“Based on the facts and matters set out above, the Authority considers that BCMUK breached Principle 8 in that it failed to manage conflicts of interest fairly, between the investors in the External and Internal Funds.”
“10.1.3 R Identifying conflicts A firm must take all reasonable steps to identify conflicts of interest between: (1) the firm, including its managers, employees and appointed representatives (or where applicable, tied agents), or any person directly or indirectly linked to them by control, and a client of the firm; or (2) one client of the firm and another client; that arise or may arise in the course of the firm providing any service referred to in SYSC 10.1.1R 10.1.7R Managing conflicts A firm must maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest as defined in SYSC 10.1.3R from constituting or giving rise to a material risk of damage to the interests of its clients. 10.1.8R Disclosure of Conflicts (1) If arrangements made by a firm under SYSC 10.1.7 R to manage conflicts of interest are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of a client will be prevented, the firm must clearly disclose the general nature and/or sources of conflicts of interest to the client before undertaking business for the client. (2) The disclosure must: (a) be made in a durable medium; and (b) include sufficient detail, taking into account the nature of the client, to enable that client to take an informed decision with respect to the service in the context of which the conflict of interest arises.”
“133(1) This section applies in the case of a reference or appeal to the Tribunal (whether made under this or any other Act) in respect of— (a) a decision of the FCA or the PRA […] (4) The Tribunal may consider any evidence relating to the subject-matter of the reference or appeal, whether or not it was available to the decision-maker at the material time. (5) In the case of a disciplinary reference or a reference under section 393(11), the Tribunal – (a) must determine what (if any) is the appropriate action for the decision-maker to take in relation to the matter; and (b) on determining the reference, must remit the matter to the decision-maker with such directions (if any) as the Tribunal considers appropriate for giving effect to its determination. […] (6) In any other case, the Tribunal must determine the reference or appeal by either— (a) dismissing it; or (b) remitting the matter to the decision-maker with a direction to reconsider and reach a decision in accordance with the findings of the Tribunal. (6A) The findings mentioned in subsection (6)(b) are limited to findings as to— (a) issues of fact or law; (b) the matters to be, or not to be, taken into account in making the decision; and (c) the procedural or other steps to be taken in connection with the making of the decision. (7A) A reference is a “disciplinary reference” for the purposes of this section if it is in respect of any of the following decisions— [...] (k) a decision to publish a statement under section 205, impose a penalty under section 206 or suspend a permission or impose a restriction under section 206A.” (a) must determine what (if any) is the appropriate action for the decision-maker to take in relation to the matter; and (b) on determining the reference, must remit the matter to the decision-maker with such directions (if any) as the Tribunal considers appropriate for giving effect to its determination. […] (a) dismissing it; or (b) remitting the matter to the decision-maker with a direction to reconsider and reach a decision in accordance with the findings of the Tribunal. (a) issues of fact or law; (b) the matters to be, or not to be, taken into account in making the decision; and (c) the procedural or other steps to be taken in connection with the making of the decision. [...] (k) a decision to publish a statement under section 205, impose a penalty under section 206 or suspend a permission or impose a restriction under section 206A.”
“In determining in accordance with section 133(5) a reference made … as a result of a decision notice …, the Tribunal may not direct the body to take action which it would not, as a result of section 388(2), have had power to take when giving the notice.”
“28. The meaning of the expressions "the matter referred", or "the subject-matter of the reference" in section 133 has to be derived from their context. The first point relevant to this is the Tribunal's function. It provides a stage in the regulatory process to "determine" what is the appropriate action for the Authority to take having considered any evidence relating to the subject-matter of the reference. As the Tribunal's role is not to adjudicate on the rightness or otherwise of the decision as expressed in the decision notice, the decision itself is not strictly a relevant consideration for the Tribunal to take into account. Instead it is the allegations made in the decision notice and the circumstances on which these are based that fall to be considered and evaluated. They comprise the matter referred. It is in relation to those circumstances and any further relevant evidence that was not available to the Regulatory Decisions Committee that the Tribunal's function is to determine the appropriate action for the Authority to take. The indications, so far, are that the circumstances, the evidence and the allegations before the Regulatory Decisions Committee, and not the decision, are "the subject-matter of the reference". 29. The second point is that in the present case the facts and circumstances on which the Authority relies in its statement of case were before the Regulatory Decisions Committee. They are either set out within the decision notice or are recorded in the decision notice as matters on which the Regulatory Decisions Committee did not reach a concluded factual finding. In this respect it can be said that the facts and matters before the Regulatory Decisions Committee are the facts and matters relied upon by the Authority for the purposes of the present reference. This is not a case such as that considered in Parker v FSA (an unreported decision on a preliminary issue) where a new allegation unconnected with the factual context that gave rise to the original decision was sought to be raised. Nor is the present situation comparable to that found in Ryder (No.2) (2006), a Pensions Regulator Tribunal reference. There the matter that Mr Ryder had sought to raise related to factual issues that had not been in front of the Determinations Panel of the Pensions Regulator and therefore formed no part of the body of facts to which the determination notice related. [Emphasis Added]”
“The key point to take from Allen is that the allegation of not being fit and proper did not change but other evidence in support of it was introduced on the Reference. Consequently, the allegation did not fall outside the subject matter of the Reference and the Tribunal had jurisdiction to consider it. The position that the Tribunal may consider any “evidence” relating to the subject matter of the reference, whether available to the Authority at the RDC stage or not is expressly provided for in s 133(4) FSMA.”
“15. For the reasons outlined below, the Authority contends that the Applicant has breached Principle 8 during the Relevant Period (between1 October 2011 and31 December 2015 inclusive). 16. In respect of this misconduct, the Authority considers that it is appropriate to impose a financial penalty of£40,806,700 . 17. The Authority also contends that the Applicant should be required to pay redress to the Non-US Investors equivalent to a proportion of management and performance fees (plus interest) as detailed at paragraph 4 above. The Authority contends that this is desirable in order to advance its operational objective of securing an appropriate degree of protection for consumers.”
“A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.”
“172. As outlined in the preceding paragraphs, at all material times Group ExCo, the Applicant’s ExCo and certain individuals who were members of both those committees had responsibilities in respect of managing the Internal and External Funds, including the allocation of capital and portfolio managers, and of monitoring and mitigating the resulting conflict of interest. Members of the Applicant’s senior management plainly recognised that there was an inherent and overarching conflict of interest, but its response was inadequate, in that: 172.1. no steps were taken to consider whether the collective exposure of its senior staff to the Internal Fund (including those given certain specific responsibilities for managing any relevant conflicts) presented its own conflict; 172.2. there is no evidence of any consideration by the Applicant as to whether the Applicant’s ExCo, which made or otherwise approved all strategic decisions in relation to the Internal Fund, and which had a financial interest in the performance of the Internal Fund, was sufficiently independent from these conflicts to manage them properly; and 172.3. no steps were taken to manage the conflict by providing sufficient disclosure to investors, either before or after queries were raised, by investors and Due Diligence Consultants. … 174. Based on the facts and matters set out above, the Authority contends that the Applicant breached Principle 8 in that it failed to manage conflicts of interest fairly, between the investors in the External and Internal Funds. The Authority considers that the misconduct was committed recklessly.”
“173. The Applicant’s failure to appropriately manage this conflict resulted in a substandard investment management service being provided to the External Fund and its investors in that the service provided involved both the inadequate arrangements and the inadequate disclosure described above. The Authority contends that the failings by the Applicant were such that the level of service received by the investors was therefore below that which could reasonably be expected to be commensurate with the fees paid by those investors.”
“170B. Further or alternatively, the Applicant failed to “clearly disclose the general nature and/or sources of conflicts of interest” to the Board of the External Fund. The Applicant failed to clearly and/or expressly draw to the attention of the Board of the External Fund either (1) the nature of the conflict between the Internal Fund and the External Fund; or (2) the absence of adequate arrangements to manage that conflict fairly as set out in paragraphs 157 – 167 above. Alternatively, the Applicant failed to ensure that such facts and matters were disclosed to the Board of the External Fund. Further or alternatively, the Applicant also failed to disclose material facts about RMT to the Board of the External Fund (alternatively failed to ensure such facts were disclosed to the Board of the External Fund) and/or misled the Board of the External Fund in material regards and/or failed to ensure that the Board of the External Fund were not misled in such regards. As late as11 July 2012 , the Board of the External Fund were informed that RMT was a “project” that was “in the early stages of development” whereas RMT had in fact been used in the External Fund since January 2012. Similarly, in July 2013, the Board of the External Fund were told that RMT was a “discrete rates trading strategy” when, in that month, RMT’s allocated capital in the External Fund was approximately US$3.8bn . Further or alternatively, the Applicant failed to disclose to the Board of the External Fund the facts and matters set out at paragraph 72 above.”
“42A In relation to the External Fund…. (c) As to disclosure, if, which is denied, the breach of Principle 8 was capable of remedy and/or mitigation by any form of disclosure, such disclosure, in order to manage the conflict fairly, required to be provided to the External Fund’s investors rather than merely the directors of the External Fund. This is because (1) each of the directors of the External Fund was also a member of at least one of the Internal Fund boards and were themselves therefore subject to, or potentially subject to, the same conflict between the Internal Fund and the External Fund which the Applicant was failing fairly to manage; and/or (2) the Applicant was itself responsible for communicating with External Fund investors. [emphasis added].”
“170A. Further or alternatively, the Applicant failed to communicate information to investors and/or prospective investors in the External Fund in a way that was fair, clear and nor misleading in that it failed, when communicating information to investors and/or prospective investors to whom it was making financial promotions, as set out at paragraphs 81 – 102 above, to inform those investors of either (1) the nature of the conflict between the Internal Fund and the External Fund; or (2) the absence of adequate arrangements to manage that conflict fairly as set out in paragraphs 157 –167 above.”
“42B. Further or alternatively, as a result of the matters set out in paragraph 42A(f) above, the External Fund’s investors and/or prospective investors were clients and/or customers of the Applicant for the purposes of the obligations in Principle 7 and/or COBS 4.2.1(1)R and the Applicant was required to ensure that it communicated information to them in a way that was clear, fair and not misleading and/or that its communications and/or financial promotions were fair, clear and not misleading.”
“174. Based on the facts and matters set out above, the Authority contends that the Applicant breached Principle 8 in that it failed to manage conflicts of interest fairly, between the investors in the External and Internal Funds. Further or alternatively, the Authority contends that the Applicant breached Principle 7 and/or COBS 4.2.1(1)R in that it failed to communicate information to its clients in a way which was fair, clear and not misleading as set out in paragraph 170A above. The Authority considers that the misconduct was committed recklessly. In this regard, the Authority relies upon and avers that each of Messrs. Paul Dehadray, Peter Cox and/or Matt Weir acted recklessly in that they were aware of (1) the relevant conflicts of interests (as set out above) and the risks to which they gave rise; and (2) the (it is averred) insufficient and/or unreasonable steps taken by the Applicant to manage and/or disclose those risks. To the extent necessary, the Authority shall seek to rely upon such awareness for the purposes of its case against the Applicant as a matter of vicarious liability and/or attribution.”
“The decisions to give the Warning Notice and the First Supervisory Notice were reached by the RDC after consideration of: - the Enforcement Submissions Document dated13 November 2020 , the Annotated Warning Notice, the draft First Supervisory Notice and the bundle of supporting documents; and - additional substantive communications with Enforcement.”
“For future reference it is important that when the Authority seeks to rely on a case which differs from that set out in the Warning Notice that the full picture is disclosed so that the jurisdictional issue can be fully considered, particularly where the Applicant is contesting the position taken by the Authority.”
“434.While Mr Brown points out that it is in the public interest for the Tribunal to make relevant findings on all matters under consideration, this should not usurp the Authority’s function to decide, with clarity and certainty, the regulatory case that it wishes to pursue. The starting point should be that if the Authority wishes to pursue an alternative or lesser case it should plead this from the outset of enforcement proceedings before the RDC and then the Tribunal itself. Pleadings on a reference to the Tribunal are in no way akin to an indictment in criminal proceedings or particulars of claim in civil proceedings. A reference is a continuation of a regulatory process that has begun by way of a Warning Notice and enforcement proceedings before the RDC. In those proceedings the Applicant is entitled to know the full nature of the allegations, findings and decisions made against him by the Authority in order to consider whether to contest the regulatory action proposed or whether to make a reference to the Tribunal. 435.An application by the Authority to amend a Statement of Case on a reference, or even to introduce fresh factual or legal allegations without such an amendment, is therefore not akin to amending pleadings in criminal, disciplinary or civil proceedings. In those proceedings allegations are free-standing and the court may exercise its discretion to permit amendments subject to the standard principles of procedural fairness. However, if the Authority seeks to amend factual or legal allegations within a reference, the first question will always be whether they fall within the subject matter of the reference and the Tribunal’s jurisdiction.”
“1001. We also bear in mind the importance that both Parliament has indicated in FSMA and the Authority has provided for in its administrative decision-making procedure for disputes between a subject of enforcement action and the Authority to be determined, where possible, through fair and effective administrative decision-making procedures. In that regard, the Warning Notice and Decision Notice procedure goes beyond what might be the minimum under general administrative law principles, providing as it does for a decision-maker separate from those responsible for conducting the relevant investigation. 1002. In deciding the constitution of the decision-maker, the Authority has decided that the RDC should be chaired by an employee separate from the Authority’s Executive, the RDC being a committee of the Board of the Authority which does not report to the Authority’s Executive and, aside from the Chairman, its members are entirely independent of the Authority, containing a mixture of financial services practitioners and other lay members. All that is clearly designed to ensure that those who are regulated by the Authority or otherwise might be subject to its enforcement procedures have confidence in the fairness and effectiveness of the Authority’s procedures, bearing in mind the important role of the financial services industry in the country’s economy. 1003. Furthermore, it is well known that judicial proceedings are expensive. It is clear from what we have said above that the intention of Parliament was that in so far as is possible, Tribunal proceedings should be the last resort and if the Authority’s administrative proceedings are fair and robust then most subjects will be satisfied that the matters are been fairly dealt with through a process that is designed to be less formal, less expensive and swifter in their resolution. 1004. Those objectives will be compromised if the Authority does not use its best endeavours to ensure that all relevant matters are placed on the table at the Warning Notice stage. 1005. At each stage of the regulatory process, the subject of the action needs to have all relevant material pursuant to which they can make an informed decision whether to contest the matter contained in the Warning Notice before the RDC or to contest the matter contained in the Decision Notice in a reference to the Tribunal knowing clearly what the allegations are that they are going to be faced with. 1006. It is also the case that a draft Warning Notice is a key document presented to the subject of enforcement proceedings setting out the Authority’s preliminary findings following the completion of its investigation and at that point the subject can decide whether to contest the proceedings or endeavour to reach a settlement. Again, reaching a settlement rather than contesting the proceedings is to be encouraged where possible to avoid the length, delay and expense of both regulatory and possible judicial proceedings. 1007. For all these reasons the integrity of the Warning Notice is important. The Authority should not be tempted into thinking that if there are deficiencies in its case at the Warning Notice stage then these can be remedied later in the proceedings, either by raising new issues during the representations phase before the RDC, as happened in this case, or later in the Tribunal. 1008. The fact that the proceedings before the Tribunal start afresh and the Authority has to prove its case on the basis of the allegations set out in the Statement of Case do not mean that the Authority should not in principle be constrained by what was said in the Warning Notice. 1009. While it was made clear in Hobbs that it is in the public interest for the Tribunal to make relevant findings on all matters under consideration, this should not detract from the Authority’s duty to articulate clearly and with certainty, the regulatory case that it wishes to pursue. 1010. As was made clear many years ago in the extract from the Legal and General case set out at [973] above, it is generally to be expected that the Authority will have completed its investigation before the commencement of the regulatory proceedings and carry forward the same case both through the regulatory proceedings and in the Tribunal. The judicial proceedings in the Tribunal, whilst of a different character, are, as was made clear in Jabre, part of the regulatory process and part of the same continuum that commences with the Warning Notice. 1011. Consequently, pleadings on a reference to the Tribunal are in no way akin to particulars of claim in civil proceedings. The Court of Appeal in Hobbs also made reference to the difference between regulatory proceedings and civil proceedings. In those proceedings the Applicant is entitled to know the full nature of the allegations, findings and decisions made against him by the Authority in order to consider whether to contest the regulatory action proposed or whether to make a reference to the Tribunal. 1012. An application by the Authority to amend a Statement of Case on a reference, or even to introduce fresh factual or legal allegations without such an amendment, is therefore not akin to amending pleadings in disciplinary or civil proceedings. In those proceedings allegations are free-standing and the court may exercise its discretion to permit amendments subject to the standard principles of procedural fairness. However, in relation to prohibition proceedings if the Authority seeks to bring in fresh allegations the first question will always be whether they formed part of the reasons in the Warning Notice. If they did not, the Authority will need to make an application to the Tribunal for permission to rely on the allegations concerned.”
“…it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be.”
“55L Imposition of requirements by FCA (1) Where a person has applied (whether to the FCA or the PRA) for a Part 4A permission or the variation of a Part 4A permission, the FCA may impose on that person such requirements, taking effect on or after the giving or variation of the permission, as the FCA considers appropriate. (2) The FCA may exercise its power under subsection (3) in relation to an authorised person with a Part 4A permission (whether given by it or by the PRA) (“A”) if it appears to the FCA that— ... (c) it is desirable to exercise the power in order to advance one or more of the FCA's operational objectives. (3) The FCA's power under this subsection is a power— (a) to impose a new requirement, (b) to vary a requirement imposed by the FCA under this section, or (c) to cancel such a requirement. (4) The FCA's power under subsection (3) is referred to in this Part as its own-initiative requirement power. (1) Where a person has applied (whether to the FCA or the PRA) for a Part 4A permission or the variation of a Part 4A permission, the FCA may impose on that person such requirements, taking effect on or after the giving or variation of the permission, as the FCA considers appropriate. (2) The FCA may exercise its power under subsection (3) in relation to an authorised person with a Part 4A permission (whether given by it or by the PRA) (“A”) if it appears to the FCA that— ... (c) it is desirable to exercise the power in order to advance one or more of the FCA's operational objectives. (a) to impose a new requirement, (b) to vary a requirement imposed by the FCA under this section, or (c) to cancel such a requirement. (4) The FCA's power under subsection (3) is referred to in this Part as its own-initiative requirement power. ….”
“55N Requirements under section 55L or 55M: further provisions (1) A requirement may, in particular, be imposed— (a)so as to require the person concerned to take specified action, or (b)so as to require the person concerned to refrain from taking specified action. … (5) A requirement may refer to the past conduct of the person concerned (for example, by requiring the person concerned to review or take remedial action in respect of past conduct). (6) In this section “requirement” means a requirement imposed under section 55L or 55M.”
“138D Actions for damages … (2) A contravention by an authorised person of a rule made by the FCA is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty. (3) If rules made by the FCA so provide, subsection (2) does not apply to a contravention of a specified provision of the rules. …”
“404 Consumer redress schemes (1) This section applies if— (a) it appears to the FCA that there may have been a widespread or regular failure by relevant firms to comply with requirements applicable to the carrying on by them of any activity; (b) it appears to it that, as a result, consumers have suffered (or may suffer) loss or damage in respect of which, if they brought legal proceedings, a remedy or relief would be available in the proceedings; and (c) it considers that it is desirable to make rules for the purpose of securing that redress is made to the consumers in respect of the failure (having regard to other ways in which consumers may obtain redress). … (3) The FCA may make rules requiring each relevant firm (or each relevant firm of a specified description) which has carried on the activity on or after the specified date to establish and operate a consumer redress scheme. (4) A “consumer redress scheme” is a scheme under which the firm is required to take one or more of the following steps in relation to the activity. (5) The firm must first investigate whether, on or after the specified date, it has failed to comply with the requirements mentioned in subsection (1)(a) that are applicable to the carrying on by it of the activity. (6) The next step is for the firm to determine whether the failure has caused (or may cause) loss or damage to consumers. (7) If the firm determines that the failure has caused (or may cause) loss or damage to consumers, it must then— (a) determine what the redress should be in respect of the failure; and (b) make the redress to the consumers. …” (a) it appears to the FCA that there may have been a widespread or regular failure by relevant firms to comply with requirements applicable to the carrying on by them of any activity; (b) it appears to it that, as a result, consumers have suffered (or may suffer) loss or damage in respect of which, if they brought legal proceedings, a remedy or relief would be available in the proceedings; and (c) it considers that it is desirable to make rules for the purpose of securing that redress is made to the consumers in respect of the failure (having regard to other ways in which consumers may obtain redress). … (3) The FCA may make rules requiring each relevant firm (or each relevant firm of a specified description) which has carried on the activity on or after the specified date to establish and operate a consumer redress scheme. (4) A “consumer redress scheme” is a scheme under which the firm is required to take one or more of the following steps in relation to the activity. (5) The firm must first investigate whether, on or after the specified date, it has failed to comply with the requirements mentioned in subsection (1)(a) that are applicable to the carrying on by it of the activity. (6) The next step is for the firm to determine whether the failure has caused (or may cause) loss or damage to consumers. (7) If the firm determines that the failure has caused (or may cause) loss or damage to consumers, it must then— (a) determine what the redress should be in respect of the failure; and (b) make the redress to the consumers. …”
“404A Rules under s.404: supplementary (1) Rules under section 404 may make provision— … (c) setting out, in relation to any specified description of case, matters to be taken into account, or steps to be taken, by relevant firms for the purpose of— (i) assessing evidence as to a failure to comply with a requirement; or (ii) determining whether such a failure has caused (or may cause) loss or damage to consumers; … (3)Matters may not be set out in the rules as a result of subsection (1)(c) if they have not been, or would not be, taken into account by a court or tribunal for the purpose mentioned there.”
“404F Other definitions etc (1) For the purposes of sections 404 to 404B— “redress” includes— (a) interest; and (b) a remedy or relief which could not be awarded in legal proceedings; “specified” means specified in rules made under section 404. ….”
“23. We propose that it should not be possible for private persons to found an action for damages on the Principles alone. We have designed the proposed Principles as a statement of regulatory expectations, not as a set of legal rights at large. The high level at which they are expressed makes it important that their interpretation and application should be in harmony with the overall body of FSA rules and guidance and declared authorisation, supervisory and enforcement policy. This might be put at risk if civil litigation between private parties were to become the engine driving the interpretation of the Principles. The investor protection need can be amply met (as it is at present) by providing for civil actionability below the level of Principles in more specific rules.”
“104. … Such requirements might include requirements on the authorised person to act, or refrain from acting, in a certain way. Subsection (5) allows the Authority to specify a period during which such requirements have effect. Thus the Authority might impose a limit on the amount of a certain type of business the person may conduct during the first five years after receiving the permission… 105. Under subsection (3), such requirements may also be imposed in respect of unregulated activities. For instance, the Authority might have misgivings about the way in which a regulated activity might be carried on in conjunction with an unregulated activity that the person already carries on, or which he proposes to carry on. ...”
“there are provisions in section 404 of FSMA on this subject, but those powers have never been exercised. They involve quite a complex process of an assessment by the FSA, a report to the Treasury, and then a parliamentary process. This is a more direct process involving standard rule-making by the FSA. We think that it will be speedier and more flexible than the process that is currently in the legislation.”
“Subsection (5) enables a requirement to refer to the past conduct of the person concerned. This could be used by either regulator to require an authorised person to carry out a review of its past conduct (for example, to identify customers who have been treated unfairly).”
“(3) The FCA's power under this subsection is a power—(a) to impose a new requirement” and the only conditions to be satisfied before which this power may be exercised are set out in section 55L(2) FSMA which provides as follows: “(2) The FCA may exercise its power under subsection (3) in relation to an authorised person with a Part 4A permission (whether given by it or by the PRA) (“A”) if it appears to the FCA that— (a) A is failing, or is likely to fail, to satisfy the threshold conditions for which the FCA is responsible, (b) A has failed, during a period of at least 12 months, to carry on a regulated activity to which the Part 4A permission relates, or (c) it is desirable to exercise the power in order to advance one or more of the FCA's operational objectives.”
“(1) A requirement may, in particular, be imposed— (a) so as to require the person concerned to take specified action, ...”
“The court’s task, within the permissible bounds of interpretation, is to give effect to Parliament’s purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment.”
“The FSA has existing powers to impose redress schemes on a firm-by-firm basis where a large number of consumers are affected. The power of the Treasury to initiate a collective redress scheme on a wider basis is set out in section 404 of FSMA. The Government believes there should be new powers for the FSA to require a firm or firms to make redress either on an industry wide or firm-by-firm basis as appropriate.”
“Where P’s interim permission ceases to have effect in accordance with paragraph (1) or (1B)— (a) paragraph (7) applies in respect of an act or omission by P which occurred at a time when P had an interim permission; (b) any requirement— (i) imposed on P under section 55L, 55M or 404F(7) of the Act at a time when P had an interim permission, and (ii) which is in effect immediately before that interim permission ceases to have effect, continues to have effect and paragraph (7) applies in respect of any contravention of that requirement.” (a) paragraph (7) applies in respect of an act or omission by P which occurred at a time when P had an interim permission; (b) any requirement— (i) imposed on P under section 55L, 55M or 404F(7) of the Act at a time when P had an interim permission, and (ii) which is in effect immediately before that interim permission ceases to have effect, continues to have effect and paragraph (7) applies in respect of any contravention of that requirement.”
“(12) Paragraph 13 applies in relation to— (a) any act or omission by A which occurred before the cessation date; or (b) the contravention by A of any requirement imposed on A under section 55L (imposition of requirements by FCA) or 404F(7) (other definitions) which— (i) is in effect immediately before the cessation date; and (ii) which continues to have effect in accordance with paragraph (14).” (a) any act or omission by A which occurred before the cessation date; or (b) the contravention by A of any requirement imposed on A under section 55L (imposition of requirements by FCA) or 404F(7) (other definitions) which— (i) is in effect immediately before the cessation date; and (ii) which continues to have effect in accordance with paragraph (14).”
“Unders404 of the Financial Services and Markets Act 2000 (FSMA), the FSA can make rules to require firms to establish and operate ‘industry-wide’ consumer redress schemes … Under s.404F(7) however, the FSA can impose on a single firm, a scheme which ‘corresponds to or is similar to a consumer redress scheme’ and enables such a scheme to include specific provisions that an ‘industry-wide’ consumer redress scheme may include. … The use of s404F(7) is subject to different triggers from the ‘industry-wide’ s404, namely the triggers that attach to the imposition of a VVOP (voluntary variation of permission unders.44 of FSMA ) or OIVOP (own initiated variation of permission unders.45 of FSMA ), and the FSA is not obliged to consult before its use because it affects a single firm rather than the whole industry or sector of the industry. The FSA has used this power for the first time in February 2011 and recognises that it is desirable to clarify, for firms and consumers, how it intends to use s404F(7). Therefore, it is appropriate for the FSA to consult on and publish guidance on its policy for the use of s404F(7). This is expected to happen in the summer of 2011, when the FSA reviews its guidance on the use of s404. In advance of this publication, the FSA can and will use its powers under s404F(7), where appropriate, in respect of individual firms where there is potential for mass claims from consumers on a single issue. As the FSA plans to consult on this matter, our policy on the use of s.404F(7) will be subject to change. In any event, any use of s404F(7) will depend on the particular facts of each case and will not set any precedent about the future use of this power.”
“Section 404F(7) of the Act empowers the FCA to require a firm ‘to establish and operate a scheme which corresponds to, or is similar to, a consumer redress scheme’ established under section 404 of the Act” (CONRED 1.8.1G) … “The decision to require a firm to establish and operate a scheme pursuant to section 404F(7) affects a firm, or a small number of firms, each individually rather than the whole industry or sector of the industry” (1.8.9G and see similar references at 1.1.5G, 1.8.10G ) … “It is likely that many section 404F(7) schemes will be set up because…” (1.8.13G).”
“The FCA can use its powers under section 404 of the Act to make rules requiring authorised persons, electronic money issuers and payment service providers to establish and operate consumer redress schemes. The FCA can also impose a requirement on an authorised person, electronic money issuer and payment service provider under section 404F(7) of the Act to establish and operate a scheme that corresponds to, or is similar to, a consumer redress scheme under section 404 of the Act.”
“Matters may not be set out in the rules as a result of subsection (1)(c) if they have not been, or would not be, taken into account by a court or tribunal for the purpose mentioned there.”
“173. The Applicant’s failure to appropriately manage this conflict resulted in a substandard investment management service being provided to the External Fund and its investors in that the service provided involved both the inadequate arrangements and the inadequate disclosure described above. The Authority contends that the failings by the Applicant were such that the level of service received by the investors was therefore below that which could reasonably be expected to be commensurate with the fees paid by those investors.”
“17. As to paragraph 64, it is denied that “actionable loss or damage” is required in order for a redress requirement to be imposed under section 55L of the Act. Paragraph 16 above is repeated. In any event, it is averred, as clearly set out in paragraph 173 of the Statement of Case and as further set out below, that the External Fund and/or its investors suffered loss and damage in a sense which (were a breach of the Principles to be actionable in private law) an English Court would recognise and seek (as the Authority has sought) appropriately to quantify. In this regard: 17.1. The Authority accepts and avers that it is impracticable to seek to identify a counter-factual scenario reflecting what would have occurred if the Applicant had complied with Principle 8 given the number of variables, each of which are applicable over a four and a half-year period, including: (1) what Portfolio Managers would have traded for the External Fund; (2) how those Portfolio Managers would have performed; (3) which External Fund investors would have withdrawn from the External Fund earlier than they in fact did (and when); and (4) which External Fund investors would not have invested in the External Fund at all. 17.2. In such circumstances, it is entirely permissible to seek, as the Authority has done, a proxy measure to value the difference between the service which was contracted for by the investors in the External Fund, and the service which was received. 17.3. Indeed, (without prejudice to the averred irrelevance of the comparison) English Courts in private law actions routinely seek to quantify loss and damage in such a manner including (1) in sale of goods cases by evaluating the difference between the value of the acquired chattel with the value of the chattel contracted for; (2) in Wrotham Park cases (also referred to as ‘negotiating damages’ or ‘licence fee damages’) seeking to identify the value of (and thereby a notional price for) the right which has been unlawfully exploited; (3) in a wide variety of cases, disgorgement damages seeking to deprive a contract-breaker of his profits through the remedy of an account; (4) the Courts’ upholding of non-penal liquidated damages; (5) damages measured by the cost to rectify the breach rather than to remedy the consequences to the claimant (McGregor on Damages, 21st ed., 2-008); (6) damages in addition to or in substitution for granting either an injunction or specific performance undersection 50 of the Senior Courts Act 1981 ; (7) cases where there is no deduction from damages for betterment, as per Harbutt’s Plasticine v Wayne Tank & Pump Co[1970] 1 QB 447 (CA); (8) damages for loss of chance; and (9) the presumption of damage for the general pecuniary loss by injury to credit and reputation caused by the defendant’s failure to pay the claimant’s cheques or honour their drafts (e.g. Wilson v United Counties Bank[1920] AC 102 at 112). Indeed, it is a foundational rule of English contract law that all breaches of contract sound in damages, even where these are nominal (see McGregor on Damages, 21sted., 12-002). 17.4. In the instant case, the Authority has sought to impose a fair and reasonable redress scheme taking into account both the breaches committed by the Applicant and the management services and performance which were provided to the External Fund and its investors. 17.5. The Authority avers that the redress scheme imposed, which broadly compensates investors only in respect of (1) management fees which exceeded both (a) operating expenses; and (b) industry average management fees; and (2) performance fees which did not relate to a performance in excess of the industry average, is an entirely reasonable, legitimate and proportionate approach (and well within the range of regulatory responses open to it).”
“Sir Thomas Bingham MR [in White Arrow] said that if there is a clear difference between the market value of what was contracted for and what was supplied, the difference will be the measure of damages; and this has been confirmed by dicta in the Supreme Court [in One-Step]. If there is no market price, it may still be possible to quantify the loss by reference to the cost of providing the lacking services, or indeed to use the contract price as best evidence of the value of them. Thus the value of a performance has sometimes been calculated by assuming that it was worth at least what the buyer had agreed to pay for it. Subsequently it has been held [in Force India] that if the services provided are incomplete or of less than the contracted quality, the buyer is prima facie entitled to the difference in value between the service promised and the service delivered, whether or not he has suffered any further loss and whether or not he has obtained substitute services from another supplier.”
“It is not the law that an innocent party who contracts for a deluxe service and receives a sub-standard service is in principle denied a claim to more than nominal damages. If such were the law it would be defective. But it is the law that an innocent party in such a position must quantify, or at least provide evidence from which the court can draw an inference as to, the difference between the value (usually the market value) of what was contracted and the value (again usually the market value) of what was provided”
“It is… obvious that in the ordinary way a party who contracts and pays for a superior service or superior goods and receives a substantially inferior service or inferior goods has suffered loss. If A hires and pays in advance for a 4-door saloon at£200 per day and receives delivery of a 2-door saloon available for£100 per day, he has suffered loss. If B orders and pays in advance for a 5-course meal costing£50 and is served a 3-course meal costing£30 , he has suffered loss. If C agrees and pays in advance to be taught the violin by a world famous celebrity at£500 per hour, and is in the event taught by a musical nonentity whose charging rate is£25 per hour, he has suffered loss. It is irrelevant whether A, B or C might have been entitled to reject the goods or services tendered if they in fact accept them. It would defy common sense to suggest that A, B and C have suffered no loss, and are not financially disadvantaged by the breach. The measure of damage in each of these cases is the difference between the price paid (or, if it is lower, the market value of what was contracted for) and the market value of what was obtained.”
“It does not in my view follow that the ordinary measure of compensatory damages identified and approved by Lord Nicholls in the House of Lords is inadequate in all cases of skimped performance. Where the skimped performance consists of the supply of inferior and cheaper goods than those ordered and paid for the shopkeeper has to refund the difference in price as damages for breach of contract. Where the defendant provides inferior and cheaper services then those contracted for the approach prescribed by Lord Nicholls presumably involves refunding the difference in price between the inferior and cheaper services supplied and those which the defendant agreed to supply.”
“Since in every case the loss for which the claimant is entitled to be compensated by damages is the difference between the value of what the defendant agreed to supply and what he did supply one can see that if the inferior (or insufficient) services actually supplied can be proved to have been no less effective in securing the objective which the superior (or larger number of) services contracted for were intended to achieve, a court might readily accept that the breach of contract did not result in any diminution in the value of the services contracted for.”
“For the avoidance of doubt, the award of damages for skimped performance, based on the difference between the value of the goods or services contracted for and those actually provided, is not excluded by the principle in Robinson v Harman 1 Exch 850 but is an example of its application. That was recognised by Lord Nicholls in Attorney General v Blake[2001] 1 AC 268 , 286.”