Alistair Rae Burns v The Financial Conduct Authority
| Jurisdiction | UK Non-devolved |
| Judge | Judge Herrington,Member Farquharson,Member Dale |
| Neutral Citation | [2018] UKUT 0246 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Date | 31 July 2018 |
| Subject Matter | Financial Services,31 July 2018 |
| Published date | 01 August 2018 |
[2018] UKUT 0246 (TCC)
Reference number:FS/2016/012
FINANCIAL SERVICES - independent financial adviser firm advising on
suitability of transferring occupational pension and personal pension
benefits into a self-invested pension scheme - whether director failed to take
reasonable steps to manage firm’s business so as to ensure that it complied
with relevant requirements and standards of the regulatory system
Financial penalty - whether action to impose financial penalty time-barred-
if not whether financial penalty appropriate and if so appropriate level of
penalty - s 66 FSMA
Fitness and properness of director as approved person - prohibition order in
relation to senior management and significant influence functions - s 56
FSMA
UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
ALISTAIR RAE BURNS
Applicant
- and -
THE FINANCIAL CONDUCT AUTHORITY
The
Authority
TRIBUNAL:
Judge Timothy Herrington
Member Cathy Farquharson
Member Sue Dale
Sitting in public at The Rolls Buildings, Royal Courts of Justice, London EC4 on
May 15, 17, 18, 21, 22, 23, and 24 May 2018
The Applicant in person
Simon Pritchard, Counsel, instructed by the Financial Conduct Authority, for
the Authority
© CROWN COPYRIGHT 2018
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DECISION
Introduction and decisions referred
1. This decision concerns a reference by Mr Alistair Rae Burns (“Mr Burns”) of
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the Decision of the Authority set out in a decision notice dated 22 July 2016 (the
“Decision Notice”) to impose a financial penalty on Mr Burns pursuant to s 66 of the
Financial Services and Markets Act 2000 (“FSMA”) and the further decision to make
an order prohibiting Mr Burns from performing any senior management function and
any significant influence function in relation to any regulated activity carried on by an
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authorised person, exempt person or exempt professional firm. In the Decision Notice
the Authority decided to impose a financial penalty of £233,600 but, following the
Authority’s acceptance in the course of the case management proceedings relating to
this reference that certain aspects of the Authority’s case were time-barred pursuant to
the provisions of s 66 (4) FSMA, it invited the Tribunal to impose a reduced penalty
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of £116,830.
2. The matters which are the subject of this reference relate to the conduct of Mr
Burns in his capacity as a holder of the CF 1 (Director) controlled function at
TailorMade Independent Limited (“TMI”) during the period between 22 January 2010
and 20 January 2013 (“the Relevant Period”). TMI carried on business as an
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independent financial adviser (“IFA”) specialising in the giving of advice to retail
customers on the merits of their transferring their pension monies into Self Invested
Personal Pension Schemes (“SIPPs”).
3. TMI was one of a number of businesses operating under the “TailorMade”
brand. All of those businesses were under common control, and Mr Burns had a
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substantial direct or indirect shareholding or other financial interest in each of them.
For convenience, we will refer to these businesses collectively as the TailorMade
Group (TMG”), although they were not a legal group for company law purposes. As
well as TMI, which was authorised by the Authority to carry on business as an IFA,
TMG included an unregulated company, TailorMade Alternative Investments Limited
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(“TMAI”), which promoted alternative investments to customers. Those investments
did not purport to be investments subject to regulation under FSMA but were
typically illiquid, esoteric, investments such as biofuel oil, farmland and overseas
property.
4. As described in more detail below, TMG operated the following business
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model. Typically, agents of TMAI would introduce customers who had decided to
purchase one or more alternative investments through TMAI to TMI for pension
transfer advice, these introductions to TMI being effected via a network of
introducing agents. It was envisaged that the customer’s purchase of the alternative
investments would be effected through a SIPP, that SIPP to be established through a
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SIPP provider if TMI recommended that a SIPP was suitable for the customer. The
SIPP would be funded by a transfer of the proceeds of the customer’s existing pension
funds, which may have been in the form of either defined benefit or money purchase
occupational pension schemes or personal pension schemes. TMAI was remunerated
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by commission from the provider of the alternative investment product concerned,
provided the customer subsequently invested in that alternative investment following
a pension transfer. Typically, the customer was not informed either by TMI or TMAI
of the payment of this commission or its amount.
5. TMG’s business model was based around the idea of giving customers more
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control over their pensions and TMAI’s belief as to the merits of alternative
investments. TMG adopted an advice model whereby TMAI would not seek to advise
on the merits of any particular customer acquiring alternative investments and TMI
would advise on the merits of the customer transferring his pension funds into a SIPP.
TMI would not advise on the merits of the alternative investments that were acquired
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by the SIPP or whether such investments were suitable for the customer as part of his
pension funds, TMI proceeding on the basis that the customer himself, consistent with
what it perceived to be the rationale of a SIPP as a self-invested product, had made
his own independent choice as to whether he wished to acquire such an investment
within his SIPP, the customer being advised to seek his own advice on the merits of
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the alternative investments elsewhere if he thought it necessary to do so.
6. The Authority contends that TMG’s business model and TMI’s advice model
were inherently flawed in that TMI was advising retail customers on their retirement
provision, yet its advice model failed to ensure that those customers were treated
fairly and given appropriate advice. It contends that the outcome of this model was
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that, in practice, TMI merely facilitated the transfer of its customers’ pensions into
SIPPs so that those customers could invest in the high-risk and generally unsuitable
investments that are being promoted by TMAI. In so doing, the Authority contends
that TMI disregarded crucial aspects of its responsibilities as a financial adviser to
retail customers concerning their pensions and that had proper advice been given
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many customers who in fact invested may not have done so and avoided the
significant losses which they have in fact incurred.
7. The Authority also contends that during the Relevant Period and in his capacity
as a shareholder and director, Mr Burns received significant financial benefit from
TMAI which was paid to him either directly or through a remuneration trust linked to
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TMAI. The Authority contends that TMAI would only benefit financially from
introducing a customer to TMI if TMI advised the customer to transfer their pension
into a SIPP and accordingly Mr Burns had an interest in the outcome of the advice
TMI was giving to customers referred by TMAI which was separate and distinct from
the customer’s interest in the same advice and that there was therefore an obvious
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conflict between the interests of Mr Burns and those of TMI’s customers. Although
TMI’s client agreement contained an express provision that conflicts of interest will
be disclosed to customers, the Authority contends that neither TMI nor Mr Burns
informed customers about the financial interest of Mr Burns in the outcome of TMI’s
advice. Accordingly, the Authority contends that TMI failed to comply with its
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regulatory obligations to manage conflicts of interest fairly and, where appropriate,
clearly to disclose them to its customers.
8. As regards Mr Burns, the Authority contends that during the Relevant Period
Mr Burns, one of the four directors of TMI and who was also a director of TMAI,
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