Litaid Ltd v Financial Services Authority, Court of Appeal - United Kingdom Financial Services and Markets Tribunals, January 10, 2008, [2008] UKFSM FSM055

Resolution Date:January 10, 2008
Issuing Organization:United Kingdom Financial Services and Markets Tribunals
Actores:Litaid Ltd v Financial Services Authority

Variation of Part IV Permission Failure to submit Retail Mediation Activities Return on time Failure to obtain professional indemnity insurance whether failure showed that Applicant not conducting business soundly and prudently Condition 5 whether failure to respond to Authority in relation to Retail Mediation Activities Return involved a breach of Principle 11 (Relations with Regulators) FINANCIAL SERVICES AND MARKETS TRIBUNAL LITAID LIMITED Applicant - and - FINANCIAL SERVICES AUTHORITY The Authority Tribunal: TERENCE MOWSCHENSON QC MR I B ABRAMS MR N W DOUCH Sitting in public in London on 10 January 2008 Mr Prashant Sengar, a director of the Applicant, for the Applicant Mr Simon Gerrish, instructed by the Financial Services Authority, for the Authority © CROWN COPYRIGHT 2008 2 DECISION

  1. The Applicant has referred two matters to the Tribunal:

    1.1 A First Supervisory Notice dated 21 March 2007 removing all regulated activities with immediate effect; and

    1.2 A Decision Notice dated 2 May 2007, cancelling the Applicant's Part IV permission.10

  2. The Applicant previously applied for the suspension of the Supervisory Notice. This application was refused by the Tribunal by a decision delivered on 17th October 2007. The Background

  3. The Applicant was authorised on 14 January 2005 to carry on general insurance business. The Applicant has only one director and approved person, Mr Prashant Sengar. He is not an approved person in relation to any other FSA authorised firm. The Applicant was authorised by the Authority under Part IV of the Act to carry20 on the following regulated activities: (1) agreeing to carry on a regulated activity; (2) dealing in investments as agent*; (3) making arrangements*.25 activities marked * permitted in respect of non-investment insurance contracts only.

  4. The Applicant's business includes arranging After the Event Insurance ("ATE") whereby it acts as a broker to law firms seeking ATE in respect of their costs30 in personal injury cases. It assists law firms acting on behalf of clients or potential clients to progress a compensation claim by arranging the ATE by filling in proposal forms and forwarding them to an insurance company. It receives a commission from the insurance company in so far as a proposal is accepted.

  5. By a First Supervisory Notice dated 21 March 2007 ("the Supervisory Notice"), the Authority varied the Applicant's Part IV permission by removing all regulated activities with immediate effect. The Authority did this because the Applicant failed to obtain the necessary Professional Indemnity Insurance ("PII") cover despite repeated requests and warnings from the Authority and because the40 Applicant had repeatedly not submitted RMAR forms on time, or not at all..

  6. As a result of the variation of the Applicant's Part IV permission and the removal of all regulated activities, the Authority, by a Warning Notice dated 21 March 2007 ("the Warning Notice"), proposed to cancel the Applicant's Part IV45 permission. 3

  7. By a Decision Notice dated 2 May 2007 ("the Decision Notice"), the Authority decided to cancel the Applicant's Part IV permission.

  8. On 4th May 2007 the Applicant referred the Decision Notice to the Tribunal5 and on 25th June 2007 confirmed that it wished to refer the Supervisory Notice dated 21st March 2007 to the Tribunal. The Authority indicated that it took no point in relation to the timing of that reference (the period for referring that Notice having expired).

  9. The Authority opposed the reference on the grounds that the Applicant:

    9.1 failed to satisfy the threshold conditions set out in Schedule 6 to the Financial Services and Markets Act 2000 (the "Act") in that it failed to submit the Retail Mediation Activities Returns ("RMAR") promptly on three separate occasions15 and has been referred to the Authority's Enforcement Division ("Enforcement") on three separate occasions. In persistently failing to submit the RMAR promptly, the Applicant has failed, in the opinion of the Authority, to satisfy the Authority that it is conducting its business soundly and prudently (as required by threshold condition 5 Suitability);20

    9.2 failed to satisfy the threshold conditions by its failure to obtain and maintain adequate Professional Indemnity Insurance ("PII"). As a consequence of this failure the Authority considers its resources are not adequate in relation to its permitted activities (as required by threshold25 condition 4 Adequate Resources). Further, in failing to obtain and maintain adequate PII the Authority considers the Applicant to be unable to demonstrate that it is ready, willing and organised to comply with the requirements and standards under the regulatory system (as required by threshold condition 5 Suitability); and30

    9.3 failed to be open and co-operative in its dealings with the Authority, by failing to respond adequately or at all to the Authority's communications requesting it to submit the RMARs and to clarify its PII position and has therefore failed to comply with Principle 1135 (Relations with Regulators) of the Principles for Businesses and by extension, fails to satisfy the criteria set out in threshold condition 5.

  10. Accordingly the Authority submits that it is necessary and proportionate for the Authority to remove all regulated activities from the Part IV permission and to40 cancel the Applicant's Part IV permission as set out in the Decision Notice. The Authority contends that the failure to supply the RMARs on time or at all or to obtain PII would each on its own justify the course taken by the Authority 4

  11. The Applicant submitted that :

    11.1 It did not file the RMARs as the Authority returned the RMARs to the Applicant with the request that it complete the RMAR with details5 of the PII and thus the RMAR could not be properly completed without details of the PII;

    11.2 that it could not obtain PII because of the nature of its business; and

    11.3 that it was not given the opportunity to make submissions on the Warning Notice that gave rise to the giving of the Decision Notice.

  12. The Tribunal was supplied with two witness statements on behalf of the Authority. One witness, Mr Andrew Honey the Head of the Insurance Division in the15 Small Firms Division of the Authority was cross examined by Mr Sengar. However the evidence of the other witness Mr Allen Goodchild an Associate in the Small Firms Division of the Authority was unchallenged. The Tribunal (with the consent of the Authority) treated the Applicant's Response to the Statement of Case (in so far as it contained statements of fact) as evidence given by Mr Sengar and granted him a20 degree of latitude in his submissions which involved him giving additional evidence. The Authority did not admit all his evidence but in general there was little dispute of fact between the parties other than in relation to the availability of PII for a person carrying on the Applicant's activities in relation to assistance in relation to the completion of applications for insurance.25 PII

  13. Under the Insurance Markets Directive ("IMD") which took effect on 14 January 2005, firms must maintain a minimum level of PII. Firms are also...

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