Lloyd v Financial Services Authority, Court of Appeal - United Kingdom Financial Services and Markets Tribunals, July 09, 2009, [2009] UKFSM FSM069

Resolution Date:July 09, 2009
Issuing Organization:United Kingdom Financial Services and Markets Tribunals
Actores:Lloyd v Financial Services Authority
 
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PERFORMANCE OF REGULATED ACTIVITIES application for approval non- disclosure of the fact that the Applicant resigned from previous employment during the course of disciplinary proceedings - whether Applicant fit and proper to perform controlled function CF30 no FS&MA 2000 s.61(1) THE FINANCIAL SERVICES AND MARKETS TRIBUNAL PHILIP GRAHAM LLOYD Applicant - and - THE FINANCIAL SERVICES AUTHORITY Respondent Tribunal : DR A N BRICE (Chairman) MRS C E FARQUHARSON MRS J M NEILL Sitting in London on 27 and 28 April 2009 Gary Cooke Counsel, instructed by Shakespeare Putsman LLP Solicitors, for the Applicant Peter Wright, Solicitor-Advocate of the Financial Services Authority, for the Respondent © CROWN COPYRIGHT 2009 2 DECISION The reference1. On 3 September 2008 Mr Philip Graham Lloyd (the Applicant) referred to the Tribunal a Decision Notice issued by the Financial Services Authority (the Authority) on 30 July 2008. The Decision Notice was issued to MWM Investments Limited and to the Applicant and stated that the Authority had decided to refuse the application for the approval of the Applicant to perform controlled function CF30 because the Authority was not satisfied that the Applicant was a fit and proper person to perform that controlled function.. The legislation2. Section 59(1) of the Financial Services and Markets Act 2000 (the 2000 Act) provides: (1) An authorised person (A) must take reasonable care to ensure that no person performs a controlled function under an arrangement entered into by A in relation to the carrying on by A of a regulated activity, unless the Authority approves the performance by that person of the controlled function to which the arrangement relates.3. The controlled function relevant in this reference is CF30 customer function. Section 60(1) of the 2000 Act provides that an application for the Authority s approval under section 59 may be made by the authorised person concerned and must contain such information as the Authority may reasonably require. In this reference MWM Investments Limited is an authorised person who carries on regulated activities and who applied to the Authority under section 60 for the approval of the Applicant to perform controlled function CF30 as a self-employed independent, financial adviser. The relevant parts of section 61 provide: 61(1) The Authority may grant an application made under section 60 only if it is satisfied that the person in respect of whom the application is made ( the candidate ) is a fit and proper person to perform the function to which the application relates. (2) In deciding that question, the Authority may have regard (among other things) to whether the candidate . (a) has obtained a qualification; (b) has undergone, or is undergoing, training; or (c) possesses a level of competence, required by general rules in relation to persons performing functions of the kind to which the application relates. The issue4. What we had to decide was whether the Applicant was a fit and proper person within the meaning of section 61(1) of the 2000 Act to perform controlled function CF30 with MWM Investments Limited. The evidence 35. Two bundles of documents were produced. Oral evidence was given by the Applicant on his own behalf. Oral evidence was also given on behalf of the Applicant by Mr David Parkinson, the Managing Director of MWM Investments Limited. Oral evidence was given on behalf of the Authority by: Mr Mark Anthony John Brown of Lloyds TSB; Mr Brown was the Applicant s sales manager from 2004 to 1 January 2007; Mr Andrew John Franks, a case officer in the Consumer Contact Centre of the Authority; and Mr Guy Richard Moreton of Lloyds TSB; from 1 January 2007 Mr Moreton was a risk consultant at Lloyds TSB and he took part in the investigations into the conduct of the Applicant and was present at the interview of the Applicant in April 2007.6. Witness statements containing evidence on behalf of the Authority and signed by the following witnesses, all of Lloyds TSB, were not objected to by the Applicant and so were admitted in evidence at the hearing as the unchallenged evidence of those witnesses: Ms Carol Anne Burton whose role it was to monitor the conduct of the investment advisers employed by Lloyds TSB and to co-ordinate arrangements for investigations including dealing with customers, providing references and notifying the Authority; Mr Mark Andrew Frier who from 1 January 2007 was the combined sales manager and risk manager of the Applicant; Mr Matthew Philip Osborne who was the hearing manager at the Applicant s disciplinary hearings on 7 August 2007 and 20 September 2007; and Mr Charles Arthur Wells who, at the relevant time, worked in human resources and provided support to Mr Osborne in dealing with the disciplinary issues relating to the Applicant. The facts7. From the evidence before us we find the following facts. The Applicant8. The Applicant was born on 5 March 1966. From 1988 until 1996 he was employed by Alliance Insurance Brokers as a branch manager in a general insurance office and then for two years he worked for a small firm of insurance brokers. Between 1998 and 2002 he worked for JCB Insurance. He was first approved by the Authority in 2002 when he joined the Co-operative Insurance Society where he worked from home and visited customers in their homes. While with the Society he obtained Financial Planning Certificate 1 in July 2002; Financial Planning Certificate 2 in December 2002 and Financial Planning Certificate 3 in July 2003. 49. The Applicant remained with the Co-operative Insurance Society until July 2004 when he joined Lloyds TSB (the Bank) to give financial advice to customers. He was approved by the Authority to carry out the controlled function of investment adviser (CF21) for the Bank. While at the Bank he only sold investment products issued by the Bank and by Scottish Widows, a related firm. The Applicant s terms of employment with the Bank10. When he joined the Bank the Applicant was introduced to Mr Brown, who was his sales manager. He was also assigned a regulated induction coach (Ms Jeannie Birds). At the beginning of his time with the Bank the Applicant had to complete a three-week induction training programme which included nine computer-based tests. Thereafter he undertook a two-week sales course. Then his regulated induction coach watched as he interviewed customers and guided him through his first few weeks, which he spent at the branch of the coach. By November 2004 the Applicant was able to advise on his own and was placed in his own branch of the Bank.11. The Applicant also had a risk manager (Ms Tracy Cooper) one of whose functions was to monitor the Applicant so that he could achieve the status of a competent adviser. To do this the risk manager was required to observe one interview each month for ten months and to comment on the Applicant s interviewing technique. Areas which required improvement were recorded on a record of coaching.12. Each investment adviser was also given written guidance on the selling of investments. When a customer of the Bank sought advice about investments the adviser was required to interview the customer and to record relevant details on a document called a factfind. If a customer wanted to purchase an investment then a copy of the factfind was sent to Scottish Widows or the relevant department of the Bank. The adviser was also required to send to each customer a letter containing recommendations with the reasons why the recommended investments were suitable for the customer. This was referred to as the suitability letter. The points system13. While working at the Bank the Applicant was paid a salary and a bonus. Both the level of salary and the amount of the bonus were determined by reference to a points system The salary bands started at level B and went up to level G. At each salary level there was a minimum number of points which an adviser was expected to achieve. So. for example, at level B an adviser would need to earn a minimum of 13,000 points; at level C 18,000 points; at level D 24,000 points; at level E 32,000 points; and at level F 39,000 points. Every time an adviser sold an investment product to a customer he was awarded a number of points. If the total amount of points he was awarded in a quarter equalled the minimum for his salary level he earned a bonus of 15% of his salary and an extra bonus of 1% of salary for each additional 1% of points earned. If, after nine months, the total amount of points earned by an adviser was that for a higher salary level, the adviser could be promoted to that higher salary level.14. However, a condition of the award of a bonus or of a higher salary level was that the adviser should not exceed a score of more than 75 risk points. Each month the Bank s computer would calculate the risk points for each adviser based on the data relating to the performance rates and other key performance indicators of the type of business placed by each adviser. For example, if more than a minimum number of 5 customers cancelled products during a cooling-off period the adviser would be given a number of risk points. If in any month the total risk score exceeded 75 then, irrespective of any points awarded to the adviser on the sale of products, the adviser would not be awarded a bonus and would not be promoted to a new salary level. We saw the risk points awarded to the Applicant in each of the twelve months ending in November 2005. The number of risk points ranged from 22 in January 2005 to 77 in June 2005. In May 2005 it was 75 but in all the other months it was less than 75. Where an adviser had a high risk score he would be observed by his risk manager in order to find out why the problems were occurring.15. Thus the way in which the points system operated was to reward each adviser for the number of investment products sold so long as his risk score remained within certain parameters. 2004 2006 the Applicant s work for the Bank 16...

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