THE FINANCIAL SERVICES AND MARKETS TRIBUNAL
|LEGAL & GENERAL ASSURANCE SOCIETY LIMITED||Applicant|
|THE FINANCIAL SERVICES AUTHORITY||Respondents|
JUDGE DAVID MACKIE CBE QC
MS SANDI O'NEILL
MR PETER BURDON
Sitting in public in London
Mr Charles Flint QC and Mr Ben Jaffey, instructed by Freshfields Bruckhaus Deringer, for the Applicant
Mr Hodge Malek QC and Mr Simon Hattan, instructed by the FSA, for the Respondents
(a) what penalty should be imposed on L&G for the rule breaches we have identified;
(b) should either party pay all or part of the other's legal costs;
(c) should we make statutory recommendations to the FSA?
We have received many further written submissions, and we held further hearings on 21st February and on 26th April. We now deal with each matter in turn. We adopt the same abbreviations used in our Decision.
The Further Decision Notice ("The Notice")
- The Notice must be read as a whole but we identify particular passages. In its summary at 3.2(c), FSA concluded that "the size and nature of L&G's business meant that these failures had the potential to expose a large but, as yet, unquantified number of consumers to loss. The FSA has concluded within a limited sample of 250 customers that the rate of mis-selling among the 152 respondents was 39%".
- At 3.16 the RDC referred to PwC's conclusion that "there was persuasive evidence that they were (L&G emphasis added) risk averse and/or did not understand the capital shortfall risk associated with with-profits FMPs". The paragraph goes on "FSA has concluded that these customers were (L&G emphasis added) sold policies that were unsuitable for them and considers this to be a significant proportion of the customer's review". At 4.18 the RDC repeated PwC's conclusions and added "the FSA has concluded that this evidence is substantiated".
- In 3.17 the RDC refers to L&G's refusal to accept PwC's conclusions and adds "In all the circumstances, particularly the time that has already elapsed and L&G's approach to the question, the FSA has not considered an extension of the sample review to be a realistic proposition. It has, therefore, been obliged to rely on the sample review as being strongly indicative of the potential consequences of L&G's selling practices and has arrived at its conclusions accordingly".
- L&G criticise the editing of PwC's report in paragraphs 3.16, 3.18 and 4.25. PwC actually said "there exists persuasive evidence for a judgment to be formed on whether the customer was risk adverse and/or did not understand the capital shortfall risk and may (L&G emphasis) therefore have been sold a policy that was not suitable for them" and "it is our opinion that there is persuasive evidence to indicate that the policyholders were risk adverse, and/or did not understand the capital shortfall risk and may (L&G emphasis) have been sold a policy that was unsuitable for them". In answer to a specific question from L&G's Counsel about FSA's conclusion that the 60 customers were sold policies that were unsuitable for them. Mr Chapman replied "it is not the PwC conclusion". Mr Chapman explained that "the reason I have said may is because, as I have described throughout the report with the passage of time, with the difficulties of getting information from a sale where we were not present so we cannot understand the absolute dialogue between the adviser and the investor, I would not give an absolute opinion and say: these have been mis-sold" and that the report had used "deliberately worded language which tried to convey the balance of judgments.". FSA has not sought to justify its references in the Decision Notice to the PwC Report which were worded in stronger terms than PwC itself adopted. If, as we assume it to be, this was an oversight it was unfortunate. It suggests a lack of accuracy and may have been part of what led the members of the RDC to conclude that the 60 sales were unsuitable.
- L&G say that the RDC's conclusions are supported by no further evidence at all. FSA submits that in reaching this particular conclusion "the RDC had the benefit of evidence in relation to the deficiencies in L&G's procedures". As we see it there is no indication in the Decision Notice that, on the question of mis-selling, the RDC relied on anything other than PwC's report. Indeed there are indications that the report was the entirety upon which the RDC relied ("FSA has concluded that this evidence is substantiated" - 4.18). As FSA is obliged by Section 388 of the Act to give reasons for its decision it seems to us that the RDC would have referred to other evidence if it had had this in mind. The RDC appears to have found L&G guilty of mis-selling by adopting the PwC report which PwC readily accepts did not of itself establish guilt or claim to do so. This appears to have been a significant error.
- L&G criticise the RDC for apparently presuming in 3.17 that the PwC sample was representative of all endowment sales to low risk customers because L&G rejected the PwC report, maintained that the ESR was unnecessary and did not accept that L&G's procedures were flawed. FSA then rejects doing an extension of the sample review as not being realistic in the circumstances and given L&G's approach to the "question". We would not have taken FSA's position. It is for FSA to establish its case and produce the evidence it relies on. The existence of delays and what FSA may see as unreasonableness on the part of the party challenged are no doubt frustrating if not infuriating. They are not however a justification for reaching a conclusion that FSA is "obliged" to rely on evidence as being "strongly indicative" and arriving at its conclusions "accordingly". We see no such obligation. The issue should be - what is the evidence and what conclusions do we draw from it? If more evidence was needed FSA should have obtained it.
- L&G also criticise the absence from the Decision Notice of any answer to L&G's submissions in its defence based on the risk warnings in the KFD and the personal illustrations. FSA replies that L&G's case had been made very clear on numerous occasions and in particular in the Investigation Report which it had disclosed to L&G to assist them to understand how FSA puts its case. We recognise that the RDC's Decision needs to be concise and to the point. The Decision Notice is not a judgment of a court and there are good reasons why it should not be. The RDC no doubt considered L&G's submissions and gave them careful consideration but there is no indication in the Decision Notice that they did. It is the experience of the courts, tribunals and many disciplinary bodies that it is useful for any judgment or decision to refer to the competing cases of the parties, if only in very brief terms. This has the benefit not only of reminding the tribunal of a party's submissions but also of later demonstrating to it that these were considered when decisions were taken.
- In our view L&G were justified in feeling aggrieved by these aspects of the RDC's Decision. There are other criticisms by L&G of the RDC decision which seem to us to be immaterial or to relate to questions of a penalty. If these remain live we will deal with them at that point.
(a) The FSA shall impose a financial penalty of £575,000 (five hundred and seventy five thousand pounds) upon L&G (see section133(5)FSMA).
(b) There will be no Order for costs.
(c) The Tribunal will make no recommendations under Section 133(8).
JUDGE DAVID MACKIE CBE QC