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United Kingdom Financial Services and Markets Tribunals Decisions

You are here: BAILII >> Databases >> United Kingdom Financial Services and Markets Tribunals Decisions >> Townrow v Financial Services Authority [2006] UKFSM FSM025 (12 January 2006)
URL: http://www.bailii.org/uk/cases/UKFSM/2006/FSM025.html
Cite as: [2006] UKFSM FSM25, [2006] UKFSM FSM025
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REGULATED ACTIVITIES - Performance - Prohibition Order - Fit and proper
person - Failure to reply to enquiries from Regulator - Trading while not authorised
on account of dissolution of partnership – Failure to conduct proper pensions review
- Non-payment of redress to customers - Trading without professional indemnity
cover - Failure to make proper disclosure in application for approval - Whether
applicant not a fit and proper person to perform functions relating to regulated
activities - Reference dismissed – FSMA 2000 s 32 - FSMA 2000 s 56
PRACTICE – guidance on form of chronology - guidance on core bundle
FINANCIAL SERVICES AND MARKETS TRIBUNAL
Case No FIN/2005/0009
JONATHAN MILROY TOWNROW
Applicant
-and-
FINANCIAL SERVICES AUTHORITY
Respondent
Tribunal: Andrew Bartlett QC (Chairman)
Christopher Burbidge
Ian Abrams
Sitting in public in London on 1, 2, 5, 6, 7 December 2005
Date of decision: 12 January 2006
For the Applicant Gareth Fatchett
For the Respondent Helen Malcolm and Adrian Berrill-Cox
© CROWN COPYRIGHT 2006
1
DECISION
INTRODUCTION
1.   The applicant, Mr Townrow, has worked in the financial services industry for
more than 20 years. The Financial Services Authority (“the Authority”, or “the
FSA”) decided on 21 February 2005 to prohibit Mr Townrow from performing
any function in relation to any regulated activity carried on by an authorised
person. The decision was made under s 56 of the Financial Services and
Markets Act 2000 (“the Act” or “FSMA”) on the ground that it appeared to the
Authority that Mr Townrow was not a fit and proper person to perform those
functions. Mr Townrow has referred this decision to the Tribunal.
2.   The Authority refers to a number of aspects of the conduct of Mr Townrow,
principally in his handling of the business of JM Townrow & Associates
("JMTA"). The Authority relies in particular on allegations concerning Mr
Townrow’s inability and apparent unwillingness to complete JMTA’s
pensions review, his dealings with his clients, his repeated inconsistencies
amounting to lies to the regulator, his failure to comply with decisions of the
Financial Ombudsman Service, and his trading while unauthorised and
uninsured.
ROLE AND JURISDICTION OF THE TRIBUNAL
3.   In order to deal with one aspect of Mr Townrow’s concerns about the
Authority’s decision it is necessary to recapitulate the role and jurisdiction of
this Tribunal.
4.   Mr Townrow complains that the Regulatory Decisions Committee of the
Authority did not deal with the matter properly. He contends that the Decision
Notice was authored by the Enforcement Division, contains inadequate
reasons, and was merely rubber-stamped by the RDC without any real
consideration of his case.
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5.   We have not found it necessary or useful to consider this complaint, as it does
not seem to us to bear on the decision which we have to make. The present
reference is not simply a review of the decision taken by the Authority,
whether one considers for that purpose the RDC or the Authority’s
Enforcement Decision. The role of the Tribunal is to consider the matter
afresh in the light of all the evidence made available to us. By s133(3) of the
Act the Tribunal may consider any evidence relating to the subject-matter of a
reference, whether or not it was available to the Authority at the material time.
Unlike the RDC, we have heard sworn evidence from various witnesses at
some length. Our task is to determine, having heard the evidence, what (if any)
is the appropriate action for the Authority to take in relation to the matter
referred to us: FSMA s 133(4).
6.   We do not rule out the possibility that examination of the Authority’s
decision-making process might in some very particular circumstances shed
useful light on the issues. In the present case we have not found it useful. Our
approach, therefore, has been to leave wholly on one side the decision made
by the RDC, and to consider the matter afresh without reference to the
reasoning contained in it.
‘FIT AND PROPER’ UNDER THE REGULATORY REGIME; PROHIBITION
ORDERS
7.   The criteria to be considered by the Authority when assessing whether a
person is fit and proper are set out in the Fit and Proper test for Approved
Persons (FIT) in the FSA Handbook issued pursuant to s157(1) of the Act. The
ingredients of fitness and propriety relate to (1) honesty, integrity and
reputation, (2) competence and capability, and (3) financial soundness.
8.   While the assessment of fitness and propriety of an approved person takes
place within the regulatory framework introduced by the Act (fully effective
from December 2001), earlier conduct which gives rise to concerns about
possible unfitness and impropriety must be judged against the standards which
prevailed at the material time. Some of the matters relied on by the Authority
concern events before 2001. Mr Townrow’s activities were regulated
3
originally by FIMBRA and later by the PIA. For the purposes of the present
case the standards of conduct required by FIMBRA and by the PIA were not
materially different from those required by the new regime.
9.   As regards the making of a prohibition order, ENF 8.5.1A states:
“The FSA will consider in each case whether its regulatory objectives of
maintaining market confidence in the financial system, promoting public
awareness, protecting consumers and reducing financial crime can
adequately be achieved by withdrawing approval or disciplinary
sanctions, for example, public censure or financial penalties, or by issuing
a private warning. The FSA considers that a prohibition order generally
has more serious consequences than the withdrawal of approval because a
prohibition order will usually be wider in scope (see ENF 8.3.2 G). It is
therefore likely that the FSA will consider making a prohibition order
against approved persons only in the more serious cases of lack of fitness
and propriety where it considers that the other powers available to it are
not sufficient to achieve the FSA's regulatory objectives.”
10. ENF 8.5.2 states:
“When it decides whether to exercise its power to make a prohibition order
against an approved person, the FSA will consider 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 are contained in FIT 2.1 (Honesty, integrity
and reputation); FIT 2.2 (Competence and capability) and FIT 2.3
(Financial soundness). 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
requirements placed on him by or under the Act as well as with other
legal and professional obligations and ethical standards;
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(b)    competence and capability; this includes an assessment of the
individual's skills to carry out the controlled function that he is
performing; and
(c)  financial soundness; this includes whether the individual has been
the subject of any judgment debts or awards in the United Kingdom or
elsewhere that are continuing or were not satisfied within a reasonable
period;
(2)  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 the
relevant firm of a requirement imposed on the firm by or under
the Act (including the Principles and other rules);
(3)   the relevance, materiality and length of time since the occurrence of
any matters indicating unfitness;
(4)   the particular controlled function the approved person is performing,
the nature and activities of the firm concerned and the markets in which he
operates;
(5)  the severity of the risk which the individual poses to consumers and to
confidence in the financial system;
(6)  the previous disciplinary record and general compliance history of the
individual including whether the FSA (or any previous regulator) has
previously imposed a disciplinary sanction on the individual.”
THE WITNESSES
11. The Authority called Stefan Brzezicki, Marina Petit, Hilary Bourne, Michael
Heather, and Andrew Fatherley of the FSA, and one of JMTA’s clients,
Graham Evans. The statements of Alan Ford, Christopher Harris, Daniel
Shedden, Denis Lyons. Domenic Sidonio, Gary Nicholls, Ian Thomson, John
Little, Lesley Titcomb, Malachy Madden, Mark Ferguson, Nigel Smith and
5
Terry Saunders were read. Mr Townrow gave evidence himself, and called
John Bailey.
12. We found no reason to doubt the evidence of the Authority’s witnesses, who
appeared to us to be doing their best to give honest and reliable evidence.
13. Mr Townrow’s evidence suffered from inconsistency and equivocation.
Reminding ourselves that the burden of proof lies on the Authority, and
making all possible allowances for misunderstanding or faulty recollection, we
have nevertheless been driven to the conclusion that Mr Townrow exhibited a
strong tendency in his evidence to say what appeared to him to be expedient,
rather than trying to give truthful and accurate answers to counsel’s questions.
We refer to specific aspects below. We also had reservations about Mr
Bailey’s evidence, to which we shall make reference.
MR TOWNROW AND JMTA
14. JMTA was initially known as Financial Consultancy Services and was
authorised as a partnership by FIMBRA in April 1988. It started trading under
the name JM Townrow & Associates on 9 February 1989. Mr Townrow and
his wife Annette were the partners. It was admitted to membership of the PIA
on 11 April 1997.
15. JMTA provided advice on, and arranged and dealt in life assurance, pensions,
and collective investment schemes and advised on investment.
16. Although there were from time to time in the history of JMTA others
employed who fulfilled various controlled functions, Mr Townrow, who
described himself as senior partner was responsible for the day-to-day
management of JMTA, the allocation of resources at JMTA, and compliance
with the regulatory regime. His wife was not active in the partnership.
MR TOWNROW’S ATTITUDE TO BEING REGULATED
17. Before the principal events with which we are concerned Mr Townrow already
had a history of hostility to being regulated, and of not replying to
correspondence.
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18. He had a company called J M Townrow (Independent Financial Advisors) Ltd
which belonged to FIMBRA. Its membership was terminated by FIMBRA on
21 January 1993 for disciplinary reasons. This related to non-payment of
surcharges or levies amounting to £250 or £500.
19. JMTA was initially refused membership of the PIA because of Mr Townrow’s
failure to pay the surcharges levied by FIMBRA. It was admitted on appeal to
membership of the PIA on 11 April 1997 only after they had been paid.
20. On 15 May 1997 Mr Townrow received a reminder call from the PIA, chasing
for the pensions review quarterly return for the period to 31 March. The file
note reads:
“Phoned Mr Townrow to remind him that his quarterly return was due
on 19th May and if we have not received it we will issue a surcharge.
Mr Townrow responded by saying that we ‘can get stuffed’ – we’re
‘not surcharging him’ and that us ‘regulators ought to find another
way of making our money’.
21. On 30 March 1998 the PIA wrote to Mr Townrow because he had not
responded to the PIA’s four previous letters, over the period 1 October 1997 to
18 March 1998, concerning a customer complaint.
THE LEGAL STATUS AND AUTHORISATION OF JMTA
22. Under FSMA section 32, where a partnership is dissolved, the firm’s
authorisation continues to have effect in relation to a partnership which
succeeds to the business of the dissolved firm only where the members of the
resulting partnership are substantially the same as those of the former firm;
and the succession is to the whole or substantially the whole of the business.
Otherwise, the dissolution of the partnership causes the authorisation to cease.
23. The result of this section is that, in the case of a firm with only two partners, a
dissolution inevitably causes the authorisation to cease, even if one partner
wishes to carry on the business. The inflexibility of this provision is capable of
causing hardship or difficulty in the case of a two partner firm, not only for the
7
person who wishes to continue the business, but also for consumers. From the
moment of dissolution, the surviving ex-partner cannot carry on regulated
activities, but must obtain a fresh authorisation as a sole trader. To obtain such
authorisation can involve considerable time and expense.
24. On the transfer of regulatory responsibilities from the PIA to the FSA when
the Act came into force on 1st December 2001 (“N2”), JMTA became
authorised under the Act as a partnership under the ‘grandfathering’ process.
25. According to the FSA, on 1 February 2002 Annette Townrow resigned as a
partner. If that is right, the partnership, and with it JMTA's authorisation,
ended on that date. This is in dispute.
26. Mr Townrow contended that the FSA had made an error when accepting the
transfer of JMTA as a partnership by grandfathering from the PIA, and ought
to have accepted him as a sole trader. His case before the Tribunal was that:
(1) His wife resigned from the partnership as far back as March 1998.
(2) He notified the PIA of her resignation in writing.
(3) His authorisation by the PIA continued notwithstanding her
resignation, since the PIA did not have separate categories for
partnerships and sole traders.
(4) The FSA should therefore have accepted him, on transfer, as a sole
trader, not as a partnership.
(5) He represented the partnership as continuing because that is what
the FSA told him to do when the difficulty over his authorisation
arose.
(6) It was at the FSA’s suggestion that Mr Townrow subsequently
provided a new resignation letter from his wife showing that she
resigned with effect from 1 February 2002, rather than the actual
date of March 1998.
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27. In his application to the PIA for individual registration in March 1998 Mr
Townrow described himself as a partner in JMTA. No application for
individual registration of his wife was submitted to the PIA. As a result she
was automatically recorded as having ceased to be a principal in the firm on
the default date of 31 October 1998.
28. There was no documentary evidence that Mr Townrow expressly notified the
PIA of a change of status from partnership to sole trader in 1998. A copy of
any such communication, if it existed, should have been kept by him. There
was no extant evidence of any response by the PIA to such a communication.
29. By letter dated 19 March 1998 Mr Townrow suggested to his wife that she
resign from JMTA. No specific documentary evidence indicates that she
agreed to the suggestion at that time. There is one document from November
1998 in which someone at Guardian Financial Services, in the context of
seeking recovery of a debt owed by JMTA, referred to Mr Townrow as a sole
trader. This stands alone. Neither party gave evidence about it. It would be
easily explicable as a mistake, particularly given Mr Townrow’s intention that
his wife should resign from the partnership.
30. In the JMTA accounts for the year ending 31 July 1998, both Mr Townrow
and his wife were shown as partners. That is inconsistent with his wife having
resigned in March 1998.
31. The PIA made a supervision visit to JMTA on 12 February 1999. They
recorded Mr Townrow as being a partner in the firm.
32. In the PIA annual questionnaire, signed by Mr Townrow on 12 February 1999,
he answered the questions relating to a partnership, rather than those relating
to a sole trader, and signed expressly as a partner. He also procured, or himself
inserted, his wife’s signature as a partner. The signatures were directly below
the declaration concerning the truthfulness of the answers and the risk of
prohibition or other disciplinary proceedings. On the footing that the
declaration was true, this demonstrates that Mrs Townrow did not leave the
partnership in 1998.
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33. In a letter to a customer on 18 December 1999 Mr Townrow described himself
as “senior partner”.
34. The accounts for the years ended 31 July 2000 and 2001 again showed Mrs
Townrow as a partner. Mr Townrow told us he could not explain why.
35. The PIA conducted a pensions review visit in December 2000. The report of
the visit, provided for the use of JMTA, showed Mr Townrow as a partner in
the firm. He did not tell the PIA that this was incorrect.
36. On 14 November 2001 Mr Bailey sent in a form to the FSA, in regard to the
grandfathering of approved persons, showing Mr Townrow as a partner
(Controlled Function 4).
37. A copy letter dated 31 January 2002 showed Mrs Townrow as tendering her
resignation from the partnership with effect from 1 February 2002. No signed
copy of this letter was in evidence, but by a letter of 1 February 2002 Mr
Townrow replied, purporting to accept the resignation. Mrs Townrow later
confirmed to the FSA, by letter of 13 February 2004, that she had indeed
resigned by the letter of 31 January 2002.
38. On 22 October 2002 Daniel Shedden at the FSA noticed that, although JMTA
was registered with the Authority as a partnership, the Authority only had
details of one partner. He telephoned Mr Townrow, who stated that as far as
he was concerned the firm was a sole trader, although his ex-wife was
disputing that she had resigned. A few days later Mr Townrow told Marina
Pettit of the FSA that, when he “de-registered” his wife, he assumed that was
notification enough. Shortly after, in another call, she asked him if he had
copies of any notification that had been sent in. He said that his ex-wife had
since written to him agreeing for him to take over the business and would send
in that letter and any other correspondence.
39. He did not fulfil his promise to send the correspondence to the Authority.
Marina Pettit sent him a written chaser on 20 November 2002, explaining that,
as a sole trader, he was trading while unauthorised, and that he needed to
submit a new application. She spoke to him again on 4 December. He said that
10
he had been trading as a sole trader since 1998 but his accountant had told him
he was still a partnership (see email of 11 December 2002). She wrote again
on 11 December 2002, stating that he would have to submit a new application
in order to continue trading.
40. He finally responded by letter of 8 January 2003 (mis-dated 2002), stating that
he was
“… at a loss to understand why the question has arisen.
The legal status of [JMTA] has been and continues to be a partnership
since its inception. In 1998 the partners discussed the possibility of the
Firm becoming that of a sole trader and the documentation regarding
this was put into place, however this change of status was never
carried out.
Our legal and fiscal representatives advise that the status of our Firm
is a Partnership.”
41. His case before the Tribunal was that this letter was untrue, because the
partnership had been dissolved in 1998, and that he was ‘forced’ to write it in
order to continue trading. In interview on 27 January 2004 he said:
“The point is that we … had been told, in order to trade, that because
we were grandfathered wrongly, we had to be a partnership.”
42. On 24 February 2003 Mr Bailey, who assisted Mr Townrow on regulatory
matters, told Mr Matthews of the FSA that Mrs Townrow had been a partner
until January 2003, and that Mr Townrow had formed a limited company and
wanted to apply for authorisation as soon as possible.
43. On 25 March 2003 Mr Matthews wrote to Mr Townrow, explaining the effect
of section 32 of the Act, and warning him that he should cease to trade
immediately. This elicited a confused response from Mr Townrow’s divorce
solicitors containing the mutually inconsistent assertions that Mrs Townrow
had resigned in February 2002, that the partnership had not been dissolved,
that the firm continued to trade, and that Mr Townrow was a sole trader. It
11
may be noted that the one thing this letter did not say was that Mrs Townrow
had resigned in 1998. As Mr Townrow’s divorce solicitors, they should have
been in a good position to know the facts concerning her resignation.
44. On 17 July 2003 (at the pensions review visit) Mr Townrow told Hilary
Bourne of the FSA that his trading entity was a partnership, that his wife had
been a partner for the past 20 years, and that he did not see why he should
have to be re-classified as a sole trader.
45. After further correspondence the FSA wrote on 30 July 2003 with formal
notification that JMTA was not authorised and must not carry on any regulated
activity.
46. New solicitors wrote to the Authority on 25 September 2003, setting out Mr
Townrow’s case that the PIA had been informed in writing of his wife’s
cessation as a partner, and had been sent a letter of resignation from her,
apparently in “about February 1998”.
47. Given the weight of contemporaneous documentary evidence to the contrary
from the period 1998 to 2002, we do not believe Mr Townrow’s assertions that
his wife resigned in 1998, and that he so notified the PIA. We find that she
resigned with effect from 1 February 2002. The fiction that she resigned in
1998 rests on the grain of truth that she took no effective part in the business
from 1998. We consider that the fiction has been maintained and relied on by
Mr Townrow in order to try to blame the regulators for his lack of
authorisation.
48. For the same reasons we are also unable to accept Mr Bailey’s evidence on
this aspect. He had himself expressly represented to the FSA on several
occasions that Mrs Townrow was a partner after 1998. His evidence that he
recollected Mrs Townrow’s resignation in early 2002 was in our view at best
wishful thinking, in the context of desiring to aid Mr Townrow.
49. We reject Mr Townrow’s contention that the 2002 resignation letter did not
reflect the true position and was provided at the suggestion of the Authority. If
the true date of dissolution was in 1998, it would be odd indeed for Mr
12
Townrow, in response to a request supposedly made in or after October 2002,
to draw up correspondence showing a fictitious date of dissolution of 1
February 2002.
50. When the partnership was dissolved in 2002, as a minimum he ought to have
advised the FSA in writing. He did not do so.
51. His contention that he was instructed by FSA staff to say that the partnership
was continuing at a time when that was not true does him no credit. We found
no reason to question the evidence given by the various FSA staff as to their
conversations with him, and we accept it. While misunderstandings can occur,
no reasonable person in Mr Townrow’s position would have understood that
he was being instructed to lie. Having heard Mr Townrow’s oral evidence we
have concluded that he did not regard his true legal status as a matter of any
importance, and was prepared to say whatever he thought would enable him to
continue trading.
52. We note that, even after the problem came to light in October 2002, he did not
treat it as a matter of any importance or urgency. He continued trading while
unauthorised up to 30 July 2003 without making any application for fresh
authorisation.
53. We also note that after February 2002 he was not careful over correctly
describing his status. On forms submitted to the FSA on 10 June 2002 and 6
July 2002 Mr Townrow described himself as “senior partner”. Even in his
revised application, signed on 7 January 2004, to perform controlled functions
on behalf of J T Financial Services Ltd, Mr Townrow represented that his
position was that of partner in JMTA. When asked about this Mr Townrow
evidence was:
A. I think again that is what the FSA informed us to say, you know,
how to be a partner.
Q. So, the FSA tell you to lie on a form, a declaration of which you
were going to sign as being true, and you follow that advice blindly.
13
A. Well, realistically, I cannot see --- when I am with my wife as a
partnership sole trader, I cannot see what significance it has.
54. We conclude that Mr Townrow regarded it as unimportant to be clear about
his own legal status, or to give the FSA accurate information about it, and
regarded it as acceptable to sign a declaration of truth without troubling to see
that the answers which he gave were true. He has also tried to mislead the
Tribunal by putting forward a false case that his wife resigned in 1998. In our
judgment this was dishonest according to the ordinary standards of reasonable
and honest people.
55. The correct description of his legal status was not a mere legal nicety of no
significance. Nor was the misleading information the result of an accidental
slip. In so far as (as we find) Mr Townrow regarded it as unimportant to be
clear about his own legal status, and to give the FSA accurate information
about it, and regarded it as acceptable to give untrue information, that
indicates to us a lack of integrity making him unsuitable to work in a regulated
environment.
56. As an approved person performing significant influence functions Mr
Townrow should have behaved in accordance with the APER Statements of
Principle. Statement of Principle 4 provides that an approved person must deal
with the Authority and other regulators in an open and co-operative way and
must disclose appropriately information of which the Authority would
reasonably expect notice. Mr Townrow did not behave in this way in regard to
the matter of his legal status, or indeed other matters to which we now turn.
CONDUCT OF THE PENSIONS REVIEW
57. The pensions review was prompted by concerns that many consumers had
suffered substantial losses arising from their having failed to join, opted out of,
or transferred from occupational schemes in order to take out "money
purchase" personal pensions. JMTA was subject to a requirement by the PIA
to review its advice on sale of personal pensions to clients.
14
58. The pensions review was split into two phases. 'Priority cases' were to be dealt
with in Phase 1 of the pensions review, to be completed by 31 December
1998. 'Non-priority cases' were to be dealt with in Phase 2 of the pensions
review, to be completed by 30 June 2002. (The later deadline of 31 March
2003 where the policyholder had received a "windfall" gain from the
demutualization of the pension provider can be ignored for present purposes).
Where bad advice had been given, and loss had resulted, firms were required
to calculate and provide redress. The preferred method of redress was
reinstatement in the relevant occupational pension scheme; the alternative was
topping up the personal pension plan to replicate the lost benefits.
59. We received a large quantity of evidence concerning JMTA’s pensions
review. It is not necessary to rehearse it in detail. Much of it was uncontested.
The conduct of the review was a shambles. Mr Townrow did not appreciate
the seriousness of the regulatory requirements or of the losses to consumers.
He did not approach the review with the attitude of someone who understood
professional obligations. He left the review in incompetent hands for a long
period. He exercised no effective oversight of it. He gave it a very low priority
and made no real attempt to meet the deadlines for Phase 1 or Phase 2. From
time to time pressure from the regulator produced flurries of activity which
were not maintained. His general attitude was to do the minimum that he could
get away with. Quarterly returns were not submitted for long periods. FSA
letters went unanswered. Clients’ inquiries were ignored for months or even
years at a time.
60. At the pensions review visit on 17 July 2003 Mr Townrow was unco-operative
and unhelpful. He stated that he did not believe in the review and regarded it
as ‘retrospective legislation’. Ultimately the Authority had to take over the
conduct of the review itself.
61. Mr Townrow had delegated the work of the pensions review first to Mr Freeth
and later to Mr Bailey, neither of whom handled it adequately. Effective help
from Mr Bailey’s daughter was obtained for only a short period. Mr Townrow
was evidently either unable or unwilling to appreciate and follow through the
responsibilities of a person who delegates to others tasks required by his
15
regulatory obligations. So far from the delegation exculpating Mr Townrow,
this further failure is in our view an additional aspect in which Mr Townrow
falls short. (See APER Statements of Principle 5 and 7 and PRIN Principle 3.)
We were unimpressed by his and Mr Bailey’s attempts to blame the FSA for
not giving sufficient assistance early enough.
62. Where a firm ceases to be authorised, it is no longer an "authorised person"
and therefore ceases to have the obligations of an authorised person under
FSMA. Strictly speaking, therefore, it appears that the regulatory obligation to
complete the review came to an end on 1 February 2002 when the partnership
was dissolved. Mr Fatchett relied on this circumstance in his supplementary
written closing submission dated 23 December 2005. In our judgment this
does not adequately excuse or explain Mr Townrow’s conduct or materially
help his case on the issue of whether he is ‘fit and proper’. We observe:
(1) By 1 February 2002 the review should have been nearly complete. It
was not.
(2) Neither the dissolution of the partnership nor the expiry of the
regulatory obligation affected Mr Townrow’s existing legal liabilities
to clients to whom pensions had been mis-sold (albeit whether the
liabilities remained legally enforceable would depend on whether time
bar defences had accrued in particular cases).
(3) For practical purposes Mr Townrow needed to complete the review
and compensate his customers if he was to have a realistic hope of
persuading the FSA to grant him a fresh authorisation, as a sole trader
or otherwise.
(4) The Authority's case was that, whatever the technical position, Mr
Townrow believed he still had a regulatory requirement to complete
the review, and his unwillingness or inability to approach this task
adequately, or alternatively to alert the Authority to the true state of
affairs as to JMTA’s status, evidences his lack of integrity and his lack
of competence.
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(5) In our view Mr Townrow did not in fact rely on the cessation of the
regulatory obligation in deciding to adopt his unco-operative attitude to
the review. He did not tell the FSA during the material period that he
would terminate the review on the ground that his regulatory obligation
had ceased. It was not part of his case as opened to the Tribunal that he
was free of obligation to carry out the pensions review.
(6) The real issue here is what the debacle of JMTA’s pensions review
reveals about Mr Townrow’s competence and integrity, his attitude to
regulation and his regard for his customers’ interests. The question as
to his status was not raised until October 2002, which was after the last
deadline by which the review should have been completed. His
conduct after October 2002 was all of a piece with his conduct before
that date.
NON-PAYMENT OF REDRESS
63. In November 2001 JMTA received from its insurers a cheque in settlement of
the pension mis-selling claim of Mr Evans. The amount does not appear with
clarity from the evidence. Mr Evans agreed to accept £12,178. The cheque
was probably for the balance of that sum after taking account of the insurance
excess to be borne by JMTA. In April 2002 JMTA received from its insurers
£8,647 in settlement of the pension mis-selling claims of a Mr Madden and a
Mr Richards.
64. Instead of using these sums to provide redress to the customers, Mr Townrow
retained them in JMTA’s office bank account. He did not tell the customers or
the FSA that these sums had been received and retained. This only came to
light during the July 2003 pensions review visit.
65. Even after the visit Mr Townrow made no attempt to pay out the monies
intended for Messrs Madden, Richards and Evans from JMTA’s account.
66. On 9 January 2004 Mr Townrow was given notice pursuant to s170(2) of the
Act that the FSA had appointed investigators to investigate the circumstances
of his case including that he had retained payments made by his insurers in
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respect of redress claims arising from the pensions review. On 22 January
2004 Mr Townrow was notified by fax that he was required to attend for
interview on 27 January 2004, the interview to take place at the offices of
JMTA. The following day, 23 January 2004, Mr Townrow opened a building
society account in his personal name, and at his home address, into which he
placed the sum of £15,600. In his interview on 27 January 2004 Mr Townrow
showed FSA investigators the building society passbook and said that he was
retaining the funds in trust until the status of the firm was determined.
67. A year later, on 18 January 2005, Mr Townrow’s solicitors wrote to the FSA
stating that they had received from him into their client account the sum of
£15,771, which they said related to the “professional indemnity money” and
had been “segregated since receipt”. Mr Townrow’s instruction to his
solicitors that the sums had been segregated since receipt, which was untrue,
provides a further example of his cavalier attitude to truth.
68. The FSA replied by letter of 20 January 2005:
“As your client appears to be continuing to refuse to pay compensation
to the clients in respect of whom the professional indemnity money
relates, we would expect that he immediately inform the professional
indemnity insurer and the clients concerned … of the fact that money
in an equivalent sum (or money purporting to be the sum received from
the PI insurers) is being held in your client account and to provide
them with an explanation for the reason why the money is being dealt
with in this way. Please provide us with a copy of the letters when they
have been sent.”
69. Neither he nor his solicitors answered that letter, or the chaser that followed in
February. In response to a further chaser in June 2005, Mr Townrow’s
solicitors emailed to say that Mr Townrow now wished the monies to be “used
for the intended purpose of redressing disadvantaged clients”. By this time,
because of the long delay, the amounts required to restore the clients to the
position that they should have been in had greatly increased. The total sum
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required for pensions redress for customers who had valid claims was
calculated by the FSA to amount to some £209,000 as at November 2004.
70. In the 18 months from mid 2003 to January 2005 Mr Townrow spent in the
order of £229,000. None of this was paid for the benefit of investors who were
owed redress.
71. Mr Smith had first complained to Mr Townrow about his pension in 1995. It
took him four years to get to the stage of obtaining a letter from JMTA stating
that he may have been disadvantaged (17 November 1999) and a further two
years to secure an offer of compensation in the sum of £16,607 (12 October
2001). Nothing was paid, and in May 2002 Mr Smith complained to the
Financial Ombudsman Service (“FOS”). On 25 September 2003 the FOS
made a finding in Mr Smith’s favour, directing JMTA to arrange for Mr
Smith’s reinstatement into this occupational scheme without further delay and
awarding £200 for distress and inconvenience. In 2005 this remained unpaid
and reinstatement had not occurred.
72. The history of Mr Evans’ case was similarly drawn out. He first asked Mr
Townrow in 1998 to undertake the necessary comparison to see whether he
had been disadvantaged. After the initial contacts Mr Townrow did not take
Mr Evans’ calls or respond to messages. Mr Evans complained to the FSA.
Eventually Mr Evans spoke to Mr Townrow on 12 May 1999. Mr Townrow
adopted a very aggressive approach in the conversation, swearing at Mr
Evans, and complaining that by involving the FSA Mr Evans had “opened a
can of worms”. We accept Mr Evans’s evidence that Mr Townrow called him
“a bag of shit”. After many attempts at further contact, most of which were
unsuccessful, Mr Evans finally received an offer of compensation in October
2001 in the sum of £12,178 as already mentioned above, but despite further
complaints from Mr Evans this was not paid.
73. In the case of Mr Madden, JMTA did not answer his repeated letters and
inquiries for a period of more than 3 years (August 1997 to November 2000).
As already noted, after agreement on settlement was ultimately reached with
Mr Madden, the redress that was owed was not paid.
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74. In his oral evidence Mr Townrow asserted, as if it were a point in his favour,
that the total number of complaints was “only 12” out of a client base of 3,600.
The FSA have not raised concerns about Mr Townrow’s general selling
practices; their concern in this context is over his attitude to particular
customers who had a complaint. In our view the small number of complaints
makes it all the more inexcusable that complaints were not answered and dealt
with promptly, and highlights Mr Townrow’s approach of consistently putting
his own interests before the interests of his customers.
75. In interview on 27 January 2004 Mr Townrow suggested that he was retaining
the insurance money in case it had to go back to insurers because he was
trading without authorisation. This excuse does not meet the point that his
obligation to compensate customers did not depend on the receipt of insurance
proceeds.
76. When pressed in cross-examination to explain why he had not compensated
any of the aggrieved pensioners, Mr Townrow said it was for commercial
expediency, and that he was waiting to discover the full extent of his liabilities
(including those that might arise from review of endowment policies) before
making any pay outs. We regard this as a wholly unsatisfactory explanation,
which does not justify Mr Townrow’s conduct. Principle 6 of the FSA’s
Principles for Businesses (PRIN) states that a firm must pay due regard to the
interests of its customers and treat them fairly. Mr Townrow evidently did not
regard this principle as something which he should live up to.
TRADING WITHOUT PROFESSIONAL INDEMNITY INSURANCE
77. It is a general requirement for authorised firms carrying on regulated business
to have professional indemnity insurance since this affords a degree of
protection to clients of such firms who suffer loss owing to negligence or
misconduct.
78. JMTA’s professional indemnity cover expired on 25 April 2003. The renewal
quotation dated 28 April 2003 offered terms involving a large premium and a
large excess, which were not acceptable to Mr Townrow. JMTA were required
to contact the FSA with details of their up to date position within 28 days from
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expiry. They did not do so, albeit Mr Bailey made a telephone inquiry about a
possible waiver and was referred to the information on the FSA website.
79. Sarah Saltman of the FSA made 6 attempts to contact Mr Townrow by
telephone from 20 to 25 June 2003. He finally returned her call on 25 June. In
reply to her question he stated that he had current PI cover, which was not
true. On the same day the FSA wrote to Mr Townrow warning him that his
breach of the rules concerning insurance could lead to enforcement action.
80. This spurred him into action. With Mr Bailey’s help he sought a quotation
from the Insurance Supermarket, but they wrote on 3 July 2003 to say that
they were unable to offer terms.
81. Mr Townrow stated in oral evidence that other inquiries were also made, but
there is no written record of them. No mention was made of them in Mr
Townrow’s explanatory letter of 4 August 2003, and we do not accept his
evidence on this point.
82. In oral evidence Mr Townrow claimed that his untruthful answer to Sarah
Saltman was a mistake. Given the course of events revealed by the documents,
and his acceptance that his PI cover was “a fairly vital, fundamental issue”, we
do not accept this. In our judgment it was a lie.
83. At the visit on 17 July 2003 he sought to dismiss the issue. He stated that the
fact that he was trading and giving advice without indemnity insurance in
place was not a problem as there were hundreds of other firms who had
trouble obtaining cover. He showed no appreciation of the risks to his clients.
84. In our judgment Mr Townrow’s actions in regard to his professional indemnity
insurance show a lack of honesty and integrity and a serious level of disregard
for his regulatory obligations and his customers’ interests.
JTFS APPLICATION
85. In June 2003 J T Financial Services Ltd applied for approval for Mr Townrow,
who was at the time the sole shareholder and director, to perform controlled
functions in relation to the company.
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86. In answering question 5.07 of the Form A Townrow answered "no" to a
question asking whether he had any outstanding financial obligations arising
from regulated activities which he had conducted in the UK. That answer was
untrue: JMTA owed the FSA £8,693 by way of fees and had outstanding
financial obligations in respect of the pensions review.
87. In answering question 5.11(a) he answered "no" to a question asking whether
he or any company or partnership of which he was or had been a partner or
director had been refused membership of a regulatory body. That also was
untrue: he was a partner in JMTA in 1997 when JMTA's application for PIA
membership was rejected owing to unpaid FIMBRA administrative
surcharges.
88. In answering question 5.11(b) he answered "no" to a question asking whether
he or any company or partnership of which he was or had been a partner or
director had been suspended, expelled or been the subject of any other
disciplinary action or intervention by a regulatory body. That also was untrue:
Mr Townrow was a director of J M Townrow (Independent Financial
Advisors) Limited whose FIMBRA membership was terminated for
disciplinary reasons as already mentioned.
89. In answering question 6.02 he left a blank when asked to list all directorships
currently or previously held by him and in doing so failed to disclose
directorships in the following companies: Halebrook Limited, J M Townrow
(Holdings) Limited, J M Townrow & Associates Limited, Datam Limited
(formerly known as J M (Independent Advisers) Limited), Second City Golf
Tournaments Limited, and Allport Construction Limited.
90. The FSA sought clarification of the controlled functions to be performed by
Mr Townrow, in response to which he completed a second Form A dated 7
January 2004. He did not change the answers given to questions 5.07, 5.11(a)
and (b) and 6.02.
91. The declaration page warned him that knowingly or recklessly giving the FSA
information which was false or misleading in a material particular might be a
criminal offence. It stated that it should not be assumed that information was
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known to the FSA merely because it was in the public domain or had
previously been disclosed to the FSA or another regulatory body. By the
declaration Mr Townrow confirmed that the information in the form was
accurate and complete to the best of his knowledge and belief and that he had
read the notes to the Form.
92. Mr Townrow’s explanations for the untrue answers were that others had filled
in the answers to the questions, that he did not regard the inaccuracies or
omissions as material, or that the FSA already knew some of the omitted
information. He arrogated to himself the decision on whether information
which the FSA had asked for on the form should be included. It is clear, in our
judgment, that Mr Townrow did not take seriously the declaration which he
signed. This is all the more extraordinary, given that the purpose of the
application was to try to get out of the difficulties that he was in with the FSA
because of the dissolution of the partnership and the need for a fresh
authorisation. We can only conclude that Mr Townrow is either
constitutionally incapable of going to the trouble of giving truthful and
accurate information to a regulator, or is persistently unwilling to do so.
UNPAID CHARGES
93. We have already referred to Mr Townrow’s earlier history of not paying
regulatory fees.
94. JMTA currently owes the FSA fees of £8,693 made up of:
1)         late payment fees surcharge of £250, due 2 January 2001;
2)         PIA Investors Compensation Scheme levy of £312, due 22
October 2001;
3)         PIA pensions levy of £204.26, due 7 November 2001;
4)         FSCS levy for the period 1 January 2002 to 31 March 2033 of
£2,084.14, due 25 February 2002;
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5)         FSA fees for the period 1 January 2001 to 31 March 2002 of
£1,456, due 24 April 2002;
6)         previous regulator credit of £719.12, given on 1 June 2002;
7)         FSA fees for the period 1 April 2002 to 31 March 2003 of
£5,282.86, due 1 July 2002;
8)         credit against FSCS levy of £1,493.12, given 10 July 2002;
9)         corrected FSCS levy of £758.88, due 11 August 2002; and
10)       surcharge and interest for late payment of fees of £557.10, due
27 January 2003.
95. The FSA made repeated requests for the payment of those fees by letters and
telephone calls, without result. Mr Townrow’s excuses for non-payment were
transparently unjustified. At the pensions review visit he stated that he was not
really bothered by the non-payment of the fees. His practice was to ‘roll them
up’, in other words, to not pay them. In his letter of 3 February 2004 he used
the query over the status of the firm as an excuse for non-payment of the
charges, notwithstanding that all except the final figure fell due before the
query over JMTA’s status arose. Where he did not agree with the rules on how
the fees were calculated, he did not pay.
96. This seems to us to be illustrative of his persistent hostility to the whole
system of regulation, of his failure to accept that those who work under
regulation must comply with the applicable rules, and of his unwillingness to
meet his legal obligations when they involved the payment of money.
RESOURCES
97. We received evidence about Mr Townrow’s resources. As matters currently
stand he would be in difficulty satisfying the Authority on his financial
soundness. The pension claims have all been referred to the Financial Services
Compensation Scheme. In view of the more serious issues concerning Mr
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Townrow’s honesty, integrity and attitude to being regulated, we do not
consider it is useful to consider this aspect further.
OTHER MATTERS
98. It is not necessary for us to set out the details of the matters relied on by the
FSA in relation to Mr Townrow’s dealings with Mr Nicholls or with Britannic
Building Society, since these add little, and merely fill out the picture which
we already have of a person who persistently failed to act in an honourable
manner when it involved paying out money to someone else.
PROHIBITION
99. We have to consider what is the appropriate action for the Authority to take in
the circumstances of this case.
100.           The purpose of a prohibition order is to protect consumers in the more
serious cases of lack of fitness and propriety.
101.           In our judgment the facts disclose very serious shortcomings in Mr
Townrow’s openness and honesty in dealing with consumers and regulators
and in his ability and willingness to comply with requirements placed on him
by or under the Act as well as with other legal and professional obligations
and ethical standards. We also consider that he presents a severe risk to
consumers, as illustrated by his cynical disregard for the interests of customers
whom he should have compensated in relation to their pensions. His history of
relations with regulators has been unsatisfactory over a long period.
102.           Mr Fatchett submitted on his behalf that a prohibition order was and
would be a disproportionate sanction, and that Mr Townrow should be allowed
to continue to work in the financial services industry under appropriate
supervision. We do not agree. His lack of proper standards of honesty and
integrity, his hostility to regulation, and his disregard of his customers’
interests lead us to the conclusion that members of the public purchasing
financial services should not be exposed to him.
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103.           We are reinforced in this conclusion by Mr Townrow’s whole
approach to the actions of the FSA and to this reference. If he had frankly
acknowledged the errors of his ways, fully co-operated with the Authority,
given accurate information, promptly regularised his situation, discharged his
financial obligations to customers to the best of his ability, and produced a
credible plan for how he would avoid similar problems arising in the future,
we might have been able to take a different view. As it was, he blamed others
for his errors, withheld co-operation, gave false information, disregarded his
financial obligations to customers and others, and did not evince any real
appreciation that his whole approach to being regulated had been wrong and
needed to change. The nearest he came to an acknowledgment of his wrong
attitude was to say that he was a salesman, and that it was fair to say that he
got infuriated with administrators. In our judgment Mr Townrow is
temperamentally unsuited to working in a regulated environment.
104.           Accordingly, our decision is that a prohibition order in the terms issued
was and is the correct action for the Authority to take.
105.           Our decision is unanimous.
PROCEDURAL MATTERS
106.           The detailed facts of this case were wide-ranging and covered a long
period of time. Our task would have been made easier by a fuller chronology
to accompany the parties’ skeleton arguments, with document references,
prepared in advance of the hearing.
107.           The most material documents were inevitably spread across a number
of lever arch files. We would suggest that a good way of preparing a core
bundle in such a case is to place in a single file most of the documents referred
to in a specific manner in the parties’ skeletons, before the hearing starts. (This
of course requires a judgment to be made over which documents are worth
placing in the core bundle. If the core bundle becomes too large, its purpose is
lost.) The documents placed in the core bundle should not be renumbered but
should retain their numbering from the main files, so that further documents
can be added to the core during the hearing if necessary. Divider cards can be
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used within the core bundle to mark the divisions between the main lever arch
files.
108.           We also think it worth placing on record how invaluable we found the
provision of a verbatim daily transcript of the hearing. It enabled the hearing
to proceed significantly more quickly than would otherwise have been the case
and was also of great assistance to us when reviewing the evidence in order to
reach our decision.
Andrew Bartlett QC, CHAIRMAN
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