McIntosh & LA Mortgage Services v Financial Services Authority, Court of Appeal - United Kingdom Financial Services and Markets Tribunals, January 07, 2008, [2008] UKFSM FSM054

Resolution Date:January 07, 2008
Issuing Organization:United Kingdom Financial Services and Markets Tribunals
Actores:McIntosh & LA Mortgage Services v Financial Services Authority

APPROVED PERSON - withdrawal of approval whether person to whom the approval was given was fit and proper to perform the function to which the approval related no - FSMA 2000 s 63 AUTHORISED PERSON - cancellation of permission whether resources of authorised person adequate in relation to regulated activities no whether authorised person fit and proper FSMA 2000 s 45 and Sch 5 paras 4 and 5 THE FINANCIAL SERVICES AND MARKETS TRIBUNAL NORMAN MCINTOSH First Applicant LA MORTGAGE SERVICES LIMITED Second Applicant - and - THE FINANCIAL SERVICES AUTHORITY Respondents Tribunal: DR A N BRICE MR I B ABRAMS MR K R PALMER Sitting in London on 6 and 7 November 2007 Mr Gareth Fatchett, with Mr Kuldip Singh Lall of Messrs Shakespeare Putsman, Solicitors, for the Appellant Mr Dan Enraght-Moony, of the Financial Services Authority, for the Respondents © CROWN COPYRIGHT 2007 DECISION The references

  1. Mr Norman McIntosh (Mr McIntosh) referred to the Tribunal a Decision Notice given by the Financial Services Authority (the Authority) on 26 April 2007. The Decision Notice stated that, pursuant to section 63 of the Financial Services and Markets Act 2000 (the 2000 Act), the Authority had decided to withdraw the approval granted to10 Mr McIntosh because it considered that he was not a fit and proper person, in terms of his honesty, integrity and reputation and his competence and capability, to perform the functions to which his approval related.

  2. LA Mortgage Services Limited (the Company) referred to the Tribunal a15 Decision Notice given by the Authority on 26 April 2007. The Decision Notice stated that, pursuant to section 45 of the 2000 Act, the Authority proposed to cancel the permission granted to the Company to carry on regulated activities. The reason was that, as Mr McIntosh was the only person approved by the Authority to perform controlled functions in relation to the regulated activities carried on by the Company, the20 withdrawal of approval from Mr McIntosh meant that there would be no-one at the Company to carry out controlled functions. That meant that the Company would not have adequate human resources and would not be able to satisfy the Authority that it was a fit and proper person having regard to all the circumstances including its connection with Mr McIntosh and the need to ensure that its affairs were conducted soundly and25 prudently. The legislation

  3. The relevant legislation is found in the 2000 Act. The scheme of the legislation is that only firms which are authorised persons can carry on regulated activities. Authorised30 persons include persons who have a permission under Part IV of the Act. The Act also provides that certain functions specified by the Authority are controlled functions and only approved persons may carry out controlled functions for authorised firms. The legislation relating to the Company authorised person35

  4. Part IV (sections 40 to 53) of the 2000 Act contains the provisions about permission to carry on regulated activities. Section 40 provides that a person can apply for permission to carry on one or more regulated activities. Section 41 provides that, in giving or varying a permission, the Authority must ensure that the person concerned will satisfy, and continue to satisfy, the threshold conditions in relation to40 the regulated activities for which he has permission. Section 45 provides that the Authority may cancel a Part IV permission if it appears that an authorised person is failing, or is likely to fail, the threshold conditions.

  5. The threshold conditions are set out in Schedule 6 and paragraphs 4 and 5 are45 relevant to the reference of the Company. Paragraph 4 provides that the resources of the person concerned must be adequate in relation to the regulated activities he carries on. Paragraph 5 provides that the person concerned must satisfy the Authority that he is a fit and proper person having regard to all the circumstances including (a) his connection with any person; (b) the nature of the regulated activity he carries on; and50 (c) the need to ensure that his affairs are conducted soundly and prudently. 3 The legislation relating to Mr McIntosh approved person

  6. Part V of the 2000 Act (sections 56 to 71) contains the provisions about the performance of regulated activities. Section 59 provides that an authorised person must ensure that no person performs a controlled function unless the Authority5 approves such performance by that person. Section 63 provides that the Authority may withdraw an approval given under section 59 if it considers that the person in respect of whom the approval was given is not a fit and proper person to perform the function to which the approval relates. The issue

  7. It was agreed by the parties that the issue for determination in the reference was whether Mr McIntosh was a fit and proper person to perform controlled functions and whether his approval should be withdrawn. The evidence

  8. A bundle of documents was produced. Oral evidence was given by Mr McIntosh on behalf of himself and the Company. Oral evidence on behalf of the Applicants was also given by Ms Jacqueline Nedd, Solicitor, of Messrs Kellie & Co, Solicitors of London. Oral evidence on behalf of the Authority was given by Mr20 Andrew Roland Honey who is currently Head of the Insurance Department in the Small Firms Division of the Authority and who was, at the relevant time, a manager in the Authorisation Department of the Authority's High Street Firms Division. The facts25

  9. From the evidence before us we find the following facts. 1993 - Leonard Alexander

  10. Mr McIntosh started his career in financial services by joining Canada Life and selling life policies and pensions direct to the public; he also did some mortgage30 work. After four years he joined a new firm as a mortgage adviser. He then formed a business association with a Mr Turnbull who advised on company pensions. At the same time he established a business called Leonard Alexander and Mr Turnbull referred clients to him.

  11. On 30 September 1993 the firm of Leonard Alexander (the Member) was admitted to membership of the Financial Intermediaries, Managers and Brokers Regulatory Association (FIMBRA) and was authorised to arrange investment transactions and to give investment advice but not to handle clients' money or assets. The Member was a sole trader whose only registered individual was Mr McIntosh.40 Authorised firms were required to demonstrate a continuing level of solvency so that they were able to meet their liabilities as they fell due.

  12. Commissions earned from life offices in respect of pension policies sold by the Member were paid to the Member and, if they related to work referred by Mr45 Turnbull, were then passed by Mr McIntosh to Mr Turnbull. It is not unusual for there to be a requirement for the repayment of some part of initial commissions to the insurer if the policy-holder terminates the policy early. This is sometimes referred to as "claw back". Some of the premiums on policies sold to clients referred by Mr Turnbull were not paid and the insurance companies sought from the Member the50 claw back of the initial commissions. At the time the Member had an overdraft and 4 was short of funds but, as the initial commissions had been paid to Mr Turnbull, Mr McIntosh looked to Mr Turnbull to repay them to the life offices. August 1995 suspension of membership of FIMBRA

  13. In July 1995 FIMBRA received information that two County Court judgments5 had been entered against the Member. The first was entered on 5 June 1995 and was for £4,008.69 in favour of the Provident Mutual Life Assurance Association (Provident). The second was entered on 14 June 1995 and was for £4,215.56 in favour of General Accident Life Assurance Limited (General Accident).

  14. On 8 August 1995 FIMBRA sent a warning to the Member saying that, if it failed within seven days to satisfy FIMBRA that its powers of intervention should...

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