1

Robert Ward has referred this Decision Notice to the
Upper Tribunal where the parties will present their
respective cases. Any findings in this Decision Notice are
therefore provisional and reflect the Authority’s belief
as to what occurred and how it considers the behaviour
of Robert Ward should be characterised. The Tribunal
will determine what (if any) is the appropriate action for
the FCA to take, and will remit the matter to the FCA
with
such
directions
as
the
Tribunal
considers

appropriate to give effect to its determination. The
Tribunal’s decision will be made public on its website.
No allegation of wrongdoing is made against Hennessy
Jones Limited, Mark Stephen, James King or City
Administration Limited in this Decision Notice.

DECISION NOTICE

Individual
Reference
Number:
RXW00035

and

(as an interested party pursuant to section 63(3) of the Act)

Date:
6 December 2018

1.
ACTION

1.1.
For the reasons given in this Notice, the Authority has decided to:

(1)
impose on Robert Ward a financial penalty of £88,100, pursuant to section

66 of the Act;

(2)
withdraw the approval given to Mr Ward to perform the controlled functions

of CF1 (Director) and CF3 (Chief Executive), pursuant to section 63 of the

Act; and

2

(3)
make an order, pursuant to section 56 of the Act, prohibiting Mr Ward from

performing any function in relation to any regulated activity carried on by

an authorised person, exempt person or exempt professional firm.

2.
SUMMARY OF REASONS

2.1.
The Authority has determined that, between 9 September 2014 and 12 December

2016, Mr Ward demonstrated a lack of integrity by acting dishonestly and recklessly

in relation to Bank House Investment Management’s (“BHIM”) pension advice

business. Further, between 16 October and 12 December 2016 (the “Relevant

Period”), after gaining approval from the Authority to perform controlled functions,

Mr Ward breached Statement of Principle 1 (Integrity) of the Authority’s Statements

of Principle for Approved Persons.

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.
On 16 October 2014, Mr Ward was approved by the Authority to perform the CF1

(Director) and CF3 (Chief Executive) controlled functions at BHIM, a small firm

authorised by the Authority with permission to conduct regulated activities,

including advising on investments (excluding Pension Transfers) and arranging

(bringing about) deals in investments. However, Mr Ward took over active

management and day-to-day responsibility for BHIM during the summer of 2014

and, in any event, by 9 September 2014.

3

2.5.
Between 9 September 2014 and 27 July 2015, Mr Ward (together with Mr Freer, a

director, compliance officer and financial adviser at BHIM) was responsible for BHIM

adopting and using 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 switching advice model was introduced

to Mr Ward by a representative from HJL in a meeting on 9 September 2014. 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)

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 containing personal recommendations);

(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. This did not reflect the reality of the service that

BHIM would provide using the Pension Review and Advice Process and was

misleading to customers. As a result, 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.
Mr Ward’s actions in relation to BHIM’s 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 Mr Ward closed his mind to these risks and

unreasonably exposed BHIM’s customers to them by allowing BHIM to adopt and

use the Pension Review and Advice Process.

2.8.
Mr Ward failed to take reasonable steps to ensure that BHIM carried out adequate

due diligence on the Bonds to ensure that it had a proper understanding of them,

including their risks and benefits, before agreeing that they should be

recommended to BHIM’s customers. Mr Ward delegated the Firm’s due diligence on

the Bonds to Mr Freer but did nothing to satisfy himself that the due diligence had

been carried out to a reasonable standard other than asking Mr Freer if he was

happy with his own due diligence.

2.9.
Had Mr Ward taken reasonable steps to satisfy himself as to the adequacy of BHIM’s

due diligence and the suitability of the Bonds, it would have been obvious to him

that Mr Freer’s due diligence was inadequate and, from the (albeit limited)

information that Mr Freer considered, that the Bonds were high risk investments

that were unlikely to be suitable for BHIM’s customers, except in very limited

circumstances. Mr Freer relied solely on documents provided to BHIM 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.

5

2.10. Mr Ward 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, Mr Ward must have known that two of the directors of HJL

(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, Mr Ward failed to take

reasonable steps to ensure that the common directorships and how HJL was

remunerated were disclosed to customers.

2.11. As an individual with significant experience in financial services, it should have been

obvious to Mr Ward that BHIM 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 that BHIM should adopt the process. Mr Ward

told the Authority that he relied on Mr Freer to ensure that the Pension Review and

Advice Process was compliant. However, Mr Ward failed to take reasonable steps

to ensure that Mr Freer’s review of the process, and the documents to be used in

the process, was adequate. Had Mr Ward taken such steps, it would have been

clear to him that Mr Freer’s review was in fact wholly inadequate. Mr Freer failed to

identify significant obvious deficiencies in the Pension Review and Advice Process,

including that: the fact-find contained 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 Mr Ward that there was a significant

risk that the Pension Review and Advice Process did not comply with the Authority’s

rules. Mr Ward was aware that BHIM would have no meaningful involvement in the

advice to be given and that the Pension Review and Advice Process, as it was based

on the pension switching advice model presented to him by the representative from

HJL on 9 September 2014, would be structured to lead to recommendations to

customers to invest in the Bonds, in a number of which HJL had a material financial

interest. However, Mr Ward failed to give any meaningful consideration to whether

or not the Pension Review and Advice Process was compliant.

6

2.13. Mr Ward failed to take reasonable steps to ensure that BHIM maintained 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, he

failed to take reasonable steps to ensure that BHIM reviewed in a meaningful way

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. Mr Ward failed to take reasonable steps to ensure that BHIM 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. Mr Ward agreed (together with Mr Freer) that BHIM would work with HJL and CAL

without giving any proper consideration to whether they were suitable to perform

services on behalf of the Firm. Mr Ward did not carry out any due diligence on HJL

himself, and failed to take reasonable steps to ensure that BHIM carried out due

diligence on HJL. The Firm’s due diligence on CAL consisted simply of checking the

company’s details on Companies House and Mr Ward and Mr Freer visiting its office

to satisfy themselves that the company existed and was operating.

2.16. During the Relevant Period, once he had been approved by the Authority to perform

the CF1 (Director) and CF3 (Chief Executive) controlled functions, Mr Ward acted

recklessly in that he continued to close his mind to the serious risk that BHIM’s

customers would receive unsuitable advice, and therefore to the serious risk that

they would invest in products that were not suitable for them, and unreasonably

exposed BHIM’s customers to those risks by continuing to allow, until the Authority

intervened in July 2015:

(1)
the Firm to use the Pension Review and Advice Process;

(2)
the Bonds to be recommended to BHIM’s customers, despite clear warnings

from SIPP providers in April 2015 that the Bonds might be unsuitable for

BHIM’s customers; and

(3)
the Firm to work with HJL and CAL.

7

In doing so, Mr Ward exposed BHIM’s customers to a significant risk of harm.

2.17. Mr Ward’s reckless actions in relation to BHIM’s adoption and use of the Pension

Review and Advice Process, in particular the fact that he allowed HJL and CAL to

perform the Outsourced Functions on BHIM’s behalf without adequate supervision,

and failed to ensure BHIM put in place and operated appropriate systems and

controls in relation to the Pension Review and Advice Process, exposed BHIM 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 by BHIM in breach of section 20 of the Act.

2.18. 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.

2.19. 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.

2.20. Mr Ward allowed BHIM to adopt the Pension Review and Advice Process in order to

generate fees for the Firm and to increase the number of customers that the Firm

could advise about other investments, and thereby generate further fees. In doing

so, Mr Ward put his and the Firm’s interests before those of the Firm’s customers.

2.21. Mr Ward also acted dishonestly or recklessly in several other ways during the

Relevant Period, as described in paragraphs 2.22 to 2.25 below.

2.22. Mr Ward recklessly allowed BHIM to breach a term of a requirement which, on its

application, had been imposed on it on 17 September 2015 (the Voluntary

Requirement). The 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. Mr Ward was aware of the terms of the Voluntary Requirement and the

relevant transactions. He was also aware of the risk that BHIM might breach the

terms of the Voluntary Requirement but, by closing his mind to that risk, recklessly

failed to take reasonable steps to ensure that these transactions were permitted.

2.23. Mr Ward provided the Authority with false and misleading information about BHIM’s

business arrangements with HJL and CAL. Mr Ward did so dishonestly in order to

try to prevent the Authority from identifying misconduct by himself, Mr Freer and

the Firm.

2.24. Mr Ward also dishonestly told the Authority that the Firm did not have minutes of

board meetings when, in fact, the Firm kept formal minutes of meetings which he

(and others) approved.

2.25. Mr Ward failed to be open and cooperative with the Authority, and provided it with

incomplete and inaccurate information. Mr Ward closed his mind to the risk that

the information he was providing to the Authority might be incomplete or

inaccurate, and recklessly failed to take reasonable steps to ensure that BHIM

provided complete and accurate responses to requests by the Authority for

information and documents relating to BHIM’s business. As a result, Mr Ward:

(1)
failed to ensure that BHIM provided the Authority with certain of his emails

which were obviously relevant to the Authority’s investigation;

(2)
provided the Authority (on behalf of BHIM) with a copy of the Firm’s new

business register which was materially incomplete; and

(3)
failed to ensure that BHIM provided 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.

2.26. The Authority considers Mr Ward’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 Mr Ward 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 he took no steps to ensure that HJL’s

financial interest was disclosed to customers;

(3)
given his experience in financial services, it should have been obvious to Mr

Ward 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 the Firm 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 Mr Ward did not take steps to protect the Firm’s

customers.

2.27. 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.

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

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

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

carry on any regulated activity.

2.29. 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 BHIM’s customers.

2.30. The Authority considers that Mr Ward’s reckless and dishonest conduct between 9

September 2014 and 12 December 2016 demonstrates that he lacks integrity and

is not a fit and proper person. Accordingly, the Authority has decided that it is

appropriate to withdraw his approval to perform controlled functions and to impose

a prohibition order on him, as described in paragraph 1.1(2) and (3) of this Notice.

Further, the Authority has decided to impose a financial penalty on Mr Ward in the

amount of £88,100 for his breach of Statement of Principle 1 during the Relevant

Period.

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 and 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

and 27 July 2015

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

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

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

to BHIM from around September 2015

“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)

“Relevant Period” means 16 October 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 a 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 Mr Ward dated 5 March

4.
FACTS AND MATTERS

4.1.
Mr Ward has over 30 years of experience of working in the financial services sector,

including many years working as a financial adviser. Mr Ward has worked for BHIM

since the Firm was authorised by the Authority in 2006, became the chief executive

of BHIM in the summer of 2014, and has been approved by the Authority to perform

the CF1 (Director) and CF3 (Chief Executive) controlled functions at BHIM since 16

October 2014. Mr Ward held these controlled functions throughout the Relevant

Period. As the chief executive and a director of BHIM, Mr Ward had active

management and day-to-day responsibility for the business of the Firm together

with Mr Freer, who was an experienced and qualified financial adviser and was

approved to perform the CF1 (Director), CF10 (Compliance Oversight), CF11

(Money Laundering Reporting) and CF30 (Customer) controlled functions.

4.2.
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.

4.3.
Mr Ward was responsible (together with Mr Freer) for the Firm using, from around

11 September 2014 until 27 July 2015, 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 that he 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 in the process 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, on Mr Ward’s instructions, BHIM provided HJL with a

copy of its company logo and Mr Ward provided HJL with 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 for HJL 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.” These statements were highly misleading as they 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). Mr Ward signed this agreement

on behalf of the Firm.

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

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

director and the chief executive 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

Ward failed to take reasonable steps to ensure that the Firm carried out adequate

due diligence on them.

4.25. Mr Ward told the Authority that he relied on Mr Freer to carry out due diligence on

the Bonds and assess their suitability for customers. However, Mr Ward did nothing

to satisfy himself that Mr Freer had carried out adequate due diligence on the

Bonds, beyond asking him if he was satisfied with his own due diligence. Mr Freer’s

due diligence was in fact wholly inadequate. For example, Mr Freer relied solely on

documents provided to BHIM by HJL, despite the fact that HJL had a material

financial interest in the Bonds (issued by three of the four issuing companies), and

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

could be misleading or incomplete. Mr Freer also did not adequately assess 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).

4.26. Had Mr Ward taken reasonable steps to satisfy himself that Mr Freer had conducted

adequate due diligence, such as asking Mr Freer what information he considered as

part of his due diligence and discussing Mr Freer’s findings with him, it would have

been obvious to him, given his extensive career in financial services, that Mr Freer’s

due diligence was in fact wholly inadequate and, from the (albeit limited)

information available to Mr Freer, 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).

4.27. Under the Pension Review and Advice Process, advice was given to customers to

use one of two SIPP Providers that had been suggested to BHIM 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”. When asked by the Authority, Mr Ward said that

the providers he approached ‘kept coming up with no, no, no, no, no’. This should

have been a red flag to Mr Ward about the high risk nature of the Bonds. However,

he continued to allow the Bonds to be recommended to customers until the

Authority intervened in July 2015.

The Pension Review and Advice Process

4.28. As Mr Ward was aware, 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).

4.29. 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.

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

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

4.31. 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.

4.32. 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.

4.33. Mr Ward 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 Ward knew that 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.

4.34. 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.

4.35. 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

4.36. Mr Ward was a senior individual at BHIM with considerable experience in the

financial services sector. It should have been obvious to him that, before adopting

the Pension Review and Advice Process, BHIM needed to give due consideration to

the documents to be used in the process, and to how the process would operate in

practice. However, Mr Ward failed to ensure that BHIM did so, either before

adopting the process or at all.

4.37. 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 to let Mr Ward know if he had any concerns, Mr Ward did nothing to

ensure that Mr Freer’s review of the process, and the documents to be used in the

process, was adequate. Mr Freer’s review was in fact wholly inadequate. Mr Freer

spent very little time scrutinising the documents to be used in the Pension Review

and Advice Process, and agreed that BHIM should adopt the process only two days

after Mr Ward’s initial meeting with the HJL representative.

4.38. Mr Ward knew that the only products available for recommendation to customers

through the Pension Review and Advice Process were the Bonds and that the

Pension
Review
and
Advice
Process
had
been
structured
to
lead
to

recommendations to customers to invest in the Bonds. Given this knowledge, Mr

Ward, as the chief executive of BHIM, should have taken reasonable steps to satisfy

himself that the information to be provided to customers under the Pension Review

and Advice Process reflected the limited service that customers would receive. Such

steps could have included, for example, asking Mr Freer how the Pension Review

and Advice Process would be explained to customers and reading the documents

to be provided to customers through the process.

4.39. Had Mr Ward taken reasonable steps, he would have identified that customers were

provided with documents in BHIM’s name that contained misleading statements

about the service they would receive and that, as a result, the Pension Review and

Advice Process would not comply with regulatory requirements. For example,

customers were given a service proposition which they 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.”

4.40. These statements were misleading as advice would be given through an automated

process without any meaningful assessment of individual customers’ needs, the

only products that would be recommended to customers through the Pension

Review and Advice Process were the Bonds and the Outsourced Functions were

intended to be performed on BHIM’s behalf initially by HJL (which had a material

financial interest in the Bonds) and then, from 13 October 2014, by CAL, which was

closely connected to HJL.

4.41. As HJL had a material financial interest in a number of the Bonds, its involvement

in the Pension Review and Advice Process created an obvious conflict of interest.

Mr Ward was aware of HJL’s financial interest in a number of the Bonds, that HJL

had initiated and been involved in the development of the pension switching advice

model on which the Pension Review and Advice Process was based, and of the close

relationship between HJL and CAL. In addition, Mr Ward must have known that two

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

the companies issuing the Bonds. However, Mr Ward did not check with Mr Freer

whether customers were made aware of these common directorships or of how HJL

was remunerated. When questioned by the Authority, Mr Ward accepted that HJL’s

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

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

and was not.

4.42. If Mr Ward had taken reasonable steps to ensure that Mr Freer had conducted an

adequate review of the Pension Review and Advice Process, and to ensure that he

had properly scrutinised the documents to be used in the process, Mr Ward would

have identified that Mr Freer’s review was wholly inadequate and the process

obviously non-compliant. In particular, Mr Freer failed to identify significant obvious

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

contained 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.

4.43. In any event, it should have been obvious to Mr Ward, given his experience, that

there was a significant risk that the Pension Review and Advice Process was not

compliant with the Authority’s rules. Mr Ward was aware that BHIM would have no

meaningful involvement in the advice to be given and that the process was

structured to result in customers being recommended to switch their pensions to

SIPPs investing in the Bonds, in a number of which HJL had a material financial

interest. However, Mr Ward allowed BHIM to adopt and use the Pension Review

and Advice Process without giving any meaningful consideration to whether or not

the process was compliant or to the interests of customers.

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

4.44. As Mr Ward was aware, 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, Mr Freer’s

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 personal recommendation was suitable for the

customer. There was also no mechanism for Mr Freer to confirm to CAL 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 Report 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)
Mr Freer had no contact with customers during the Pension Review and

Advice Process unless specifically requested.

4.45. Having agreed to the Firm adopting the Pension Review and Advice Process in

September 2014, Mr Ward permitted the Firm to continue to use the process until

the Authority’s intervention in July 2015. During this time Mr Ward had ample

opportunity to identify and address the obvious deficiencies in the process, but

failed to do so.

4.46. Mr Ward failed to ensure that the Firm put in place appropriate systems and controls

to address the obvious risks associated with the Pension Review and Advice

Process. For example, he failed to take reasonable steps to ensure that:

(1)
the Firm adequately monitored HJL’s lead generation activities. In fact, as

Mr Ward knew, the Firm did not monitor HJL at all and therefore Mr Ward

did not know whether leads were obtained by unlawful cold calling;

(2)
the Firm had access to information about activities conducted by HJL and

CAL on behalf of BHIM. For example, Mr Ward failed to ensure that the

agreement that he signed on behalf of the Firm 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.

(3)
the Firm adequately monitored CAL. Mr Ward was aware that the only

method the Firm used to monitor CAL’s performance of the Outsourced

Functions was through the compliance file checks that Mr Freer conducted,

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’.

4.47. Mr Ward should have realised that the Firm’s compliance arrangements for this

business were wholly inadequate.

(1)
Mr Ward knew that 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. Mr Ward 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)
The Pension Review and Advice Process had been operating for over four

months before Mr Freer conducted his first compliance check. Mr Ward was

aware of this. 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

4.48. 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 risks (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 (SYSC8.1.7R 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).

4.49. Mr Ward 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.

4.50. Mr Ward agreed to BHIM working with HJL two days after his initial meeting with a

representative of the company, despite knowing that BHIM had carried out no due

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

issuing the Bonds.

4.51. As Mr Ward was aware, BHIM’s due diligence on CAL comprised checking CAL’s

details on the Companies House website and Mr Ward and Mr Freer attending

meetings at CAL’s offices. However, these meetings were to satisfy Mr Ward and

Mr Freer that CAL actually existed and was operating, rather than to assess whether

it was fit to perform the Outsourced Functions.

4.52. Mr Ward permitted the Firm to work with HJL and CAL until July 2015. Throughout

this period, Mr Ward continued to fail to give any proper consideration to whether

HJL or CAL were suitable to perform the Outsourced Functions on behalf of the

Motivation

4.53. In deciding that BHIM should adopt and continue to use the Pension Review and

Advice Process, Mr Ward focused on the potential for the Firm to earn fees and the

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

before those of its customers and, in doing so, put customers at a significant risk

of harm.

4.54. 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.

4.55. Mr Ward was 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.

The Authority’s review of 20 customer files

4.56. 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.

4.57. 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.

4.58. 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.

4.59. 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 them. 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

suitable for a customer’s demands and needs and also 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 from a number of the Bonds (COBS 2.1.1R and

9.2.1R).

4.60. 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

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 their 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 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 the 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

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

HJL and CAL to perform the Outsourced Functions on BHIM’s behalf, failing to

ensure that BHIM reviewed in a meaningful way advice given through the Pension

Review and Advice Process, and failing to ensure BHIM put in place and operated

appropriate systems and controls in relation to the Pension Review and Advice

Process, Mr Ward exposed the Firm to the risk of breaching section 20 of the Act

by carrying on a regulated activity without the relevant permission. This in fact

30

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.

Breaches of the Voluntary Requirement

4.62. 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.

4.63. Mr Ward signed the Voluntary Requirement on behalf of BHIM and was aware of

the terms of the Voluntary Requirement.

4.64. 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.

4.65. Despite this, between 5 October 2015 and 10 November 2016, Mr Freer and other

advisers at the Firm advised (with Mr Ward’s knowledge) a total of 77 customers

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

to the Firm by Company X.

4.66. 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). He also told the Authority that he

believed that switches to SIPPs investing in discretionary management funds were

not covered by the Voluntary Requirement. However, it was clear from the terms

of the Voluntary Requirement that BHIM was not permitted to carry on activities in

relation to any Pension Switch to any SIPP. There was therefore an obvious risk

that the transactions could contravene the terms of the Voluntary Requirement.

This risk should have been particularly obvious to Mr Ward as he signed the

application for the Voluntary Requirement and corresponded with the Authority in

relation to the Voluntary Requirement both before and after it was imposed. Mr

Ward did not take any steps to verify the assurances given by Mr Freer or otherwise

ensure that the transactions were permitted.

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

the Voluntary Requirement. When the Authority became aware of this, the Authority

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

4.68. Mr Ward repeatedly provided the Authority with information about the Firm’s

business which was false, incomplete or misleading. Mr Ward claimed that he had

not intended to mislead the Authority. However, he provided information which he

must have known at the time was not true. The Authority considers that Mr Ward

did so to try to prevent the Authority from identifying misconduct by himself, Mr

Freer and the Firm in relation to the Pension Review and Advice Process and the

Firm’s business arrangements with HJL and CAL.

4.69. Mr Ward 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)
Mr Ward repeatedly told the Authority he had no idea that HJL had any

involvement in the Pension Review and Advice Process despite:

(a)
meeting with a representative from HJL on 9 September 2014;

(b)
corresponding with HJL by email repeatedly in relation to the Pension

Review and Advice Process;

(c)
receiving documents at the meeting on 9 September 2014 and by

email on 12 September 2014, which clearly showed HJL’s intended

involvement in the Pension Review and Advice Process. These

included an agreement for HJL to generate leads and perform the

Outsourced Functions on behalf of the Firm; and

(d)
signing an agreement with Company X in around August 2015 which

explicitly referred to HJL’s involvement in the Pension Review and

Advice Process in the recitals section.

(2)
Mr Ward also told the Authority that the Firm started working with CAL in

December 2014, that he 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; as mentioned in paragraphs 4.15 and 4.17 above, the

Firm started working with CAL in October 2014 and continued to work with

it until 27 July 2015. Mr Ward must have known this because he continued

to communicate with CAL during this time and was responsible for

terminating the Firm’s relationship with CAL on 27 July 2015. Further, when

providing an explanation to the Authority, Mr Ward was aware of

contemporaneous documents which demonstrated that his accounts were

not true. On 15 July 2015 Mr Ward obtained a copy of the Firm’s contract

with CAL, which is dated 13 October 2014. He did not provide the contract

to the Authority, despite being aware that the Authority had requested a

copy of it. Instead, at a meeting held with the Authority at his request on

14 August 2016, he again told the Authority that the Firm started working

with CAL in December 2014.

4.70. The Authority considers that Mr Ward 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 he and Mr Freer 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 Mr Ward at the time.

4.71. Mr Ward also told the Authority the Firm did not have minutes of board meetings

when, in fact, the Firm kept formal minutes of meetings from 14 July 2014 at the

latest. The minutes were approved by the board (which included Mr Ward) at the

beginning of the following board meeting. Mr Ward must have known this. 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.

4.72. Mr Ward failed to check the Firm’s response when purporting to comply with a

requirement imposed on the Firm by the Authority to provide certain of Mr Ward’s

emails. The Firm 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 unsigned

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

4.73. Mr Ward provided the Authority with incomplete and misleading information about

the Pension Switches that the Firm had conducted in contravention of the terms of

the Voluntary Requirement. On 21 September 2016 Mr Ward provided the

Authority with a copy of the Firm’s 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. Mr Ward failed to check the new business register before

providing it to the Authority. If he had checked it, it would have been obvious to

him that it was incomplete and omitted relevant material.

4.74. Mr Ward also failed to be open and cooperative with the Authority, and provided

the Authority with incomplete and misleading information, about the Firm’s

relationship with Company X. The Authority became aware in December 2015 that

the Firm had a business arrangement with Company X. The Authority asked Mr

Ward to provide details about Company X and its relationship with the Firm. When

Mr Ward provided his response in January 2016 he did not provide the full company

name but rather indicated that he knew Company X by a trading title. However,

Company X’s name was easily available to Mr Ward, both from emails he received

from Company X and from an agreement he signed with Company X in August

2015. 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 HJL.

4.75. 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 on behalf of

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.

4.76. In August 2015, the Firm entered into an agreement with Company X to sell to it

customer data which the Firm had obtained as a result of its relationships with HJL.

Mr Ward signed the agreement on behalf of the Firm. The Firm received a payment

of approximately £163,000 for this sale.

4.77. Mr Ward did not disclose this to the Authority when asked about the Firm’s

relationship with Company X. Mr Ward 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. Given the Authority’s

interest in the Firm’s dealings with Company X, Mr Ward should have taken

reasonable steps to ensure that he properly understood the Authority’s request.

Had he done so, it should have been obvious to him that the agreement with

Company X fell within the Authority’s request, as the Authority had asked for a

copy of “any contractual agreement between BHIM and [Company X]”.

5.
FAILINGS

5.1.
The statutory and regulatory provisions relevant to this Notice are referred to in

Annex A.

Lack of fitness and propriety

5.2.
Between 9 September 2014 and 15 October 2014 (prior to obtaining approval from

the Authority to perform controlled functions), Mr Ward’s actions in relation to

BHIM’s adoption and use of the Pension Review and Advice Process to provide

advice to BHIM’s 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

36

fact happened), but Mr Ward closed his mind to these risks and unreasonably

exposed BHIM’s customers to them by allowing BHIM to adopt and use the Pension

Review and Advice Process. In particular:

(1)
Mr Ward failed to take reasonable steps to ensure that BHIM undertook

adequate due diligence on the Bonds. Mr Ward claims to have relied on Mr

Freer to ensure that the Bonds were suitable for customers, but did nothing

to satisfy himself that the due diligence carried out by Mr Freer was adequate

(other than asking Mr Freer if he was happy with his own due diligence).

Had Mr Ward taken reasonable steps to satisfy himself as to the adequacy

of BHIM’s due diligence on the Bonds, it would have been obvious to him

that Mr Freer’s due diligence was inadequate and that the Bonds were high

risk investments that were unlikely to be suitable for BHIM’s customers,

except in very limited circumstances.

(2)
Mr Ward 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. He also must have known that two of HJL’s

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

However, Mr Ward failed to take reasonable steps to ensure that the

common directorships and how HJL was remunerated were disclosed to

customers.

(3)
Mr Ward failed to take reasonable steps to ensure that the Firm gave due

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

Process, and to how the process would operate in practice. In particular, Mr

Ward failed to take reasonable steps to ensure that Mr Freer’s review of the

documents was adequate. Had Mr Ward taken such steps, it would have

been clear to him that Mr Freer’s review was wholly inadequate. In any

event, it should have been obvious to Mr Ward that there was a significant

risk that the Pension Review and Advice Process did not comply with the

Authority’s rules. However, Mr Ward failed to give any meaningful

consideration to whether or not it was compliant.

(4)
Mr Ward failed to take reasonable steps to ensure that BHIM maintained

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, he failed to take reasonable steps to ensure that

BHIM reviewed in a meaningful way the advice given through the Pension

Review and Advice Process, whether before recommendations were sent to

customers or at all.

(5)
Mr Ward failed to take reasonable steps to ensure that BHIM put in place

appropriate systems and controls and compliance arrangements to oversee

and monitor the Pension Review and Advice Process.

(6)
Mr Ward (together with Mr Freer) agreed that BHIM would work with HJL

and CAL without giving any proper consideration to whether they were

suitable to perform services on behalf of the Firm. Mr Ward failed to take

reasonable steps to ensure that BHIM carried out adequate due diligence on

HJL and CAL before agreeing that BHIM would work with them.

5.3.
The Authority has concluded, based on the matters set out at paragraphs 5.2 above

and 5.5 below, that Mr Ward lacks integrity and is not fit and proper.

5.4.
Statement of Principle 1 required Mr Ward to act with integrity in carrying out his

controlled functions. A person may lack integrity where he acts dishonestly or

recklessly.

5.5.
During the Relevant Period, Mr Ward breached this requirement in that:

(1)
Mr Ward was approved by the Authority to perform the CF1 (Director) and

CF3 (Chief Executive) controlled functions on 16 October 2014. Once

approved, Mr Ward acted recklessly in that, while continuing to close his

mind to the risks identified in paragraph 5.2 above, and failing to take

reasonable steps as described in paragraph 5.2 above, he continued to

allow:

(a)
the Firm to use the Pension Review and Advice Process;

(b)
the Bonds to be recommended to BHIM’s customers; and

38

(c)
the Firm to work with HJL and CAL.

In doing so, Mr Ward exposed BHIM’s customers to a significant risk of harm.

(2)
Mr Ward recklessly allowed the Firm to breach a term of the Voluntary

Requirement by permitting it to advise (with his knowledge) a total of 77

customers to switch their pension to a SIPP after the Voluntary Requirement

had been imposed. Mr Ward was aware of the risk that BHIM might breach

the terms of the Voluntary Requirement but, by closing his mind to that risk,

recklessly failed to take reasonable steps to ensure that these transactions

were permitted.

(3)
Mr Ward told the Authority that:

(a)
HJL had no involvement in the Pension Review and Advice Process,

when Mr Ward knew that it did, in particular by introducing customers

to the Firm; and

(b)
the Firm started working with CAL in December 2014 and sought to

terminate its agreement with CAL in February 2015, when Mr Ward

knew that the Firm in fact started working with CAL in October 2014

and did not seek to terminate its agreement until July 2015.

The Authority considers that Mr Ward made these false and misleading

statements deliberately in order to try to prevent the Authority from

identifying misconduct by himself, Mr Freer and the Firm, and thereby acted

dishonestly.

(4)
Mr Ward acted dishonestly by deliberately telling the Authority that the Firm

did not have minutes of board meetings when, in fact, the Firm kept formal

minutes of meetings which he (and others) approved.

(5)
Mr Ward 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. Mr Ward closed his mind to the risk that the information

BHIM was providing to the Authority might be incomplete or inaccurate, and

recklessly failed to take reasonable steps to ensure that the information

provided to the Authority was complete and accurate. As a result, Mr Ward:

(a)
failed to ensure that BHIM complied with a requirement imposed by

the Authority to provide it with certain of his emails;

(b)
provided the Authority (on behalf of BHIM) with a copy of the Firm’s

new business register on 21 September 2016 which was materially

incomplete; and

(c)
failed to ensure that BHIM complied 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.

5.6.
The Authority has concluded, based on the matters set out in paragraph 5.5 above,

that Mr Ward breached Statement of Principle 1 between 16 October 2014 (when

he was approved to perform the CF1 (Director) and CF3 (Chief Executive) controlled

functions) and 12 December 2016.

6.
SANCTION

Financial penalty

6.1.
The Authority considers it is appropriate to impose a financial penalty on Mr Ward

under section 66 of the Act in respect of his breach of Statement of Principle 1.

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 6.5B sets out the details of the five-step framework that applies in

respect of financial penalties imposed on individuals in non-market abuse cases.

Step 1: disgorgement

6.3.
Pursuant to DEPP 6.5B.1G, at Step 1 the Authority seeks to deprive an individual

of the financial benefit derived directly from the breach where it is practicable to

quantify this.

6.4.
It is not practicable to quantify any financial benefit that Mr Ward derived directly

from the breach.

6.5.
Step 1 is therefore £0.

Step 2: the seriousness of the breach

6.6.
Pursuant to DEPP 6.5B.2G, at Step 2 the Authority determines a figure that reflects

the seriousness of the breach. That figure is based on a percentage of the

individual’s relevant income. The individual’s relevant income is the gross amount

of all benefits received by the individual from the employment in connection with

which the breach occurred, and for the period of the breach.

6.7.
The period of Mr Ward’s breach of Statement of Principle 1 was from 16 October

2014 to 12 December 2016. The Authority considers Mr Ward’s relevant income

for this period to be £88,119. This figure comprises salary payments which Mr

Ward received from the Firm.

6.8.
In deciding on the percentage of the relevant income that forms the basis of the

Step 2 figure, the Authority considers the seriousness of the breach and chooses a

percentage between 0% and 40%. 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 individuals in non-market

abuse cases there are the following five levels:

Level 1 – 0%

Level 2 – 10%

Level 3 – 20%

Level 4 – 30%

Level 5 – 40%

6.9.
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.

Impact of the breach

6.10. Mr Ward agreed that the Firm should adopt and use the Pension Review and Advice

Process motivated by the prospect of making significant financial gain for doing

very little (DEPP 6.5B.2G(8)(a)).

6.11. Mr Ward’s breach of Statement 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 6.5B.2G(8)(c)).

6.12. A large number of customers were given advice by the Firm 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 6.5A.2G(8)(d)).

Nature of the breach

6.13. Mr Ward breached Statement of Principle 1 over an extended period of time (DEPP

6.5B.2G(9)(b)).

6.14. Mr Ward failed to act with integrity because he acted dishonestly and/or recklessly

throughout the Relevant Period (6.5B.2G(9)(e)).

6.15. Mr Ward, as the individual approved to perform the CF1 (Director) and CF3 (Chief

Executive) controlled functions, held a senior position at the Firm (DEPP

Reckless misconduct

6.16. Mr Ward acted recklessly in respect of the Pension Review and Advice Process, as

described in paragraph 5.5(1) of this Notice (DEPP 6.5B.2G(11)(a)).

6.17. Mr Ward failed to be open and cooperative and recklessly provided the Authority

with incomplete and misleading information about the Firm’s business

arrangements, as described in paragraph 5.5(5) of this Notice (DEPP

6.5B.2G(11)(a)).

6.18. Mr Ward recklessly allowed the Firm to contravene a term of the Voluntary

Requirement when it advised customers to switch their pensions to a SIPP (DEPP

Deliberate misconduct

6.19. Mr Ward deliberately provided false and misleading information to the Authority

about the Firm’s business arrangements with HJL and CAL in order to conceal his

and the Firm’s misconduct. Mr Ward also deliberately told the Authority that the

Firm did not have minutes of board meetings when, in fact, the Firm kept formal

minutes of meetings which he (and others) approved (DEPP 6.5B.2G(10)(d)).

Level of seriousness

6.20. DEPP 6.5B.2G(12) lists factors likely to be considered ‘level 4 or 5 factors’. Of

these, the Authority considers the following factors to be relevant:

(1)
Mr Ward’s breach of Statement of Principle 1 caused a significant risk of loss

to a large number of customers (DEPP 6.5B.2(12)(a));

(2)
Mr Ward failed to act with integrity (DEPP 6.5B.2(12)(d)); and

(3)
Mr Ward’s breach of Statement of Principle 1 was committed deliberately

and recklessly (DEPP 6.5B.2(12)(g)).

6.21. DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 and 3 factors’. The

Authority considers that none of these factors apply.

6.22. 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 40% of £88,119.

6.23. Step 2 is therefore £35,247.

Step 3: mitigating and aggravating factors

6.24. Pursuant to DEPP 6.5B.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.

6.25. The Authority considers that the following factors aggravate the breach:

(1)
Mr Ward was aware that the Firm previously acted for customers who

invested their pensions in carbon credits (another high risk unregulated

investment), that the Authority had concerns with this business, and that,

on 16 June 2014, on the application by the Firm, the Authority imposed a

restriction on the type of investments that BHIM could offer customers. Mr

Ward was therefore aware of the Authority’s concerns with customers

investing their pensions in high risk unregulated investments (DEPP

6.5B.3G(2)(f));

(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 6.5B.3G(2)(k)); and

(3)
in June 2014 the Authority specifically sent copies of the alerts referred to

above to the Firm and highlighted the Authority’s concerns. Despite this

correspondence with the Authority, about three months later Mr Ward

agreed for the Firm to adopt the Pension Review and Advice Process and

allowed it to use this process until the Authority’s intervention in July 2015

(DEPP 6.5B.3G(2)(f)).

6.26. The Authority considers that there are no factors that mitigate the breach.

6.27. Having taken into account these aggravating factors, the Authority considers that

the Step 2 figure should be increased by 25%.

6.28. Step 3 is therefore £44,058.

Step 4: adjustment for deterrence

6.29. Pursuant to DEPP 6.5B.4G, if the Authority considers the figure arrived at after Step

3 is insufficient to deter the individual who committed the breach, or others, from

committing further or similar breaches, then the Authority may increase the

penalty.

6.30. The Authority considers that the Step 3 figure of £44,058 does not represent a

sufficient deterrent, and so has increased the penalty at Step 4 by a multiple of 2.

6.31. Step 4 is therefore £88,116.

Step 5: settlement discount

6.32. Pursuant to DEPP 6.5B.5G, if the Authority and the individual 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 individual

reached agreement. The settlement discount does not apply to the disgorgement

of any benefit calculated at Step 1.

6.33. No settlement discount applies.

6.34. The Step 5 figure is therefore £88,100 (rounded down to the nearest £100).

6.35. The Authority therefore has decided to impose a total financial penalty of £88,100

on Mr Ward for breaching Statement of Principle 1.

Prohibition Order and Withdrawal of Approval

6.36. The Authority has had regard to the guidance in Chapter 9 of EG in considering

whether to withdraw Mr Ward’s approval to perform controlled functions and

whether to impose a prohibition order on him. The Authority has the power to

prohibit individuals under section 56 of the Act.

6.37. The Authority considers that Mr Ward is not a fit and proper person to perform any

function in relation to any regulated activity carried on by an authorised person,

exempt person or exempt professional firm. The Authority considers that it is

therefore appropriate and proportionate in all the circumstances to withdraw the

approval given to Mr Ward to perform the CF1 (Director) and CF3 (Chief Executive)

controlled functions at BHIM and to impose a prohibition order on him under section

56 of the Act in those terms. This follows from the Authority’s findings that Mr Ward

acted recklessly between 9 September 2014 and 12 December 2016, breached

Statement of Principle 1 during the Relevant Period and lacks integrity.

7.
REPRESENTATIONS

7.1.
Annex B contains a brief summary of the key representations made by Mr Ward,

and by HJL as a person given third party rights in respect of the Warning Notice

under section 393 of the Act, and how they have been dealt with. In making the

decision which gave rise to the obligation to give this Notice, the Authority has

taken into account all of the representations made by Mr Ward and HJL, whether

or not set out in Annex B.

8.
PROCEDURAL MATTERS

8.1.
This Notice is given under sections 57, 63 and 67 of the Act and in accordance with

section 388 of the Act.

Decision maker

8.2.
The decision which gave rise to the obligation to give this Notice was made by the

Regulatory Decisions Committee.

The Tribunal

8.3.
Mr Ward has the right to refer the matter to which this Notice relates to the

Tribunal. Under paragraph 2(2) of Schedule 3 of the Tribunal Procedure (Upper

Tribunal) Rules 2008, Mr Ward has 28 days from the date on which this Notice is

given to him to refer the matter to the Tribunal. A reference to the Tribunal is

made by way of a signed reference notice (Form FTC3) filed with a copy of this

Notice. The Tribunal’s contact details are: Upper Tribunal, Tax and Chancery

9730; email: fs@hmcts.gsi.gov.uk).

8.4.
Further information on the Tribunal, including guidance and the relevant forms to

complete, can be found on the HM Courts and Tribunal Service website:

8.5.
A copy of Form FTC3 must also be sent to the Authority at the same time as filing

a reference with the Tribunal. A copy should be sent to Helen Tibbetts at the

Financial Conduct Authority, 12 Endeavour Square, London E20 1JN.

8.6.
Once any such referral is determined by the Tribunal and subject to that

determination, or if the matter has not been referred to the Tribunal, the Authority

will issue a final notice about the implementation of that decision.

Access to evidence

8.7.
Section 394 of the Act applies to this Notice.

8.8.
The person to whom this Notice is given has the right to access:

(1)
the material upon which the Authority has relied in deciding to give this

Notice; and

(2)
the secondary material which, in the opinion of the Authority, might

undermine that decision.

Third party rights and interested party rights

8.9.
A copy of this Notice is being given each of HJL, CAL, Mark Stephen and James King

as third parties identified in the reasons above and to whom in the opinion of the

Authority the matter is prejudicial. Each of those parties has similar rights to those

mentioned in paragraphs 8.3 and 8.8 above, in relation to the matters which

identify him/it.

8.10. This Notice is also being given to BHIM as an interested party in the withdrawal of

Robert Ward’s approval, pursuant to section 63(4) of the Act. BHIM has the right

to:

(1)
access evidence pursuant to section 394 of the Act, as described above; and

(2)
refer to the Tribunal the decision to withdraw Mr Ward’s approval, pursuant

to section 63(5) of the Act.

Confidentiality and publicity

8.11. This Notice may contain confidential information and should not be disclosed to a

third party (except for the purpose of obtaining advice on its contents). In

accordance with section 391 of the Act, a person to whom this Notice is given or

copied may not publish the Notice or any details concerning it unless the Authority

has published the Notice or those details.

8.12. However, the Authority must publish such information about the matter to which a

decision notice or final notice relates as it considers appropriate. The persons to

whom this Notice is given or copied should therefore be aware that the facts and

matters contained in this Notice may be made public.

Authority contacts

8.13. For more information concerning this matter generally, contact Helen Tibbetts

(direct line: 020 7066 0656) at the Authority.

Tim Parkes
Chair, Regulatory Decisions Committee

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.
Section 56(1) of the Act provides that the Authority may make a prohibition order

if it appears to it that an individual is not a fit and proper person to perform

functions in relation to a regulated activity carried on by (a) an authorised person,

(b) a person who is an exempt person in relation to that activity, or (c) a person to

whom, as a result of Part 20, the general prohibition does not apply in relation to

that activity.

1.3.
Section 56(2) of the Act provides that a ‘prohibition order’ is an order prohibiting

the individual from performing a specified function, any function falling within a

specified description or any function. Section 56(3)(a) provides that a prohibition

order may relate to a specified regulated activity, any regulated activity falling

within a specified description or all regulated activities.

1.4.
Section 63 of the Act provides that the Authority may withdraw an approval given

under section 59 if it considers that the person in respect of whom it was given is

not a fit and proper person to perform the function to which the approval relates.

1.5.
Section 66 of the Act provides that the Authority may take action against a person

if it appears to the Authority that he is guilty of misconduct and the Authority is

satisfied that it is appropriate in all the circumstances to take action against him.

A person is guilty of misconduct if, whilst an approved person, he has failed to

comply with a statement of principle issued under section 64 or section 64A of the

Act.

2.
RELEVANT REGULATORY PROVISIONS

Statements of Principle and Code of Practice for Approved Persons

2.1.
The Authority’s Statements of Principle and Code of Practice for Approved Persons

have been issued under section 64 of the Act.

2.2.
During the Relevant Period, Statement of Principle 1 stated:

‘An approved person must act with integrity in carrying out his accountable

functions.’

2.3.
‘Accountable functions’ include controlled functions and any other functions

performed by an approved person in relation to the carrying on of a regulated

activity by the authorised person to which the approval relates.

2.4.
The Code of Practice for Approved Persons sets out descriptions of conduct which,

in the opinion of the Authority, does not comply with a Statement of Principle. It

also sets out factors which, in the Authority’s opinion, are to be taken into account

in determining whether an approved person’s conduct complies with a Statement

2.5.
EG sets out the Authority’s approach to exercising its main enforcement powers

under the Act.

2.6.
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

2.7.
The Authority’s policy for imposing penalties is set out in Chapter 6 of DEPP.

Conduct of Business Sourcebook

2.8.
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

2.9.
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.

ANNEX B

REPRESENTATIONS

Representations received from Mr Ward

1.
Mr Ward’s representations (in italics), and the Authority’s conclusions in respect of

them, are set out below:

The Authority’s investigation was inadequate

2.
The Authority’s investigation into Mr Ward was inadequate and biased. The Authority

has not interviewed or obtained statements from any individual at CAL. Further, the

Authority decided the case before it was put to Mr Ward.

3.
The Authority is satisfied that a thorough investigation was carried out. The Authority’s

investigation was into the conduct of BHIM, Mr Freer and Mr Ward. It has therefore

focussed predominately on the accounts and documents provided by those parties. In

addition, the Authority obtained material from other parties where it reasonably

considered that the material would be relevant to the purpose of its investigation.

4.
The Authority has determined this matter in accordance with its usual procedures set

out in DEPP. In particular, the decision to give the Notice was taken by members of

the Regulatory Decisions Committee (the “RDC”), a committee of the Authority which

is independent of the case team in the Authority’s Enforcement and Market Oversight

Division that carried out the investigation, and none of these RDC members was

directly involved in establishing the evidence on which the decision was based. Prior

to the RDC reaching the decision that gave rise to the obligation to give this Notice,

Mr Ward was given the opportunity to make both written and oral representations to

the RDC, which he did. The Authority is therefore satisfied that the decision to give

this Notice was not made until after Mr Ward commented on the Authority’s proposed

action.

BHIM’s relationship with HJL

5.
BHIM did not enter into any form of contract with HJL, and only came into contact with

HJL at a later stage for the provision of Bond funds. The HJL representative who Mr

Ward met on 9 September 2014 said that he worked for CAL. HJL was never provided

with Mr Freer’s electronic signature.

6.
Mr Ward’s representation is not consistent with the documentary evidence. The

documentary evidence obtained by the Authority (including Mr Ward’s email to Mr

Freer on 9 September 2014, summarising his meeting with the HJL representative)

shows that:

a. On 9 September 2014, Mr Ward met with the HJL representative, who

presented Mr Ward with a business proposition that involved BHIM engaging

HJL to generate leads and conduct the Outsourced Functions on the Firm’s

behalf;

b. Mr Ward was presented with the fact sheets for three of the Bonds at the

meeting on 9 September 2014. On 10 September 2014, Mr Ward emailed

the HJL representative saying: “I have had all of your doc’s scanned and

sent to our Compliance director for sign off or query”. Shortly prior to this,

Mr Freer had been provided with copies of various documents relating to the

Pension Review and Advice Process, including the fact sheets for three of

the companies issuing the Bonds;

c. In the days following this initial meeting, BHIM agreed to work with HJL,

approved various specimen documents for this purpose, and provided HJL

with Mr Freer’s electronic signature and the Firm’s logo. This was done via

emails to the HJL representative at an HJL email account;

d. HJL provided lead generation services to BHIM until 27 July 2015. During

the Relevant Period, Mr Ward received an email from James King, an HJL

director, saying a “list of all the marketing companies we are working with

from a lead generation front – I am aware that you have had a few calls

from clients to check whether or not companies who had contacted you are

legitimately working on your behalf”; and

e. HJL performed certain of the Outsourced Functions prior to 13 October 2014.

The HJL representative sent to BHIM (from an HJL email account) a service

agreement for HJL to carry out lead generation and the Outsourced

Functions. The Authority considers that, while this agreement was not

signed, it reflects the arrangements that were in place prior to BHIM

entering into an agreement with CAL on 13 October 2014. The agreement

with CAL was broadly the same as the unsigned agreement with HJL.

However, lead generation was not included in the agreement with CAL, as

this service continued to be provided by HJL.

BHIM conducted adequate due diligence on the Bonds, and they were not high risk

7.
Mr Ward lacked the relevant expertise to assess the Bonds. He relied on Mr Freer to

conduct the due diligence, and was satisfied that Mr Freer went beyond all levels

required. It was appropriate to rely on Mr Freer as he was a fellow director with greater

knowledge.

8.
It was normal to ask a product provider or issuing company for their due diligence

pack. In this case, Mr Ward insisted on seeing the due diligence file, and discussed

the suitability of the Bonds with Mr Freer.

9.
In any event, the Bonds were not high risk. The due diligence files contained a legal

opinion stating that the Bonds were standard assets. Therefore, they were suitable for

retail customers. In relation to the portfolios, combining different Bonds in the

portfolios did alter the risk profile.

10. As a director and chief executive of BHIM, Mr Ward had a responsibility to ensure that

BHIM performed adequate due diligence on the Bonds to ensure that they were

suitable for its customers. Mr Ward did not need to carry out the due diligence himself.

However, having delegated the due diligence to Mr Freer, Mr Ward should have taken

reasonable steps to ensure that Mr Freer’s due diligence was adequate. Mr Ward failed

to take such steps.

11. In interview with the Authority, Mr Ward was asked what he did to satisfy himself that

Mr Freer had conducted the due diligence on the Bonds to a reasonable standard. Mr

Ward responded: “Well, in the same way that I do with all these things, I asked the

question “are you satisfied?” I can’t go beyond that”. The Authority considers that this

approach does not satisfy Mr Ward’s duty as a director and chief executive, and that,

as set out in paragraph 4.26 of the Notice, Mr Ward should have, for example, asked

Mr Freer what information he considered as part of his due diligence and discussed Mr

Freer’s findings with him.

12. The Authority has seen no contemporaneous evidence that Mr Ward insisted on seeing

the due diligence files. Had he done so, it should have been obvious to him that Mr

Freer’s due diligence was inadequate and that the Bonds were high risk. Mr Freer

relied solely on information provided by HJL, despite the fact that it had a material

financial interest in the Bonds. Further, in interview with the Authority, Mr Freer said:

“I did not do enough to satisfy myself of the make up of these Bonds as my assessment

was made using my own experience and I was not 100% aware of all of the underlying

investments”.

13. The legal opinion in BHIM’s due diligence files was addressed to the companies issuing

the Bonds and considered, among other things, the question of whether the Bonds

were ‘standard assets’ (i.e. assets listed in the table at IPRU-INV 5.9.1R in the

Handbook, and that are capable of being accurately and fairly valued on an ongoing

basis and readily realised within 30 days, whenever required). The legal opinion did

not consider or address the risk profile of the Bonds, or their suitability for BHIM’s

customers. As such, it does not follow that, because the legal opinion indicated that

the Bonds might be standard assets (although the opinion acknowledged that “we

cannot guarantee a willing buyer”), the Bonds were suitable for BHIM’s customers.

14. For the reasons set out in the Notice, the Authority considers that the Bonds were high

risk. Combining the Bonds in various portfolios might alter the risk of a customers’

investment. However, given that all the Bonds were high risk, and the portfolios

contained only the Bonds and, in some cases, a small percentage of cash, the

Authority considers that the portfolios containing the Bonds were all high risk, and

that it was misleading to describe the portfolios as “cautious”, “moderate” and

“adventurous”.

The Pension Review and Advice Process

15. HJL did not design the Pension Review and Advice Process, and it was not structured

so that customers would be recommended the Bonds.

16. The purpose of the Pension Review and Advice Process was to exclude people for

whom the Bonds were not suitable, rather than include them. This is reflected in the

fact that 13.5% of customers that entered the Pension Review and Advice Process

invested in the Bonds, whereas 86.5% of customers were referred to BHIM for further

advice. The majority of leads generated resulted in an internal BHIM referral to a level

4 qualified IFA.

17. As set out in the Notice, HJL initiated and influenced the development of the pension

switching advice model on which the Pension Review and Advice Process was based.

Further, this model was presented to Mr Ward by an HJL representative who, according

to Mr Ward, claimed that HJL had “large numbers of people wanting to invest in his

normal bond type of funds”. The Authority therefore considers that the model was

presented to Mr Ward with a view to BHIM adopting it and advising customers to invest

in the Bonds.

18. While the Software may have excluded people for whom BHIM considered the Bonds

would not be suitable, under the Pension Review and Advice Process, all other

customers were advised to invest in the Bonds. In fact, the Bonds were the only

products available for recommendation through the Pension Review and Advice

Process. Further, the fact-find contained questions designed to steer customers

towards the features of the Bonds: customers were asked only two questions

regarding their investment objectives, one of which related to fixed returns and the

other to capital guarantees. The Authority is therefore satisfied that the Pension

Review and Advice Process was structured to recommend the Bonds to BHIM’s

customers.

19. It is not clear on which figures Mr Ward relies in respect of his assertion that 86.5%

of customers were referred to BHIM for further advice. CAL’s statistics, as at 15 July

2015, show that:

a. 175 cases had completed and 540 were not proceeding;

b. of those cases not proceeding, only 22 customers had been advised against

investing in the Bonds (4.1% of the cases not proceeding; 3.1% of closed

cases). 54.3% were not proceeding because the customer was no longer

interested and a further 16.3% were not proceeding because CAL was no

longer able to contact them. The remainder were not proceeding for a

variety of reasons, including that the customer’s fund was too small or

contained guarantees;

c. 1,427 cases were still in progress and at different stages of the Pension

Review and Advice Process; and

d. of those that were in progress, only 77 (5%) had been categorised as having

been referred or requiring referral to an IFA.

BHIM’s adoption and use of the Pension Review and Advice Process

20. BHIM entered a service agreement with CAL for lead generation and administration

services only. Such an arrangement did not require the level of review suggested by

the Authority. In any event, Mr Freer reviewed and signed-off the generic reports, and

Mr Ward looked at the lead delivery process and the computerised exclusion process

to ensure that it was not a ‘one size fits all’ approach.

21. Mr Ward was not aware of HJL until after BHIM entered into an agreement with CAL.

Further, HJL was not involved in the advice process, so there was no conflict in

recommending the Bonds to customers.

22. BHIM’s agreement with CAL provided that, among other things, CAL would correspond

with customers on behalf of the Firm, and would perform functions that were both

necessary and important for the giving of advice (such as the conduct of fact-finds).

In those circumstances, the Authority considers that BHIM should have carried out,

for example, an assessment of the suitability of CAL’s management and the quality of

its staff.

23. In relation to the steps that Mr Ward claims were taken, the Authority considers that:

a. while Mr Freer agreed to the use of template documents, his review of those

documents was inadequate, and he approved their use only four hours after

receiving them;

b. Mr Ward has not explained what steps he took in relation to the “lead

delivery process”, and he has given various accounts to the Authority to

suggest that his review of that process was inadequate. In particular:

i. during the course of the Authority’s visit to BHIM’s office on 15 and

16 July 2015, Mr Ward said that BHIM had never got to the bottom

of the lead generation process;

ii. in an interview with the Authority on 17 February 2016, Mr Ward said

that he did not take any steps to check with CAL how they sourced

leads because he did not expect that CAL would disclose this

information. Mr Ward said that the only step taken by BHIM was to

say to CAL that BHIM would not accept leads that had been cold

called; and

iii. in an interview with the Authority on 21 October 2016, Mr Ward said

that he asked CAL about the source of its leads but that CAL refused

to answer his questions; and

c. Mr Ward’s assertion that he considered the “computerised exclusion

process” is not supported by any contemporaneous evidence, and contrasts

with previous accounts he has given to the Authority in which he claimed

that he relied on Mr Freer to satisfy himself that the Pension Review and

Advice Process complied with regulatory requirements.

24. Accordingly, the Authority is not persuaded that Mr Ward took adequate steps to

satisfy himself that BHIM conducted an adequate review of the Pension Review and

Advice Process, either before he decided that BHIM should adopt the process, or at

all.

25. In the light of the facts described in paragraph 6 of this Annex, Mr Ward was aware of

HJL’s involvement in the Pension Review and Advice Process, and that it had initiated

and influenced the development of the process. He was also aware of HJL’s material

financial interest in a number of the Bonds that were recommended through the

process. The Authority therefore considers that HJL’s role in the Pension Review and

Advice Process created an obvious conflict of interest that Mr Ward should have been

aware of.

BHIM’s role in the Pension Review and Advice Process

26. BHIM had full control of the advice and compliance processes. BHIM only allowed

advice to be given by Mr Freer, who was involved in the Pension Review and Advice

Process. He could see the fact-find online as part of his review at the point of advice.

The Software produced the Suitability Reports, which Mr Freer could see online and

consider alongside the fact-find. He was then able to confirm if he was happy with the

suitability of advice before telling the computer system that he was prepared for the

report to be sent. He could, and did, interrupt a number of reports for clarification

and, in some cases, refusal.

27. BHIM adequately monitored CAL. In addition to Mr Freer’s file reviews, the Firm had

access to management information and Mr Ward made two visits to CAL’s offices and

sat in on their compliance team’s file checking. Mr Ward’s role in relation to the file

checking mitigated the risk created by Mr Freer’s dual responsibility for both the advice

given through the Pension Review and Advice Process and the compliance checks on

that advice. Mr Ward accepts that he later described a call with a client as ‘horrifying’;

this was in relation to the method of speaking to the client, rather than the content.

28. It is misleading to say that the advice process had been in place for four months before

Mr Freer’s first compliance visit. Mr Freer’s visit took place as soon as there were files

for him to review. These file reviews were in addition to the daily work of online file

checking.

29. Mr Ward’s description of Mr Freer’s role is not consistent with Mr Freer’s account of his

role. Mr Freer accepts that he was not involved in the fact-finding process. Even if Mr

Freer had been involved, the nature of the fact-finding process, which included leading

questions, was such that customers were steered towards the features of the Bonds.

30. In relation to the review of Suitability Reports, the Authority has been provided with

no evidence to suggest that there was any mechanism built into the Software to enable

Mr Freer to confirm to CAL that he had reviewed and approved a Suitability Report.

Indeed, the Authority has no evidence that there was a mechanism in the Software or

otherwise that would prevent a Suitability Report being sent to a client without it first

having been reviewed by Mr Freer. Mr Freer has been unable to provide the Authority

with a clear explanation as to the access he had to the Software and how he confirmed

to CAL that a Suitability Report had been reviewed and approved.

31. Mr Ward’s representation that he sat in on file reviews was first made to the Authority

in connection with the Warning Notice. It is not something that Mr Ward raised during

the Authority’s investigation. Mr Ward has not explained his role in relation to CAL’s

file checking process, and the Authority has seen no contemporaneous evidence that

Mr Ward (or Mr Freer) had any substantive involvement in determining the scope of

the checks to be performed, in the actual process of checking files or in assessing the

robustness of those checks. Further, even on his own account, Mr Ward only sat in on

CAL’s file checking on two occasions, despite the fact that the Pension Review and

Advice Process was used between October 2014 and July 2015.

32. The earliest Suitability Report identified by the Authority is dated 29 October 2014

and one of the SIPP Providers had received funds from 112 customers by the date of

Mr Freer’s first file check on 11 February 2015. It is therefore incorrect for Mr Ward

to state that the first compliance visit took place as soon as there were files for him

to review.

Failures in BHIM’s due diligence on HJL and CAL

33. HJL did not perform the Outsourced Functions on behalf of BHIM and it was never

intended that it do so. HJL was only involved as a provider of the Bonds. As such,

there was no need to carry out due diligence on HJL before entering into the services

agreement with CAL.

34. In relation to CAL, BHIM’s due diligence was appropriate given the proposed services

that CAL would be providing, namely, lead generation and administrative functions.

Mr Ward relied on Mr Freer to conduct due diligence on CAL. Both Mr Ward and Mr

Freer visited CAL’s offices to satisfy themselves that CAL was capable of performing

the services on behalf of BHIM. The due diligence on CAL did not reveal any link

between CAL and HJL.

35. As set out in the Notice and paragraph 6 of this Annex, the Authority considers that

HJL generated leads under the Pension Review and Advice Process. When BHIM agreed

to adopt that process, the intention was that HJL would perform the Outsourced

Functions, and in practice, HJL did perform certain of those functions until 13 October

2014. BHIM, therefore, should have undertaken due diligence on HJL to determine

whether it was suitable to perform both the functions that it was intended to perform,

and the functions that it did in fact perform. BHIM conducted no such due diligence,

and Mr Ward took no steps to ensure that it did.

36. BHIM’s due diligence on CAL was inadequate. In interview with the Authority on 17

February 2016, Mr Ward said that the visit to CAL’s office was to make sure that the

company existed. There is no evidence, other than the assertions in his

representations, that Mr Ward took any steps to assess the suitability of CAL to

perform the Outsourced Functions. As set out in paragraph 22 of this Annex, in the

light of the functions that CAL performed under the Pension Review and Advice

Process, BHIM’s due diligence could have included, for example, an assessment of the

suitability of CAL’s management and the quality of its staff.

37. In any event, Mr Ward must have been aware of links between CAL and HJL. The HJL

representative who Mr Ward met on 9 September 2014 later became a senior

individual at CAL. Mr Ward has claimed that he met a representative from CAL rather

than HJL at that meeting. However, in interview with the Authority on 20 October

2016, he acknowledged that “we would be foolish to say that we didn’t know that

there was an association between [the HJL representative] and Hennessy Jones,

because we did. But we never knowingly, or intended to have any association with

Hennessy Jones as a company, our only intention was to use City Admin”. Further,

during the Relevant Period, Mr Ward was copied into an email from Mr King to one of

the SIPP Providers that refers to CAL as “our outsourcing company”.

The Authority’s review of 20 customer files

38. The Authority’s file review was inadequate for the following reasons:

a. there is no evidence that customers that went through the Pension Review

and Advice Process were vulnerable due to age, ability to replace capital,

medical conditions or personal circumstances;

b. the financial interest of HJL in the Bonds was the management fee which all

fund providers are paid;

c. customers requested fixed returns and the fact-find gathered sufficient

information to cover this point;

d. the fact sheets for the Bonds contained an explanation of the risks and

disadvantages of the Bonds, and stated that HJL would receive a fee of 5%;

and

e. in relation to the two Pension Transfers, BHIM gave advice at a time when

the customers’ employers had ceased making contributions to their

occupational pension schemes.

39. The Authority responds to Mr Ward’s representations on its file review in turn below:

a. One customer was vulnerable as he was retired on medical grounds and

relied on disability benefit as his only source of income. He therefore had a

limited ability to replace capital. Another customer said that he had no

savings and was unable to contribute to his pension, and so too had a limited

ability to replace capital. The Authority also identified a further three

customers who were on a very low income, and another customer who was

only five years from retirement.

b. The Authority accepts that HJL’s financial interest was the fee it was due to

be paid. However, the Authority’s concern is that this fee was not disclosed

to BHIM’s customers.

c. The fact-find used in the Pension Review and Advice Process contained one

leading question about fixed returns and only one other question relating to

the customer’s investment objectives. Further, the fact-find process

gathered insufficient information to enable suitable advice to be given to

customers, and a preference for fixed returns is an inadequate basis on

which to have recommended customers to invest in the Bonds.

d. Neither the fact sheets shown to Mr Ward in his initial meeting with the HJL

representative, nor the fact sheets sent to customers, contained

explanations of the risks or disadvantages of the Bonds, or disclosed HJL’s

interest in the Bonds.

e. It appears that Mr Ward considers that a transaction will not constitute a

Pension Transfer where the funds are transferred from an occupational

scheme to which the customer (or the employer) has ceased making

contributions. This is not correct. The definition of a Pension Transfer in the

Handbook does not specify that an employer must be making contributions

to a scheme in order for a transfer of funds from that scheme to amount to

a Pension Transfer.

Breaches of the Voluntary Requirement

40. The Voluntary Requirement was varied during a meeting with the Authority. The

variation permitted the Firm to advise customers to switch their pensions to

discretionary managed platforms. The 77 pension switches transacted after that

meeting did not breach the terms of the Voluntary Requirement as they were within

the scope of the variation agreed with the Authority.

41. There is no evidence that the Authority agreed that the 77 transactions identified by

the Authority could proceed or would fall outside the terms of the Voluntary

Requirement. The SIPP provider for each of those transactions has confirmed to the

Authority that the customer transferred their pension to a SIPP. The correspondence

between the Authority and Mr Ward and BHIM’s legal representative consistently

emphasised that BHIM was not permitted to conduct new pension switching business

to SIPPs. Therefore, it should have been clear to Mr Ward that a pension switch to a

discretionary managed platform would breach the terms of the Voluntary Requirement

if the customer’s investments were placed in a SIPP, as was the case in the 77

transactions identified by the Authority.

Misleading the Authority

42. Mr Ward did not provide the Authority with information that was false, incomplete or

misleading, and did not provide information that he knew to be untrue. In particular:

a. Mr Ward maintains that HJL did not have any involvement in the Pension

Review and Advice Process;

b. In relation to the dates when CAL carried out the Outsourced Functions, Mr

Ward’s answers were given under duress in a compelled interview, without

the ability to check facts;

c. Board meetings were a soft process of informal discussions that were mostly

not minuted;

d. Mr Ward is not IT literate and so did not realise that he had not provided all

of the emails that the Authority had required BHIM to produce. It only

became apparent later that a large number of emails had been archived and

not properly restored;

e. The new business register was prepared by administrative staff and even if

Mr Ward had checked it before it was provided to the Authority, he would

not have noticed the issue;

f.
Mr Ward made the Authority aware of BHIM’s relationship with Company X.

At the time the Authority asked him for information about Company X, the

business venture with that company was just an idea.

43. The Authority responds to Mr Ward’s representations that he did not mislead the

Authority in turn below.

a. As set out in the Notice, and in paragraph 6 of this Annex, the Authority

considers that HJL was involved in the Pension Review and Advice Process,

and that Mr Ward was aware of its involvement.

b. Mr Ward told the Authority that the firm’s relationship with CAL started in

December 2014 on a number of occasions, not just in interview. In any

event, Mr Ward had two months’ notice of the interview with the Authority

and was not pressed in interview to provide a timeframe for BHIM’s

relationship with CAL. He nonetheless chose to provide definite and

misleading answers.

c. BHIM ultimately provided the Authority with minutes of its board meetings,

so Mr Ward’s statement to the Authority that BHIM did not produce minutes

of board meetings was clearly incorrect. Mr Ward must have known this as

he was on the board which, at the start of a board meeting, approved the

minutes from the previous meeting.

d. The scope of the requirement to provide emails to the Authority was broad.

Mr Ward confirmed in interview that the emails were collated on his

instructions, but that he did not check what was provided. The Authority

considers that he acted recklessly by not doing so. Had he done so, it would

have been obvious that the response to the Authority was incomplete. Not

only did the response contain a small number of emails (given the scope of

the requirement), but it omitted obviously relevant communications.

e. The discrepancies in the information provided to the Authority and the new

business that the Firm had carried out was significant. The new business

register recorded less than one third of transactions with a SIPP provider

and omitted approximately £60,000 of remuneration received from that

SIPP provider. The Authority considers that, as the chief executive of BHIM,

Mr Ward would have been able to identify that the new business register

provided to the Authority was incomplete.

f.
The Authority accepts that Mr Ward made it aware of BHIM’s relationship

with Company X. However, the Authority’s finding is that, when asked to

provide further information, Mr Ward provided incomplete and misleading

information. Mr Ward’s representation does not, therefore, address the

Authority’s finding.

44. There is no need to refer to the carbon credits matter as there was no criticism of

BHIM arising from its carbon credits business.

45. The reliance on the Authority’s pension alerts is inappropriate as those alerts relate to

non-standard assets, whereas the Bonds were standard assets.

46. The Authority considers that there were material similarities between features of

BHIM’s carbon credits business and features of BHIM’s Bonds business. In particular,

the Authority had concerns with the Firm’s carbon credit sales process and, during the

course of its discussions with the Firm, the Authority made the Firm aware of its

concerns regarding firms advising customers to invest in unregulated products

through SIPPs. Notwithstanding this, Mr Ward, with Mr Freer, agreed to BHIM adopting

the Pension Review and Advice Process a matter of months following the Authority’s

intervention.

47. In relation to the pension alerts, the Authority considers that the contents of the alerts

were highly relevant to the Firm’s subsequent pension advice business. For example,

the alerts related to assessing the suitability of pension advice, regardless of whether

the underlying investments are regulated.

48. The Authority therefore considers that it is appropriate to regard the carbon credits

matter and the Authority’s pension alerts as aggravating factors in the calculation of

Mr Ward’s penalty.

Representations received from HJL

49. HJL’s representations (in italics), and the Authority’s conclusions in respect of them,

are set out below:

There is no reason to mention HJL, Mr King or Mr Stephen

50. HJL did not provide any administrative or equivalent services to BHIM. Such services

were provided exclusively by CAL. There is therefore no reason to mention HJL, Mr

King or Mr Stephen in the Notice.

51. The Authority considers that when BHIM adopted the Pension Review and Advice

Process, it was intended that, initially at least, HJL would perform the Outsourced

Functions. Accordingly, a draft services agreement between HJL and BHIM was sent

to Mr Ward on 12 September 2014. It appears that HJL and CAL later agreed that CAL

would perform the Outsourced Functions, and on 13 October 2014, CAL entered into

an agreement with BHIM to do so. There is documentary evidence prior to 13 October

2014 showing that certain of the Outsourced Functions were being performed at that

time. For example, letters were sent seeking authority from customers to contact their

existing pension provider. Given that the agreement with CAL was not in place until

13 October 2014, it appears that HJL were carrying out these functions before that

agreement was in place. As such, the Authority considers that it is appropriate to refer

to HJL performing certain of the Outsourced Functions prior to 13 October 2014.

52. The Authority also considers it appropriate to refer to HJL as it generated leads for

BHIM under the Pension Review and Advice Process and it had a material financial

interest in the products recommended through that process.

53. For the reasons in paragraphs 60 and 65 below, the Authority considers it appropriate

to mention Mr Stephen and Mr King, and their common directorships.

The development of the Software and the pension switching advice model

54. HJL did not develop the Software or the pension switching advice model. They were

instead designed by two individuals at another company independent of HJL

(“Company A”).

55. The Authority accepts that HJL did not create the Software, and that it was instead

created by two individuals at Company A. However, the Software was developed at

the request of HJL. HJL initially sought an efficient way to provide customers with a

pension comparison, to see whether the customer’s existing pension charges were

reasonable. A system was developed by Company A in around 2011/2012 in line with

this request. This system was an early version of the Software.

56. In 2013, HJL asked Company A whether an advice model could be ‘bolted on’. HJL

staff assisted Company A to understand the products that would be recommended

through the Software so that Company A could develop the triggers for the advice.

HJL also led the creation of the templates of the documents which were used in the

Pension Review and Advice Process and which enabled a complete, fully advised

pension switch. The Authority therefore considers that HJL initiated and influenced

the development of both the Software and the pension switching advice model.

HJL did not process leads obtained through unlawful cold calling

57. HJL was at no time involved in cold calling activities itself. All clients introduced to the

Firm were obtained by lead generation businesses through a generic financial

promotion process, which did not involve the lead generator in identifying any specific

investment or a specific provider of investment services. To the extent the activities

of the lead generators involved unsolicited real-time financial promotions, those

promotions were exempt from the financial promotion restriction in section 21(1) of

the Act by virtue of Article 17 of the Financial Service and Markets Act 2000 (Financial

Promotion) Order 2005.

58. The Authority has not found that HJL cold called customers. Instead, the Authority has

found that Mr Ward and BHIM failed to take any steps to establish that the lead

generators used by HJL generated their customer introductions in an appropriate

manner and did not use unlawful cold calling. As such, Mr Ward (and BHIM) did not

know whether leads were generated by unlawful cold calling. In fact, the Authority

was contacted by three customers complaining that they had been cold called by one

of the lead generation companies used by HJL.

Mr Stephen properly managed any conflict of interest

59. Mr Stephen took careful steps to manage any potential conflicts of interest, including

taking legal advice on issues surrounding potential conflicts. From his and HJL’s

position, relevant potential conflicts were properly managed.

60. This Notice relates to the conduct of Mr Ward and the steps he took to mitigate the

risks posed by Mr Stephen’s common directorships. The Authority has made no finding

as to whether Mr Stephen adequately managed any actual or potential conflicts that

he had. However, it is necessary to describe Mr Stephen’s common directorships in

the Notice in order to explain Mr Ward’s misconduct.

HJL was not inherently unsuitable for the purposes for which it was retained by BHIM

61. HJL’s qualification to operate the Software was its having staffing and organisational

capacity to do so. Moreover, the Authority has failed to explain on what basis it

implicitly contends that HJL was unsuitable.

62. When outsourcing functions to a third party, authorised firms must comply with

Principle 3 of the Authority’s Principles for Businesses. They should also have regard

to applicable rules and guidance in SYSC. In relation to BHIM, the relevant guidance

is set out in paragraph 4.48 of the Notice. In the light of Principle 3 and this guidance,

Mr Ward should have taken reasonable steps, such as ensuring that BHIM conducted

adequate due diligence, to ensure that HJL was suitable to perform the functions that

were outsourced to it.

63. Mr Ward did not take reasonable steps, or ensure BHIM conducted adequate due

diligence, even though it was intended that HJL would correspond with customers on

behalf of the Firm, and would perform functions that were both necessary and

important for the giving of advice (such as the conduct of fact-finds).

Reference to Mr King’s common directorship

64. Mr King was director of HJL for part of the Relevant Period and was also a director of

the entities that issued the Bonds. However, the corporate governance of those

entities was structured in such a way that he was able to recuse himself from directors’

decisions in case of conflict. The nature of the investments of the companies issuing

the Bonds was such that there were few, if any, circumstances in which Mr King

needed to recuse himself.

65. For the reasons set out in paragraph 60 in relation to Mr Stephen, it is necessary to

describe Mr King’s common directorships in the Notice in order to explain Mr Ward’s

misconduct and the Authority has made no finding as to whether Mr King adequately

managed any actual or potential conflicts that he had.

Anonymisation of HJL, Mr Stephen and Mr King

66. If other companies can be anonymised (for example, Company X) without

undermining the purpose of the Notice, there is an unreasonable difference in

treatment between those parties that are named (in particular HJL, Mr Stephen and

Mr James), and those who are not. If the Authority insists on anonymisation for

Company X then there is no reason why HJL should not be treated in a similar way.

The Notice would achieve what it is intended to achieve even if the Third Parties are

not identified by name. HJL’s commercial interests will be significantly harmed if it is

named in the Notice.

67. The Authority does not agree that there is an unreasonable difference in treatment

between HJL and Company X. This is for two reasons: First, because of HJL’s central

role in the Pension Review and Advice Process, compared to that of Company X. In

particular, HJL initiated and influenced the development of the pension switching

advice model, brought the model to the attention of the Firm, performed certain of

the Outsourced Functions and had a material financial interest in a number of the

Bonds. In these circumstances, the Authority considers it appropriate to mention HJL

by name so that its findings, and the factual background (including the key parties

involved), can be easily ascertained by the recipient of the Notice, as well as by any

other reader of the notice. Secondly, the Authority considers it possible that HJL could

be identified from the description of the matters contained in the Notice even if

anonymised as the Voluntary Requirement is published on the Authority’s Financial

Services Register and names HJL as one of three companies that BHIM must cease

business relationships with. As such, the Authority considers it unlikely that HJL will

be materially prejudiced as a result of being referred to by its name in the Notice.

68. The Authority has decided to name Mr Stephen and Mr King for similar reasons. As

Companies House records show they were the only two directors of HJL during the

period that BHIM was using the Pension Review and Advice Process, the Authority

considers they could be identified even if anonymised. Further, as directors, they

were responsible for the day-to-day operation of HJL during the Relevant Period.