 June 2014, on the application by

the Firm, the Authority imposed a restriction on the type of investments that

it could offer customers. BHIM was therefore aware of the Authority’s

concerns with customers investing their pensions in high risk unregulated

investments (DEPP 6.5A.3G(2)(i));

(2)
on 18 January 2013 and 28 April 2014 the Authority issued alerts to firms

advising on Pension Transfers with a view to investing pension monies into

unregulated products through SIPPs (DEPP 6.5A.3G(2)(k)); and

(3)
in June 2014 the Authority specifically sent copies of the alerts referred to

above to BHIM and highlighted the Authority’s concerns. Despite this

correspondence with the Authority, about three months later the Firm

adopted the Pension Review and Advice Process (DEPP 6.5A.3G(2)(f)).

6.29. The Authority considers that there are no factors that mitigate the breach.

6.30. Having taken into account these aggravating factors, the Authority considers that

the Step 2 figure should be increased by 25%.

6.31. Step 3 is therefore £107,685.

Step 4: adjustment for deterrence

6.32. Pursuant to DEPP 6.5A.4G, if the Authority considers the figure arrived at after Step

3 is insufficient to deter the firm that committed the breach, or others, from

committing further or similar breaches, then the Authority may increase the

penalty.

6.33. The Authority considers that the Step 3 figure of £107,685 is a sufficient deterrent

to the Firm and others.

6.34. Step 4 is therefore £107,685.

Step 5: settlement discount

6.35. Pursuant to DEPP 6.5A.5G, if the Authority and the firm on whom a penalty is to

be imposed agree the amount of the financial penalty and other terms, DEPP 6.7

provides that the amount of the financial penalty which might otherwise have been

payable will be reduced to reflect the stage at which the Authority and the firm

reached agreement. The settlement discount does not apply to the disgorgement

of any benefit calculated at Step 1.

6.36. No settlement discount applies.

6.37. The Step 5 figure is therefore £107,600 (rounded down to the nearest £100).

6.38. The Authority therefore has decided to impose a total financial penalty of £311,639

(including the Step 1 disgorgement figure of £204,039) on the Firm for breaching

Principle 1 and section 20 of the Act.

7.
PROCEDURAL MATTERS

7.1.
This Final Notice is given under, and in accordance with, section 390 of the Act.

7.2.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of

information about the matter to which this Final Notice relates. Under those

provisions, the Authority must publish such information about the matter to which

the notice relates as the Authority considers appropriate. The information may be

published in such manner as the Authority considers appropriate. However, the

Authority may not publish information if such publication would, in the opinion of

the Authority, be unfair to the person with respect to whom the action is taken or

prejudicial to the interests of consumers or detrimental to the stability of the UK

financial system.

7.3.
The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

Authority contacts

7.4.
For more information concerning this matter generally, contact Helen Tibbetts

(direct line: 020 7066 0656) at the Authority.

Enforcement and Market Oversight Division

ANNEX A

1.
RELEVANT STATUTORY PROVISIONS

1.1.
The Authority’s objectives are set out in Part 1A of the Act, and include the

operational objective of securing an appropriate degree of protection for consumers

(section 1C).

1.2.
Under section 206 of the Act, if the Authority considers that an authorised person

has contravened a relevant requirement imposed on the person it may impose on

him a penalty, in respect of the contravention, of such amount as it considers

appropriate.

1.3.
Under section 20(1) of the Act, if an authorised person, other than a PRA authorised

person, carries on a regulated activity in the United Kingdom, or purports to do so,

otherwise than in accordance with permission— (a) given to that person under Part

4A, or (b) resulting from any other provision of this Act, he is to be taken to have

contravened a requirement imposed on him by the Authority under the Act.

2.
RELEVANT REGULATORY PROVISIONS

Principles for Businesses

2.1.
PRIN 1.1.2G states that the Principles are a general statement of the fundamental

obligations of firms under the regulatory system. During the Relevant Period PRIN

included Principle 1: “A firm must conduct its business with integrity” and Principle

3: “A firm must take reasonable care to organise and control its affairs responsibly

and effectively, with adequate risk management systems.”

2.2.
EG sets out the Authority’s approach to exercising its main enforcement powers

under the Act.

2.3.
Chapter 7 of EG sets out the Authority’s approach to exercising its power to impose

financial penalties and other disciplinary sanctions.

Decision Procedure and Penalties Manual

2.4.
The Authority’s policy for imposing penalties is set out in Chapter 6 of DEPP.

Conduct of Business Sourcebook

2.5.
The Authority’s rules and guidance for Conduct of Business are set out in COBS.

The rules and guidance in COBS relevant to this Notice are 2.1.1R, 4.2.1R, 9.2.1R,

9.2.6R, 9.3.1G and the rules in 9.4.

Senior Management Arrangements, Systems and Controls Sourcebook

2.6.
The Authority’s rules and guidance for senior management arrangements, systems

and controls are set out in SYSC. The rules and guidance in SYSC relevant to this

Notice are 7.1.2R, 7.1.2AG, 8.1.1R, 8.1.1AG, 8.1.7R, 8.1.8R(1) and 8.1.11AG.