WITHDRAWAL OF APPROVAL - fit and proper test - applicants carrying out controlled functions - first applicant the senior executive officer of stockbrokers with controlled functions as investment adviser and manager - second applicant the chief executive officer with controlled function as investment adviser - stockbrokers placing shares in company quoted on AIM - shortfall - public announcement indicating complete placing - non-disclosure of shortfall to SFA or to AIM team -attempted share support by 2nd applicant - FSA investigation - whether lack of due skill, care and diligence in failing to notify AIM team and seek guidance breached SFA Principle 1 (integrity and fair dealing) or Principle 3 (market conduct) - no - whether attempted support of price of shares in client company in breach of Principles 1 and 3 - yes - whether applicants guilty of failing to cooperate with regulator - yes, but only in limited respects - whether applicants' conduct operated to the detriment of consumers and to confidence in the financial system - no - directions that decision notices be read in accordance with the tribunal's findings - FSMA 2000 s 63(1) - FSA Handbook "Fit and Proper Test for Approved Persons" - SFA Statements of Principle
FINANCIAL SERVICES AND MARKETS TRIBUNAL
GEOFFREY ALAN HOODLESS
SEAN MICHAEL BLACKWELL
FINANCIAL SERVICES AUTHORITY
Tribunal: Andrew Bartlett QC (Chairman)
Sitting in public in London on 7-11, 14-17 July 2003
Date of decision: 3 October 2003
For the Applicants Alexander Cranbrook, counsel, instructed by Littman & Co
For the Respondent David Mayhew, solicitor, and David Povall, counsel, of and instructed by the Financial Services Authority
© CROWN COPYRIGHT 2003
ROLE AND JURISDICTION OF THE TRIBUNAL
'FIT AND PROPER' UNDER THE REGULATORY REGIME
"(5) whether the person has contravened any of the requirements and standards of the regulatory system or the equivalent standards or requirements of other regulatory authorities (including a previous regulator), clearing houses and exchanges ... "
"(13) whether, in the past, the person 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 system and with other legal, regulatory and professional requirements and standards."
"FSA recognises that its decisions to withdraw approval will often have a substantial impact on those concerned. When it considers whether to withdraw approval from a person, it will take account of all relevant factors, including, but not limited to, the matters set out below:
(2) the criteria for assessing the fitness and propriety of approved persons. ... The criteria include:
(a) honesty, integrity and reputation; this includes an individual's openness and honesty in dealing with consumers, market participants and regulators, and ability and willingness to comply with the requirements placed on him under the Act as well as with other legal and professional obligations and ethical standards ...
(b) competence and capability; this includes having the necessary skills to carry out the controlled function that he is performing ...
(3) whether, and to what extent, the approved person has:
(a) failed to comply with the Statements of Principle; or
(b) been knowingly concerned in a contravention by a relevant firm of a requirement imposed on the firm by or under the Act (including the Principles and other rules);
(4) the relevance, materiality and length of time since the occurrence of any matters indicating unfitness;
(5) the severity of risk which the person poses to consumers and confidence in the financial system; and
(6) the previous disciplinary record and general compliance history of the person … "
1. A firm shall observe high standards of integrity and fair dealing.
Skill, care and diligence
2. A firm should act with due skill, care and diligence.
3. A firm should observe high standards of market conduct. It should also ... comply with any code or standard as in force from time to time and as it applies to the firm ...
Conflicts of interest
6. A firm should either avoid any conflict of interest arising or, where conflicts arise, should ensure fair treatment for its customers by disclosure, internal rules of confidentiality, declining to act, or otherwise. A firm should not unfairly place its interests above those of its customers and, where a properly informed customer would reasonably expect that the firm would place his interests above its own, the firm should live up to that expectation.
Relations with regulators
10. A firm should deal with its regulator in an open and co-operative manner and keep the regulator promptly informed of anything concerning the firm which might reasonably be expected to be disclosed to it."
BURDEN AND STANDARD OF PROOF
"Where the matters in issue are facts the standard of proof required in non-criminal proceedings is the preponderance of probability, usually referred to as the balance of probability. This is the established general principle. … …
The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. … … Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation.
Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established. Ungoed-Thomas J expressed this neatly in Re Dellow's Will Trusts, Lloyds Bank Ltd v Institute of Cancer Research  1 All ER 771 at 773,  1 WLR 451 at 455:
'The more serious the allegation, the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it.'
THE NATURE OF THE EVIDENCEThis substantially accords with the approach adopted in authorities such as the well-known judgment of Morris LJ in Hornal v Neuberger Products Ltd  3 All ER 970 at 978,  1 QB 247 at 266. This approach also provides a means by which the balance of probability standard can accommodate one's instinctive feeling that even in civil proceedings a court should be more sure before finding serious allegations proved than when deciding less serious or trivial matters."
THE MATERIAL EVENTS
Background to the placing, and the announcement of 30 March 2000
"In addition, Hoodless Brennan & Partners plc has, subject to allotment and Admission, placed on behalf of PrimeEnt 50,000,000 new ordinary shares of 1p each in the Company at 5p per share. The gross proceeds of the placing is £2,500,000, which shall be used, inter alia, for the working capital purposes of the PrimeEnt group".
Discovery of the shortfall
Disclosure to client and to Nomad, but not to compliance department, legal advisers, LSE or regulators
Attempted share support
Henry Cooke Lumsden
Payment to PrimeEnt
Investigations by SFA and FSA
"We refer to our telephone conversation today … We confirm that we are satisfied that Hoodless Brennan & Partners have fully complied with its obligations, as understood by this company, in relation to such placing and subscription as agreed with us during the course of the placing and in particular confirm that you have complied with your obligations to account to us for the net proceeds of the placing and subscription by the end of June 2000. …"
… I'm gonna get interviewed this afternoon, I just want to be able to say that I had a further agreement with you which we would look to place to place those shares at 5p, which I had. What I'm also gonna say too, is that I had a verbal agreement that we would do a schedule of payments and one of the reasons I am going to say that because, this is where I, I will need some help from you in one sense and I, I, I will not say at the moment, is that the announcement was made that the placing had, would, had gone ahead and it was premature because he was doing the placing, putting the placing list together. And, and we had no signed agreement, it hadn't been sent to you and I agreed with you, rather than screw the whole thing up, I agreed with you that there, it, it, would be staged, as we and when we (unclear: find/sign) the placees."
Evidence to the Tribunal
The applicants' general approach to matters of compliance
The Decision Notices
Other disciplinary cases
OUR ASSESSMENT OF THE APPLICANTS IN RELATION TO THE REGULATORY REQUIREMENTS
Andrew Bartlett QC, CHAIRMAN