Financial Services Authority

Transcription

1 Financial Services Authority FINAL NOTICE NOTE: This prohibition order was revoked by the FCA on 03/08/2015 To: Reference Number: Of: Andrew Johnson Cumming AJC01262 Flat 51, Yvon House, London, SW11 4GA Date: 13 November 2009 TAKE NOTICE: The Financial Services Authority of 25 The North Colonnade, Canary Wharf, London E14 5HS (the FSA ) gives you final notice about a requirement to pay a financial penalty and a decision to prohibit you from performing any function in relation to any regulated activity carried on by any authorised, exempt person or exempt professional firm. 1. THE ACTION 1.1. The FSA gave you a Decision Notice on 24 August 2009 which notified you that the FSA had decided to take the following action: a prohibition order, pursuant to section 56 of the Financial Services and Markets Act 2000 (the Act ), prohibiting you from performing any function in relation to any regulated activity carried on by any authorised or exempt person or exempt professional firm on the grounds that you are not a fit and proper person; and a financial penalty of 35,000, pursuant to section 66 of the Act, on the grounds that you have failed to act with integrity in breach of Principle 1 of the FSA s Statements of Principle for Approved Persons The FSA considers that your behaviour merits the imposition of a total penalty of 100,000 but because of your financial circumstances this has been reduced to 50,000. In addition, you agreed to settle at an early stage of the FSA s investigation. You therefore qualify for a 30% (Stage 1) reduction in penalty pursuant to the FSA s executive settlement procedures. The total penalty imposed is therefore 35,000. 1

2 1.3. The Prohibition Order will have effect two days after the date of issue of a Final Notice. The FSA is minded to revoke the Prohibition Order, on your application, at any time after five years from the date of the Final Notice, in the absence of new evidence that you are not fit and proper You confirmed on 19 August 2009 that you will not be referring the matter to the Financial Services and Markets Tribunal Accordingly, for the reasons set out below and having agreed with you the facts and matters relied on, the FSA imposes a financial penalty on you in the amount of 35,000 and a prohibition order. 2. REASONS FOR THE ACTION 2.1. The FSA takes this action as a result of your conduct as an approved person, under section 59 of the Act, at the London Branch of UBS AG ( UBS ) from 31 October 2005 to 14 January 2008 (the Relevant Period ) Throughout the Relevant Period, you were an approved person. In particular, between 1 December 2001 and 31 October 2007, you were approved to perform the Investment Adviser Controlled Function. On 1 November 2007, the Investment Adviser Controlled Function was superseded by the Customer Controlled Function. You held the Customer Controlled Function until your dismissal for gross misconduct by UBS on 28 March Throughout the Relevant Period, you provided wealth management services to private banking customers. By performing the Investment Adviser and Customer Controlled Functions, you had significant contact with UBS international wealth management customers and were able to develop substantial relationships of trust with your customers. In addition, you were able to undertake regulated activities and provide services that were substantially connected to regulated activities During the Relevant Period, your conduct fell short of the FSA's prescribed regulatory standards for approved persons. In particular, you breached Statement of Principle 1 ( Principle 1 ) of the Statements of Principle for Approved Persons contained in the High Level Standards part of the FSA s Handbook, entitled Statements of Principle and Code of Practice for Approved Persons ( APER ) in that: Although you were initially unaware of losses, your conduct enabled funds to be moved from one customer account to another (the recipient customers ) to disguise losses, which had arisen as a result of unauthorised transactions when, on seven separate occasions between 31 October 2005 and 2 October 2007, you signed documents which represented to the customers from whose accounts the funds were transferred (the transferor customers ) that the transfer of funds amounted to loans at interest rates well above commercial rates of interest to the recipient customers. You were requested to sign the documents by a senior colleague. The documents also purported to represent that the apparent loans (the Purported Loans ) had been arranged in the normal course of UBS 2

3 business and further that the Purported Loans were guaranteed by UBS in the event of default by the recipient customers. (c) You signed these letters (the UBS Guarantee Letters ) in the knowledge that: (i) (ii) (iii) The UBS Guarantee Letters had not been authorised by UBS; The UBS Guarantee Letters would not have been approved by UBS had formal authorisation been sought; and The UBS Guarantee Letters falsely represented to the transferor customers that the Purported Loans had been formally guaranteed by UBS in the event of default. (d) The UBS Guarantee Letters related to Purported Loans totalling USD 10.5 million. (e) (f) When signing the UBS Guarantee Letters, you were aware of the fact that the Purported Loans were unusual arrangements and that the documents you were being asked to sign were not standard UBS documents. The arrangements were particularly unusual in that they purported to carry a guarantee from UBS. You were also aware that these arrangements had not been formally authorised by UBS. Accordingly, you were on notice from the beginning of the Relevant Period that the movement of funds and the use of the UBS Guarantee Letters were suspicious. By late 2007, you were fully aware that these funds were being transferred to the recipient customers accounts to conceal from the relevant customers and UBS the fact that losses had arisen as a result of unauthorised transactions. You did not escalate your knowledge of the unauthorised transactions at any time. Rather, you signed a further UBS Guarantee Letter and allowed the concealment of losses to continue The FSA regards your misconduct as particularly serious in view of the following considerations: Your failings were repeated and persisted over 24 months. You signed seven UBS Guarantee Letters. These arrangements were outside the scope of the services offered by UBS to its customers. The UBS Guarantee Letters were highly unusual documents. The involvement of UBS in the arrangement of loans between customers was also highly unusual. Whilst customers may arrange to lend funds to fellow customers, you knew that banks such as UBS would not ordinarily guarantee these arrangements in the absence of appropriate security and a carefully drafted agreement. You were aware, and had personal experience of, UBS standard procedures for advancing credit facilities to customers and you knew that such procedures had not been followed in relation to the UBS Guarantee Letters. 3

4 (c) (d) (e) (f) You knew that UBS had no knowledge of the Purported Loans and that UBS had not approved of the arrangement whereby it stood as guarantor. You did not escalate your knowledge of the unusual arrangements. You signed the UBS Guarantee Letters without confirming whether the recipient customers were aware that they were receiving funds and that they were subject to an obligation to repay the Purported Loans. Moreover, you did not confirm whether the recipient customers would be able to repay the Purported Loans. This exposed the recipient customers to a substantial liability and the transferor customers to a substantial risk of loss. By late 2007 you were fully aware that the purpose of the Purported Loans was to conceal losses from unauthorised transactions on the recipient accounts. You failed to report this matter and failed to give consideration to the fact that UBS customers had been adversely affected. Instead, you signed a further UBS Guarantee Letter. For the reasons given above, your conduct enabled the continued concealment of customer losses arising from unauthorised transactions for a period of at least two years. When the unauthorised transactions came to light, UBS paid compensation of USD 8 million to customers who had suffered loss as a result of the movement of funds as described above In mitigation, you accepted at an early stage of the investigation that your conduct was wrong and you have expressed remorse for your actions. The FSA does not dispute your assertion that you did not initiate the circumstances which led to your misconduct, in that you did not personally conduct the unauthorised transactions and you did not personally arrange the Purported Loans. The FSA has also taken account of the fact that you felt you were under significant pressure when asked to sign the UBS Guarantee Letters by a senior colleague. In addition, the FSA has taken into consideration the fact that you have not been subject to any findings of misconduct by the FSA or any other regulatory body previously. Also, the FSA has no evidence to suggest that you stood to make any personal gain from your actions and failings other than receipt of your salary and bonus By virtue of the matters referred to above, the FSA has concluded that: (c) you are not a fit and proper person to perform any function in relation to any regulated activity carried on by any authorised or exempt person or exempt professional firm; having regard to its regulatory objectives, including the risk that you pose to consumers and maintaining confidence in the financial system, it is necessary and desirable for the FSA to exercise its power to make a prohibition order against you; and in all the circumstances, it is appropriate to impose a financial penalty on you. 4

5 3. RELEVANT STATUTORY PROVISIONS, RULES AND GUIDANCE Statutory Provisions 3.1. The FSA s statutory objectives, set out in Section 2(2) of the Act, are market confidence, public awareness, the protection of consumers and the reduction of financial crime The FSA has the power, pursuant to section 56 of the Act, to make an order prohibiting an individual from performing a specified function, any function falling within a specified description, or any function, if it appears to the FSA that that individual is not a fit and proper person to perform functions relating to a regulated activity carried on by an authorised person. Such an order may relate to a specified regulated activity, any regulated activity falling within a specified description, or all regulated activities In addition, the FSA has the power, pursuant to section 66 of the Act, to impose a financial penalty of such amount as it considers appropriate where the FSA considers an authorised person has contravened a requirement by or under the Act. Regulatory requirements 3.4. APER was made pursuant to section 64 of the Act APER contains general statements regarding the fundamental obligations of approved persons under the regulatory system and conduct which, in the opinion of the FSA, constitutes a failure to comply with those fundamental obligations. APER also describes factors to be taken into account by the FSA in determining whether an approved person s conduct complies with a particular Statement of Principle Principle 1 requires an approved person to act with integrity in carrying out his controlled function. FSA guidance and policy 3.7. FSA guidance and policy relevant to the above statutory provisions and regulatory requirements are set out in the Annex attached to this Notice. 4. FACTS AND MATTERS RELIED ON Background UBS 4.1. UBS is a major global financial group with its headquarters in Zurich. Amongst other businesses, UBS operates an international wealth management business, which focuses on providing wealth management services to individuals. Customers of UBS international wealth management business may also gain access to the services of UBS Investment Bank, including, amongst other things, services to trade in foreign exchange ( FX ) and precious metals. 5

6 4.2. UBS conducts its international wealth management business in the United Kingdom through its London branch (the London Branch ) The services UBS provides to its international wealth management customers in the UK include, amongst other things: bank account services; investment advisory services; portfolio management (i.e. the discretionary management of a portfolio of cash and investments in accordance with investment guidelines); the execution of trades on customer instructions; and the safekeeping of documents and assets. International wealth management customers are typically non-uk resident individuals who have substantial assets to invest, and are sophisticated, active and performancedriven investors During the Relevant Period, the international wealth management business conducted from the London Branch operated from seven desks, each of which focused on non- UK resident customers from different geographic areas (the International Business Desks ). Each International Business Desk has its own portfolio of customers and each of the International Business Desks and is led and managed by a Desk Head Each international wealth management customer was allocated to a particular Client Adviser. The Client Advisers had day-to-day contact with customers, executed customer orders, provided advice and made recommendations in relation to investments and other products and services where relevant. Your role at UBS 4.6. You joined UBS in September 1999 and you were appointed as an Associate Director in February In February 2006 you were promoted to the position of Director. Throughout the Relevant Period, you acted as a Client Adviser on Desk X, an international business desk within UBS As an approved person, you were required to comply with APER. In addition, UBS required you to act in accordance with both its legal and compliance requirements and the UBS Client Adviser Manual You managed a portfolio of customers, and offered a number of services to customers, including: (c) (d) Advising on investment opportunities, and managing portfolios; Making recommendations on financial products; Marketing or distributing marketing material in respect of regulated products; and Opening UBS accounts for customers and providing account maintenance UBS customers agreed a specific mandate for their accounts (the Mandate ), establishing the terms by which customers authorised UBS to provide services. Your responsibilities included ensuring that your customers investments were undertaken in accordance with the relevant Mandate. 6

7 4.10. The terms of the Mandates were such that UBS customers could elect for a number of different account services, including: a self-directed account whereby the customer would give instructions to execute transactions which may or may not have been based upon investment recommendations; and a discretionary service whereby the customer s assets would be managed at UBS discretion but in line with guidelines provided by the customer The terms of the Mandates did not provide Client Advisers with any authority to arrange loans with other UBS customers, whether or not they were guaranteed by UBS, nor was the arrangement of inter-customer loans among the services offered by UBS to its customers During the Relevant Period, UBS had in place a Whistleblowing policy (set out in the Employee Handbook) which required you to disclose information which related to fraud or other illegal or unethical conduct to UBS senior management. The UBS Investigation On 31 December 2007, a UBS employee reported to UBS Money Laundering Reporting Officer a concern regarding a certain transaction and, as a result of this disclosure, UBS undertook a review of trading activity on Desk X (the UBS Investigation ) which included detailed forensic analysis carried out by a third party The UBS Investigation identified that transactions had been undertaken on the accounts of 39 customers without customer authorisation (the Unauthorised Transactions ), including FX transactions (the Unauthorised FX Transactions ) and that these transactions had caused loss. In addition, the UBS Investigation found that some loss was concealed by arranging the transfer of assets from certain customers with liquid assets to customers who had suffered loss and the terms by which a customer s assets were transferred were evidenced by the UBS Guarantee Letters that were written on UBS headed notepaper The UBS Investigation established that you were involved in the conduct set out above because you signed a number of the UBS Guarantee Letters and failed to escalate your knowledge that the Unauthorised Transactions were taking place As a result of the findings of UBS investigation, you were summarily dismissed from UBS on 28 March 2008 for gross misconduct. The terms of the Purported Loans The FSA s investigation has established that you signed seven UBS Guarantee Letters on UBS headed note paper. The UBS Guarantee Letters were designed to, and did, represent to the transferor customers that UBS had approved the Purported Loans and authorised a guarantee that UBS would repay the transferred sums in the event of default The apparent effect of the UBS Guarantee Letters was therefore: 7

8 (c) to commit UBS to repaying substantial sums of money without its knowledge; to create a potentially valuable asset for the transferor customers, who could sell the letters or use them as collateral; and to commit the recipient customers to an obligation to repay a substantial debt of which they were unaware The UBS Guarantee Letters related to Purported Loans totalling USD 10.5 million The UBS Guarantee Letters typically offered rates of interest that were approximately double the rate on offer from UBS or other lenders at the time You were the Client Adviser to one of the transferor customers These arrangements fell outside the scope of services offered by UBS to its customers During the Relevant Period, you signed the UBS Guarantee Letters in the knowledge that: (c) (d) (e) (f) (g) UBS was not aware of the Purported Loans; the Purported Loans had not been arranged in the ordinary course of UBS business; the Purported Loans had not been authorised by UBS; the Purported Loans would not have been approved by UBS had formal authorisation been sought; UBS had not agreed to guarantee the Purported Loans and the representation to the transferor customers that UBS had done so was false; the Purported Loans were at higher rates of interest than generally available at the time; and your conduct was improper During the Relevant Period, you signed the UBS Guarantee Letters without taking any steps to satisfy yourself that: (c) the Purported Loans were genuine; the recipient customers had agreed to borrow the money; and the recipient customers could afford to repay the Purported Loans Furthermore, by late 2007 you were fully aware that the purpose of the Purported Loans was to conceal from customers losses that had arisen from the Unauthorised 8

9 Transactions; however, despite your knowledge you did not escalate the matter within UBS and you signed a further UBS Guarantee Letter. Analysis of the breach of Principle By reason of the facts and matters set out at paragraphs 4.1 to 4.25 above, the FSA considers that you failed to act with integrity in carrying out your controlled function in breach of Principle In considering your conduct, the FSA has had particular regard to the evidential provisions set out at APER 4.1.3E. Your conduct included deliberately misleading UBS customers and deliberately misleading UBS by omission, thereby acting in breach of Principle In particular, by signing the UBS Guarantee Letters: (c) You represented to the transferor customers that the Purported Loans were approved by UBS and that UBS had agreed to guarantee the Purported Loans notwithstanding the fact that you knew that both statements were untrue; You committed the recipient customers to an obligation to repay a substantial debt, of which they were unaware; and Although you were initially unaware of losses, your conduct enabled funds to be moved from one customer account to another to conceal losses arising from the Unauthorised Transactions on the accounts of the recipient customers for a period of at least two years until October When the Unauthorised Transactions on these accounts came to light, UBS paid compensation of USD 8 million in respect of the UBS Guarantee Letters When signing the UBS Guarantee Letters, you were aware of the fact that the Purported Loans were unusual arrangements and that the documents you were being asked to sign were not standard UBS documents. The arrangements were particularly unusual in that they purported to carry a guarantee from UBS. You knew that these arrangements had not been formally authorised by UBS. Accordingly, you were on notice from the beginning of the Relevant Period that the movement of funds and the use of the UBS Guarantee Letters was suspicious. You did not escalate your knowledge of the Purported Loans at any time By late 2007 you were fully aware that funds were being transferred to the recipient customers accounts to conceal from the relevant customers and UBS the fact that losses had arisen as a result of unauthorised transactions. You did not escalate your knowledge of the unauthorised transactions at any time. Rather, you signed a further UBS Guarantee Letter and allowed the concealment of losses to continue. Conclusion on Principle Accordingly, the FSA considers that your conduct demonstrates a lack of integrity and, therefore, a failure to comply with Principle 1. 9

10 Analysis of Fitness and Propriety In addition, by reason of the facts and matters set out at paragraphs 4.1 to 4.25 above, the FSA considers that your conduct directly impugns your honesty, integrity and reputation and demonstrates that you are not a fit and proper person to perform any function in relation to any regulated activity carried out by any authorised or exempt person. 5. CONCLUSION Prohibition order 5.1. The FSA s effective use of the power to prohibit individuals who are not fit and proper from carrying out functions in relation to regulated activities helps the FSA to work towards its regulatory objectives of protecting consumers, promoting public awareness, maintaining confidence in the financial system and reducing financial crime The FSA is satisfied that you are not a fit and proper person to perform regulated activities and should therefore be prohibited from performing any controlled function under section 56 of the Act. The FSA has had regard to the guidance in Chapter 9 of the FSA s Enforcement Guide ( EG ) in deciding that a prohibition order is appropriate in this case. The relevant sections of EG are set out in the Annex to this Notice. Financial Penalty 5.3. The principal purpose for which the FSA imposes financial penalties is to promote high standards of regulatory conduct by deterring firms and approved persons who have breached regulatory requirements from committing further breaches, helping to deter other firms and approved persons from committing similar breaches and demonstrating, generally, to firms and approved persons, the benefit of compliant behaviour In determining the appropriate level of financial penalty, the FSA has had regard to the following aggravating factors: (1) The breaches occurred over a protracted period of two years and, in relation to the signing of the UBS Guarantee Letters, constituted a consistent, deliberate course of conduct. You knew that UBS had not authorised the Purported Loans; (2) You abused your position of responsibility and the trust placed in you by customers and UBS; (3) The breaches included conduct concerning customers for whom you were directly responsible; and (4) Your conduct continued even when you were fully aware that the purpose of the Purported Loans was to conceal the losses arising from the Unauthorised Transactions. 10

11 5.5. Furthermore, the FSA has had regard to the following mitigating factors: (1) The FSA has not previously taken any disciplinary action against you; (2) The FSA has no evidence to suggest that you stood to make any personal gain from your actions and failings other than receipt of your salary and bonus; (3) The FSA does not dispute your assertion that you did not initiate the circumstances which led to your misconduct, in that you did not personally conduct the unauthorised transactions and you did not personally arrange the Purported Loans; (4) The FSA has taken account of the fact that you felt you were under significant pressure when asked to sign the UBS Guarantee Letters by a senior colleague; and (5) Although you did not bring your actions and failings to the FSA's attention, you accepted at an early stage of the investigation the substance of your misconduct and expressed remorse for your actions. You also agreed to settle the proceedings at an early stage Accordingly, the FSA considers it necessary and proportionate to impose a financial penalty pursuant to section 66 of the Act on the grounds that you have failed to act with integrity in breach of Principle 1. In determining the value of this penalty, the FSA has had regard to Chapter 6 of the FSA s Decision Procedure and Penalties Manual ( DEPP ), entitled Penalties, which forms part of the FSA Handbook. The relevant sections of DEPP are set out in the Annex attached to this Notice. But for your financial hardship and your agreement to settle this matter at an early stage of the proceedings, the FSA would have imposed a penalty of 100, DECISION MAKER 6.1. The decision which gave rise to the obligation to give this Final Notice was made by the Settlement Decision Makers on behalf of the FSA. 7. IMPORTANT 7.1. This Final Notice is given to you in accordance with section 390 of the Act. Manner of and time for Payment 7.2. The financial penalty must be paid in full by you to the FSA by no later than 27 November 2009, 14 days from the date of the Final Notice. If the financial penalty is not paid 7.3. If all or any of the financial penalty is outstanding on 28 November 2009, the FSA may recover the outstanding amount as a debt owed by you and due to the FSA. 11

12 Publicity 7.4. Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of information about the matter to which this notice relates. Under those provisions, the FSA must publish such information about the matter to which this notice relates as the FSA considers appropriate. The information may be published in such manner as the FSA considers appropriate. However, the FSA may not publish information if such publication would, in the opinion of the FSA, be unfair to you or prejudicial to the interests of consumers The FSA intends to publish such information about the matter to which this Final Notice relates as it considers appropriate. 8. FSA CONTACTS 8.1. For more information concerning this matter generally, you should contact Mary O Connor (tel: ) of the Enforcement Division of the FSA. Jamie Symington Head of Department, FSA Enforcement Division 12

13 Annex REGULATORY GUIDANCE AND POLICY Prohibition Fit and Proper Test for Approved Persons 1. The part of the FSA Handbook entitled The Fit and Proper Test for Approved Persons ( FIT ) sets out guidance on how the FSA will assess the fitness and propriety of a person to perform a particular controlled function. 2. The purpose of FIT is to outline the main criteria for assessing the fitness and propriety of a candidate for a controlled function. FIT is also relevant in assessing the continuing fitness and propriety of an approved person. 3. FIT 1.3.1G states that the FSA will have regard to a number of factors when assessing the fitness and propriety of a person and that one of the most important considerations will be the person s honesty, integrity and reputation. 4. FIT 2.1.1G provides that, in determining a person s honesty, integrity and reputation, the FSA will have regard to factors including, but not limited to, those set out in FIT 2.1.3G. The factors set out in FIT 2.1.3G include, among other things: (1) whether the individual concerned has contravened any of the requirements and standards of the regulatory system (FIT 2.1.3(5)G); (2) whether the person has been dismissed, or asked to resign and resigned, from employment or from a position of trust, fiduciary appointment or similar (FIT 2.1.3(11)G); and (3) whether, in the past, the individual concerned has been candid and truthful in all his dealings with any regulatory body and whether the person demonstrates a readiness and willingness to comply with the requirements and standards of the regulatory systems and with other legal, regulatory and professional requirements and standards (FIT 2.1.3(13)G). FSA s policy for exercising its power to make a prohibition order 5. The FSA s policy in relation to prohibition orders is set out in Chapter 9 of the Enforcement Guide ( EG ). 6. EG 9.1 states that the FSA s power to make prohibition orders under section 56 of the Act helps it work towards achieving its regulatory objectives. The FSA may exercise this power where it considers that, to achieve any of its regulatory objectives, it is appropriate either to prevent an individual from performing any functions in relation to regulated activities or to restrict the functions which he may perform. 7. EG 9.4 sets out the general scope of the FSA s powers in relation to prohibition orders, which include the power to make a range of prohibition orders depending on the circumstances of each case and the range of regulated activities to which the 13

14 individual s lack of fitness and propriety is relevant. Depending on the circumstances of each case, the FSA may seek to prohibit individuals from performing any class of function in relation to any class of regulated activity, or it may limit the prohibition order to specific functions in relation to specific regulated activities. The FSA may also make an order prohibiting an individual from being employed by a particular firm, type of firm or any firm. 8. EG 9.5 provides that the scope of a prohibition order will depend according to the range of functions which the individual concerned performs in relation to regulated activities, the reasons why he is not fit and proper and the severity of risk posed by him to consumers or the market generally. 9. EG 9.8 provides that when the FSA has concerns about the fitness and propriety of an approved person, it may consider whether it should prohibit that person from performing functions in relation to regulated activities, withdraw its approval, or both. In deciding whether to withdraw its approval and/or make a prohibition order, the FSA will consider in each case whether its regulatory objectives can be achieved adequately by imposing disciplinary sanctions, for example public censures or financial penalties, or by issuing a private warning. 10. EG 9.9 states that, when it decides to exercise its power to make a prohibition order against an approved person and/or withdraw its approval, the FSA will consider all the relevant circumstances of the case. These may include, but are not limited to, the following factors: (1) whether the individual is fit and proper to perform functions in relation to regulated activities (the criteria for assessing the fitness and propriety of approved persons in terms of honesty, integrity and reputation are set out in FIT 2.1); (2) whether, and to what extent, the approved person has failed to comply with the Statements of Principle issued by the FSA with respect to the conduct of approved persons; (3) the relevance and materiality of any matters indicating unfitness; (4) the length of time since the occurrence of any matters indicating unfitness; (5) the particular controlled function the approved person is (or was) performing, the nature and activities of the firm concerned and the markets in which he operates; (6) the severity of the risk which the individual poses to consumers and to confidence in the financial system; and (7) the previous disciplinary record and general compliance history of the individual. 14

15 11. EG 9.10 provides that the FSA may have regard to the cumulative effect of a number of factors. 12. EG 9.11 provides that it is not possible to produce a definitive list of matters which the FSA might take into account when considering whether an individual is not a fit and proper person to perform a particular, or any, function in relation to a particular, or any, firm. However, EG 9.12 gives examples of types of behaviour which have previously resulted in the FSA deciding to issue a prohibition order or to withdraw the approval of an approved person. These examples include: (1) severe acts of dishonesty, e.g. which may have resulted in financial crime; and (2) serious breaches of the Statement of Principles set out in APER. 13. EG 9.23 provides that, in appropriate cases, the FSA may take other action against an individual in addition to making a prohibition order and/or withdrawing approval, including the use of its powers to impose a financial penalty. Imposition of a financial penalty Statements of Principle and Code of Practice for Approved Person 14. The Statements of Principle for Approved Persons, issued under section 64 of the Act, are contained in APER. 15. APER Principle 1 states An approved person must act with integrity in carrying out his controlled function. 16. APER G states that an approved person will only be in breach of a Statement of Principle where he is personally culpable. Personal culpability arises where an approved person s conduct is deliberate, or where the approved person s standard of conduct is below that which would be reasonable in all the circumstances. 17. APER 4.1.2E gives examples of conduct that, in the opinion of the FSA, does not comply with Principle 1. Such conduct includes: (1) deliberately misleading (or attempting to mislead) a client by act or omission (APER 4.1.3E), including by misleading a client about the likely performance of investment products by providing inappropriate projections of future investment returns (APER 4.1.4(4)E) and procuring the unjustified alteration of prices on illiquid or off-exchange contracts, or both (APER 4.1.4(7)E); (2) deliberately misleading (or attempting to mislead) by act or omission the approved person s firm (APER 4.1.3E); and (3) deliberately preparing inaccurate or inappropriate records or returns in connection with a controlled function (APER 4.1.8E). 15

16 The FSA s policy in relation to the imposition of financial penalties 18. The FSA s policy on the imposition of penalties as at the date of this Notice is set out in Chapter 6, entitled Penalties, of the FSA s Decision Procedure and Penalties Manual ( DEPP ), which forms part of the FSA Handbook. 19. The principal purpose of imposing a financial penalty is to promote high standards of regulatory conduct by deterring persons who have committed breaches from committing further breaches, helping to deter other persons from committing similar breaches and demonstrating generally the benefits of compliant behaviour (DEPP 6.1.2G). 20. The FSA will consider the full circumstances of each case when determining whether or not to take action for a financial penalty. DEPP 6.2.1G sets out a non-exhaustive list of factors that may be of relevance in determining whether to take action for a financial penalty, which include the following: (1) DEPP 6.2.1G (1): The nature, seriousness and impact of the suspected breach; (2) DEPP 6.2.1G (2): The conduct of the person after the breach; (3) DEPP 6.2.1G(3): The previous disciplinary record and compliance history of the person; (4) DEPP 6.2.1G(4): FSA guidance and other published materials; and (5) DEPP 6.2.1G(5): Action taken by the FSA in previous similar cases. 21. The FSA will consider all the relevant circumstances of a case when it determines the level of financial penalty. DEPP 6.5.2G sets out a non-exhaustive list of factors that may be of relevance when determining the amount of a financial penalty, which include: (1) DEPP 6.5.2G (1): Deterrence; (2) DEPP 6.5.2G (2): The nature, seriousness and impact of the breach in question; (3) DEPP 6.5.2G (3): The extent to which the breach was deliberate or reckless; (4) DEPP 6.5.2G(4): Whether the person on whom the penalty is to be imposed is an individual; (5) DEPP 6.5.2G(5): The size, financial resources and other circumstances of the person on whom the penalty is to be imposed; (6) DEPP 6.5.2G(6): The amount of benefit gained or loss avoided; (7) DEPP 6.5.2G(8): Conduct following the breach; (8) DEPP 6.5.2G(9): Disciplinary record and compliance history; and 16

17 (9) DEPP 6.5.2G(10): Other action taken by the FSA. The Enforcement Manual 22. Although the references in this notice are to DEPP and EG, the FSA has had regard to the corresponding provisions of the FSA s Enforcement Manual which applied during the earlier part of the Relevant Period. 17