Agarwala v Financial Services Authority [2007] UKFSM FSM052 (15 January 2007)

SUPERVISORY NOTICE –- application for a direction to suspend effect of Notice until
reference disposed of – Notice varied a Part IV permission by removal of all regulated
activities with immediate effect -- reason for Notice being breach of threshold conditions
and Principles 1 (conducting business with integrity); 6 (treating customers fairly); and 11
(dealing with FSA in an open and co-operative way) -- in his applications for permission
to conduct regulated activities the Applicant had failed to disclose that he had been erased
from the Register of Practising Insurance Brokers in 1993; that he had been expelled from
membership of the Personal Investment Authority in 1997; and that the Financial
Ombudsman Service had expressed the preliminary view in 2003 that advice to a client
about pension arrangements had not been suitable and that the Applicant should pay
redress if there had been any loss – whether Tribunal satisfied that a direction to suspend
the effect of the Notice would not prejudice the interests of consumers – no – whether
necessary for notice to take effect immediately - yes – whether removal of all regulated
activities proportionate to the concerns being addressed by the Notice – yes – application
dismissed – Financial Services and Markets Tribunal Rules 2001 SI 2001 No. 2476; Rule
10(1((e) and 10(6)

THE FINANCIAL SERVICES AND MARKETS TRIBUNAL

VIRENDA RAI AGARWALA

Trading as

ABBEX INSURANCE

Applicant

- and -

THE FINANCIAL SERVICES AUTHORITY

Respondent

Tribunal : DR A N BRICE
MR T C CARTER

REASONS FOR DIRECTION

Sitting in London on 20 December 2006

Gareth Fatchett, of Financial Services Legal LLP, for the Applicant
Daniel Thornton, of the Financial Services Authority, for the Respondent

REASONS FOR DIRECTION

The application

1. On 1 November 2006 the Financial Services Authority (the Authority) issued to
Mr Virendra Rai Agarwala, trading as Abbex Insurance (the Applicant), a First
Supervisory Notice (the Notice) which varied the Applicant's Part IV permission by
removing all regulated activities with immediate effect. The reasons for the action taken
by the Authority were that the Applicant had failed to satisfy the threshold conditions set
out in Schedule 6 to the Financial Services and Markets Act 2000 (the 2000 Act) because
the Authority was not satisfied that the Applicant was a fit and proper person having
regard to all the circumstances. The Applicant had failed to conduct his business with
integrity within the meaning of Principle 1; had failed to pay due regard to the interests of
his customers and to treat them fairly within the meaning of Principle 6; and had failed to
meet the requirements of Principle 11 under which firms are required to co-operate with
the Authority.

2. On 28 November 2006 the Applicant referred the Notice to the Tribunal and, at
the same time, applied for a Direction under Rule 10(1)(e) of the Financial Services and
Markets Tribunal Rules 2001 SI 2001 No. 2476 (the Rules) suspending the effect of the
Notice until the reference had been finally disposed of. The application was heard on 20
December 2006 and a Direction was released the following day dismissing the
application. The Direction stated that reasons would follow and this document contains
the reasons for the Direction. The Directions released on 21 December 2006 also set out a
timetable leading to the speedy hearing of the substantive reference. The date fixed for
the hearing is 5 February 2007.

The Rules

3. Rule 10(1) of the Rules describes particular types of direction which may be
given by the Tribunal and rule 10(1)(e) provides that a Direction given by the Tribunal
may:

"(e) suspend the effect of an Authority notice (or prevent it taking effect) until the
reference has been finally disposed of, or until any appeal against the Tribunal's
determination of the reference has been finally disposed of, or both … ."

4. Rule 10(6) provides:

"Where an application for a direction is made under paragraph (1)(e), the Tribunal may
give such a direction only if it is satisfied that to do so would not prejudice -

(a) the interests of any persons (whether consumers, investors or otherwise)
intended to be protected by the Authority notice; or

(b) the smooth operation or integrity of any market intended to be protected by
that notice."

The statutory framework

5. The following statutory framework is relevant to the facts of the application.

6. Part I (sections 1 to 18) of the Financial Services and Markets Act 2000 (the 2000
Act) contains the provisions about the Authority as Regulator. Section 2(1) provides that,
in discharging its general functions, the Authority must, so far as is reasonably possible,

act in a way which is compatible with the regulatory objectives. Section 2(2) provides
that one of the regulatory objectives is the protection of consumers.

7. Part IV (sections 40 to 55) contains the provisions relating to permission to carry
on regulated activities and section 42(2) provides that the Authority may give permission
for an applicant to carry on specified activities. Section 41(2) provides that, in giving or
varying permission, the Authority must ensure that the person concerned will satisfy, and
continue to satisfy, the threshold conditions in relation to all the regulated activities for
which he has, or will have, permission. Section 41(1) provides that the threshold
conditions are those set out in Schedule 6. Schedule 6 now describes six threshold
conditions. Paragraph 5 of Schedule 6 is headed “Suitability” and provides:

“5. 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 any regulated activity that he carries on or seeks to carry on;
and

(c) the need to ensure that his affairs are conducted soundly and prudently.”

8. Section 138 of the 2000 Act provides that the Authority may make such rules
applying to authorized persons as appear to it to be necessary or expedient for the
purpose of protecting the interests of consumers Under that provision the Authority has
issued “Principles for Businesses” (PRIN). Principles1, 6 and 11 are:

“1 A firm must conduct its business with integrity.

6. A firm must pay due regard to the interests of its customers and treat them fairly.

11 A firm must deal with its regulators in an open and co-operative way, and must

disclose to the FSA appropriately anything relating to the firm of which the FSA would
reasonably expect notice.”

9. Section 44 of the 2000 Act provides that the Authority may, on the application of
an authorised person, vary a Part IV permission in a number of ways, including removing
a regulated activity. Section 45(2) gives the Authority power on its own initiative to vary
a Part IV permission in any of the ways mentioned in section 44 and section 45(1)
provides:

"45(1) The Authority may exercise its power under this section in relation to an authorised

person if it appears to it that:

(a) he is failing, or is likely to fail, to satisfy the threshold conditions; … or

(c) it is desirable to exercise that power in order to protect the interests of

consumers or potential consumers."

10 Section 53 contains the provision about the procedure for the exercise of the
Authority’s own-initiative power to vary a Part IV permission. It provides that a variation
either takes effect immediately or on such a date as may be specified in the notice.
Section 53(3) provides:

"53(3) A variation may be expressed to take effect immediately (or on a specified date) only
if the Authority, having regard to the ground on which it is exercising its own initiative

power, reasonably considers that it is necessary for the variation to take effect immediately
(or on that date)."

11. Finally, section ENF 3.5.2G(2) of the FSA Handbook provides that a restriction
imposed on a firm "should be proportionate to the objectives the FSA is seeking to
achieve". Section ENF 3.5.13G(9) provides:

"The FSA will take into account the (sometimes significant) impact that a variation of
permission may have on a firm's business and on its customers' interests, including the effect
of variation on the firm's reputation and on market confidence. The FSA will need to be
satisfied that the impact of any use of the own-initiative power is likely to be proportionate
to the concerns being addressed in the context of the overall aim of achieving its regulatory
objectives."

The issues

12. The main question which we have to determine is whether we are satisfied that
the suspension of the Notice would not prejudice the interests of any persons (whether
consumers, investors or otherwise) intended to be protected by the Authority notice
within the meaning of Rule 10(6)(a). We should also be satisfied that it was necessary for
the Notice to take effect immediately within the meaning of section 53(3) of the 2000 Act
and that the removal of all the Applicant's Part IV permissions with immediate effect was
proportionate within the meaning of ENF 3.5.2G(2).

The evidence

13. A bundle of documents was produced by the Authority. We also heard oral
evidence from the Applicant.

The facts

14. The Applicant is a sole trader insurance intermediary. He is not permitted to hold
client money or assets.

1993 - Erasure from the register of the Insurance Brokers Registration Council

15. On 6 September 1993 the Applicant, practising as Abbex Insurance Brokers, was
erased from the Register of Practising Insurance Brokers by the Insurance Brokers
Registration Council at the direction of its Disciplinary Committee. The reasons for the
erasure were stated to be “Under section 15(2) of the Act for breaches of the rules under
section 11”. “The Act” was The Insurance Brokers (Registration) Act 1977, now
repealed. Section 11 provided that the Council should make rules requiring registered
insurance brokers to ensure that their businesses had adequate working capital; that the
value of their business assets exceeded their business liabilities; and that they were not
unduly dependent on any particular insurance company. The Council was also to make
rules requiring practicing insurance brokers to keep accounts at banks; to keep
accounting records; and to submit balance sheets and profit and loss accounts to the
Council at prescribed intervals. Section 15(2) provided that, if it appeared to the
Disciplinary Committee that a registered insurance broker had failed to comply with any
rules under section 11, and that the failure was such as to render the insurance broker
unfit to have its name on the register, the Disciplinary Committee might, if they thought
fit, direct that the name of the insurance broker should be erased from the register.

1996 – The Personal Investment Authority

16. On 11 December 1995 the Applicant had a monitoring visit from the Personal
Investment Authority. A copy of the monitoring visit report was sent to the Applicant on
27 March 1996. The report identified a number of rule breaches, including a failure to
keep sufficient, accurate and up to date records (particularly of investment business,
recruitment and training, complaints and financial records) to demonstrate compliance
with the Rules of the Personal Investment Authority. The Applicant was requested to
effect the remedial action identified in the report and to provide the Personal Investment
Authority with brief monthly progress reports.

17. On 15 November 1996 the Personal Investment Authority issued an intervention
notice to the Applicant trading as Abbex Insurance. The notice stated that it appeared to
the Disciplinary Committee (of the Personal Investment Authority) that the Applicant
might not be a fit and proper person to carry on investment business because he had
failed to comply with the deadline imposed by the monitoring visit report to carry out
remedial action and to provide monthly progress reports; had failed to respond to a
number of letters from the Personal Investment Authority; had failed to supply quarterly
returns required for the purposes of the pensions review; and had failed to pay
administrative surcharges levied because of these failures.

18. The intervention notice of 15 November 1996 prohibited the Applicant from
conducting any investment business; from soliciting investment business; and from
disposing or dealing with any of his assets. The prohibition took immediate effect.

19. Also on 15 November 1996 the Personal Investment Authority initiated formal
disciplinary proceedings to revoke the Applicant’s authorization. The Personal
Investment Authority’s Disciplinary Committee decided to expel the Applicant. On 29
January 1997 the Applicant referred the matter to the Personal Investment Authority
Membership and Disciplinary Tribunal. Before the matter was heard by the Tribunal the
Applicant withdrew his appeal and admitted the charges set out in the notice of charges
and the matters set out in the statement of case. The disciplinary proceedings were settled
on the basis that the Applicant was expelled from membership of the Personal Investment
Authority.

20. Accordingly, on 30 July 1997 the Disciplinary Committee of the Personal
Investment Authority issued an Order that the Applicant was expelled from membership
of the Personal Investment Authority. That meant that the Applicant was no longer
authorized to give investment advice.

21. After his expulsion from membership of the Personal Investment Authority the
Applicant practiced as a general insurance broker for which authorization was not
required until January 2005.

2003 - The Financial Ombudsman Service

22. On 24 February 2003 a client of the Applicant complained to the Financial
Ombudsman Service that in April 1989 she had been inappropriately advised by the
Applicant in respect of her pension. On 30 September 2003 the Financial Ombudsman
Service wrote to the Applicant with a reasoned preliminary view that the advice to the

client to opt out of a pension scheme in favour of effecting personal pension
arrangements was not a suitable transaction and that the Applicant should establish
whether the client suffered a loss, and, if so, pay redress. The most preferable method of
redress would be to re-instate the client’s pension benefits in her company pension
scheme by paying the current costs of restoring the lost service.

2004 – the applications to the Authority

23. On 12 July 2004 the Applicant applied to the Authority for authorization in
respect of general insurance business. He signed and submitted two forms, a High Street
Firms application form and a controlled function and individual controllers form.

July 2004 - The High Street Firms application form

24. The High Street Firms application form contained a section D – Disclosure which
contained questions 32 to 40. Section D started with the paragraph:

“The firm must provide details of any significant events that have occurred in the past
that may be relevant to our assessment We will consider each event in relation to the
regulated activities for which the firm will have permission bearing in mind our
regulatory objectives in the Act. If the firm is unsure as to whether an event needs to be
disclosed, we advise that it discloses it and we can then consider its importance.”

25. Questions 35, 39 and 40 of the High Street Firms application form, and the
Applicant’s answers, were:

“35 Has the firm been a defendant in any criminal or civil proceedings or arbitration
in the last 5 years or is any unsatisfied judgment debt or award outstanding against it?

39 Has the firm ever been refused, had revoked, any licence, membership, authorization,
registration, application or any other permission granted by a financial services regulator
in the UK or overseas?

40. Are there any other significant events regarding the firm or any companies in the
firms group that might adversely affect the application?

No.”

26. Section K of the High Street Firms application form contained the following
declarations;

“I confirm that the information contained in this application is accurate and complete to
the best of my knowledge and belief and that I have taken all reasonable steps to ensure
that this is the case.

I am aware that it is a criminal offence knowingly or recklessly to give the FSA
information that is false or misleading in a material particular.

I will notify the FSA immediately if there is a change to the information given … If I fail
to do so, this may result in a delay in the application process or to enforcement action.”

The controlled functions and individual controller form

27. Questions 34, 37(b) and 38(a) to (c) of the controlled functions and individual

controller form, and the Applicant’s answers, were;

“34. Does the individual have any outstanding financial obligations arising from
regulated activities, which the individual has conducted in the past, whether in the United
Kingdom or overseas?

37(b) Has the individual ever, either in the United Kingdom or elsewhere, been
refused, restricted in, or had suspended, the right to carry on any trade, business or
profession for which specific licence, authorization, registration, membership or other
permission is required?

No.

38. In respect of activities regulated by the FSA or any other regulatory body
[including the PIA and the Institute of Insurance Brokers Regulatory Council which was
the successor to the Insurance Brokers Registration Council] has the individual … ever:

(a) been refused, had revoked, restricted or terminated any licence,
authorization, registration, notification, or other permission granted by any such
body?

(b) been criticized, censured, disciplined, suspended, expelled, fined, or been
the subject of any other disciplinary or intervention action by any such body?

No”

28. Section E of the controlled functions and individual controller form contained the
following information and declaration:

“Knowingly or recklessly giving the FSA information which is false or misleading in a
material particular is a criminal offence.

It should not be assumed that information is known to the FSA merely because it is in
the public domain or has previously been disclosed to the FSA or to another regulatory
body. If there is any doubt about the relevance of the information it should be included..

I confirm that the information in this form is accurate and compete to the best of my
knowledge and belief and that I have read the notes to this form.”

December 2004 – The final decision of the Financial Ombudsman Service

29. On 15 December 2004 the Financial Ombudsman Service issued a final decision
in respect of the complaint of the client who had been advised to opt out of a final salary
occupational pensions scheme and to effect personal pension arrangements instead. The
complaint was upheld and the Applicant was ordered to carry out a loss assessment in
accordance with the pension review guidance. If loss was established the Applicant was
directed to pay to the trustees of the pension scheme the current amount needed to make
good the shortfall in respect of the period in which the client remained opted out as a
result of advice from the Applicant.

30. On 5 January 2005 the Financial Ombudsman Service wrote to the Applicant
confirming that it had received from the client acceptance of the final decision which was
therefore binding on the Applicant.

January 2005 – the authorisation

31. After receiving the Applicant’s applications of July 2004 the Authority discovered
that the Applicant had been erased from the Register of Practising Insurance Brokers and
so were also aware of the Applicant’s non-disclosure of this information in the
application forms. This was not considered sufficiently material to prevent authorization.

32. Accordingly, on 14 January 2005 the Applicant was authorized by the Authority
under Part IV of the 2000 Act to carry on the following regulated activities:

(1) advising on investments (excluding pension transfers/opt outs), in respect
of non-investment insurance contracts only;

(2) agreeing to carry on a regulated activity;

(3) arranging (bringing about) deals in investments, in respect of non-
investment insurance contracts only;

(4) assisting in the administration and performance of a contract of insurance,
in respect of non-investment insurance contracts only;

(5) dealing in investments as agent, in respect of non-investment insurance
contracts only;

(6) making arrangements with a view to transactions in investments, in
respect of non-investment insurance contracts only.

2006 - The report of the Financial Ombudsman Service to the Authority

33. The Applicant did not comply with the final decision of the Financial
Ombudsman Service dated 5 January 2005. On 22 December 2005 the Financial
Ombudsman Service wrote to the Applicant to say that, unless documentary evidence
was received showing that steps were being taken to address matters, then the failure to
comply with the award would be reported to the Authority.

34. On 9 January 2006 the Applicant wrote to the pension scheme and asked to be
informed of the reinstatement value for the missing years in respect of the client.
However, the matter did not proceed. We understand that the pension scheme asked the
applicant to pay a fee for the information he required which the applicant was reluctant to
pay. On 5 June 2006 the Authority wrote to the Applicant requiring him to comply with
the final decision of the Financial Ombudsman Service before 20 June 2006 failing which
the matter would be referred to the Authority’s Enforcement Division for action. On 17
July 2006 the Authority wrote to the Applicant saying that by failing to comply properly
with the final decision of the Financial Ombudsman Service the Applicant was in breach
of DISP 3.9.14(1)R and in breach of Principle 6 because he had failed to pay due regard
to the interest of his customer and to treat the customer fairly. He had also failed to
conduct his business with integrity. A recommendation would be made to the Regulatory
Decisions Committee that the Applicant’s Part IV permission to undertake regulatory
activities should be cancelled.

35. On 27 July 2006 the Applicant’s advisers wrote to the Authority and said that the
firm that gave the advice to the pensions client was not the same firm as the Applicant.
The firm that gave the advice had been regulated by the Personal Investment Authority
and had been de-authorised in 1994. This was the first time that the Authority had been
informed of the previous authorization. The Authority made enquiries and discovered the
existence of the Personal Investment Authority intervention notice in 1996 and the
expulsion in 1997.

36. On 1 November 2006 the Authority issued the Notice the subject of this reference.
As well as varying the Applicant's Part IV permission by removing all regulated activities
with immediate effect the notice provided that, within 14 days, the Applicant must notify
in writing all clients for regulated activities that the Applicant was no longer permitted by
the Authority to carry on regulated activities and must provide the Authority with a copy
of the written notification and a list of all clients to whom it had been sent. .At the date of
the hearing this had not been done.

37. In evidence which we accept that Applicant told us that he had been in insurance
for thirty-five years. In the earlier years he had a colleague, to whom he paid commission
and who later became an employee, who undertook the independent financial advisory
work including pensions advice. That employee left in or about the early 1990s.

The arguments for the Applicant

38. For the Applicant Mr Fatchett accepted that there had been problems in the past
but argued that these had occurred when the Applicant had acted as an independent
financial adviser. That had been before 30 July 1997 when the Applicant had been
expelled from the Personal Investment Authority. The expulsion had not involved any
matters of dishonesty. Mr Fatchett accepted that the replies to the questions on the
application forms contained errors but argued that the answers were not intended to
mislead. The Applicant had regarded his business as an independent financial adviser,
which lasted until 1997, and his business as a general insurance broker, which lasted from
1997 to 2005, as two separate businesses and thought that he only had to disclose matters
relating to his general insurance business. There had been no complaints about the
Applicant relating to his general insurance business. There was no real, immediate risk to
consumers.

39. Mr Fatchett went on to argue that the decision of the Financial Ombudsman
Service was not given to the current business. It related to advice given in 1989 at a time
when the Applicant’s firm was acting as an independent financial adviser and was
authorized by the Personal Investment Authority. Rule 1.9.4(d) of the Rules of the
Personal Investment Authority provided that a person who had ceased to be a member
had to co-operate fully with any adjudication or direction of the PIA Ombudsman but no
adjudication had been given by the PIA Ombudsman. Also Rule 1.9.5(4) provided that
the contract between an individual and the PIA ended 30 months after the name of an
individual was removed from the register and the obligations of an individual continued
for the duration of the contract. Mr Fatchett accepted that the final decision of the
Financial Ombudsman Service was binding on the Applicant personally but argued that
the Applicant was finding it difficult to comply with the decision as he did not have the
necessary technical competence nor did he have the financial resources. The Applicant
should have been referred to the Financial Services Compensation Scheme.

40. Finally, Mr Fatchett argued that the procedure adopted by the Authority did not
comply with the convention in the Schedule to the Human Rights Act 1988 as the
Applicant had been given no opportunity to make representations to an independent
Tribunal. If the Notice was not suspended then the Applicant could not carry on his
business and would have no resources to meet the final decision of the Financial
Ombudsman Service.

The arguments for the Authority

41. For the Authority Mr Thornton argued that, in submitting both the High Street
Firms application form and the controlled functions and individual controller form, the
Applicant had failed to disclose that he had been erased from the Register of the
Insurance Brokers Registration Council on 6 September 1993; that the Personal
Investment Authority had issued an intervention notice on 15 November 1996 preventing
the Applicant from conducting any investment business with immediate effect; and that
his authorization had been revoked by the Personal Investment Authority on 30 July
1997. Although the non-disclosure of the Applicant’s erasure from the Register of
Practising Insurance Brokers was not considered sufficiently material to affect
authorization, had the Authority known about the action of the Personal Investment

Authority then the Applicant would not have been authorized. The events leading to the
Applicant’s expulsion from the Personal Investment Authority were very serious as they
amounted to non-co-operation with a regulator because they involved a failure to respond
to remedial action which had been directed and a failure to respond to a pensions review.
If the Applicant had not understood the forms then that cast doubt upon his basic
competence to undertake regulated activities.

42. Mr Thornton also argued that the preliminary view of the Financial Ombudsman
Service should have been mentioned in the answer to question 35 on the High Street
Firms application form and disclosed as a significant event in the answer to question 40.
The Applicant should also have disclosed the final decision of the Financial Ombudsman
Service as soon as he became aware of it even though it occurred after he had sent the
application forms. In the view of the Authority, the Financial Ombudsman Service had a
key place in the financial regulatory system and it was essential for any regulated firm to
comply with decisions of the Service. The complaint had been made to the Service in
2003 which meant that the Service had jurisdiction to deal with it and make a binding
decision with which the Applicant was required to comply. It should not be difficult for
the Applicant to comply with the final decision; the reinstatement value had been
requested in 9 January 2006 and the liability of the Applicant could easily be calculated
by deducting from the reinstatement value the value of the personal pension to be
transferred into the scheme. If the Applicant could not pay then he should not continue in
business.

Reasons for direction

43. The main question which we have to determine is whether we are satisfied that
the suspension of the Notice would not prejudice the interests of any persons (whether
consumers, investors or otherwise) intended to be protected by the Authority notice
within the meaning of Rule 10(6)(a). In giving our reasons we confine ourselves to this
matter and do not express any view on the other matters raised in argument by Mr
Fatchett which will be determined at the substantive hearing of the reference.

44. For that reason we reach no decision about whether the Applicant intended to
mislead the Authority by the incorrect replies on the application forms. That is a matter
which the Applicant may wish to argue more fully at the substantive hearing. What is
undisputed is that incorrect replies were made. In our view the lack of accuracy, for
whatever reason, is a serious matter. A number of questions on the forms are in general
terms and, for example, question 37(b) refers to the individual and not the firm and it
would be a matter of concern if this were to be misinterpreted. Although the Applicant
argued that he operated two separate firms, one before and one after 1997, the fact is that
the Applicant has at all times been a sole trader and traded under the name of Abbex
Insurance. The Applicant accepts that the final decision of the Financial Ombudsman
Service is his own personal liability.

45. On the evidence and argument before us we have concluded that we are not
satisfied that the suspension of the notice would not prejudice the interests of consumers.
All insurance contracts require good faith on the part of the proposer in disclosing
material information and the errors made in the two application forms are matters for
serious concern. We also note that, although the final decision of the Financial

Ombudsman Service was given in January 2005, it has not yet been complied with. In our
view consumers could be prejudiced if the notice were to be suspended and if the
Applicant continued with his insurance business.

46. We are also satisfied that it was necessary for the Notice to take effect
immediately and that the removal of all the Applicant's Part IV permissions with
immediate effect was proportionate. On 20 December 2006 we directed that the
substantive hearing should take place as soon as possible and it will take place on 5
February 2007.

47. We agree that that the procedures leading up to the issue of the First Supervisory
Notice did not comply with the Human Rights Convention but this Tribunal is the
independent and impartial tribunal required by Article 6 of the Convention and the
Applicant has had the opportunity of being heard by the Tribunal.

48. This is a unanimous decision

DR A N BRICE

CHAIRMAN

RELEASE DATE:

FIN/2006/0018
15.01.07

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	United Kingdom Financial Services and Markets Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom Financial Services and Markets Tribunals Decisions >> Agarwala v Financial Services Authority [2007] UKFSM FSM052 (15 January 2007) URL: http://www.bailii.org/uk/cases/UKFSM/2007/FSM052.html Cite as: [2007] UKFSM FSM052, [2007] UKFSM FSM52



	REASONS FOR DIRECTION The application 1. On 1 November 2006 the Financial Services Authority (the Authority) issued to Mr Virendra Rai Agarwala, trading as Abbex Insurance (the Applicant), a First Supervisory Notice (the Notice) which varied the Applicant's Part IV permission by removing all regulated activities with immediate effect. The reasons for the action taken by the Authority were that the Applicant had failed to satisfy the threshold conditions set out in Schedule 6 to the Financial Services and Markets Act 2000 (the 2000 Act) because the Authority was not satisfied that the Applicant was a fit and proper person having regard to all the circumstances. The Applicant had failed to conduct his business with integrity within the meaning of Principle 1; had failed to pay due regard to the interests of his customers and to treat them fairly within the meaning of Principle 6; and had failed to meet the requirements of Principle 11 under which firms are required to co-operate with the Authority. 2. On 28 November 2006 the Applicant referred the Notice to the Tribunal and, at the same time, applied for a Direction under Rule 10(1)(e) of the Financial Services and Markets Tribunal Rules 2001 SI 2001 No. 2476 (the Rules) suspending the effect of the Notice until the reference had been finally disposed of. The application was heard on 20 December 2006 and a Direction was released the following day dismissing the application. The Direction stated that reasons would follow and this document contains the reasons for the Direction. The Directions released on 21 December 2006 also set out a timetable leading to the speedy hearing of the substantive reference. The date fixed for the hearing is 5 February 2007. The Rules 3. Rule 10(1) of the Rules describes particular types of direction which may be given by the Tribunal and rule 10(1)(e) provides that a Direction given by the Tribunal may: "(e) suspend the effect of an Authority notice (or prevent it taking effect) until the reference has been finally disposed of, or until any appeal against the Tribunal's determination of the reference has been finally disposed of, or both … ." 4. Rule 10(6) provides: "Where an application for a direction is made under paragraph (1)(e), the Tribunal may give such a direction only if it is satisfied that to do so would not prejudice - (a) the interests of any persons (whether consumers, investors or otherwise) intended to be protected by the Authority notice; or (b) the smooth operation or integrity of any market intended to be protected by that notice." The statutory framework 5. The following statutory framework is relevant to the facts of the application. 6. Part I (sections 1 to 18) of the Financial Services and Markets Act 2000 (the 2000 Act) contains the provisions about the Authority as Regulator. Section 2(1) provides that, in discharging its general functions, the Authority must, so far as is reasonably possible, 2



	The arguments for the Applicant 38. For the Applicant Mr Fatchett accepted that there had been problems in the past but argued that these had occurred when the Applicant had acted as an independent financial adviser. That had been before 30 July 1997 when the Applicant had been expelled from the Personal Investment Authority. The expulsion had not involved any matters of dishonesty. Mr Fatchett accepted that the replies to the questions on the application forms contained errors but argued that the answers were not intended to mislead. The Applicant had regarded his business as an independent financial adviser, which lasted until 1997, and his business as a general insurance broker, which lasted from 1997 to 2005, as two separate businesses and thought that he only had to disclose matters relating to his general insurance business. There had been no complaints about the Applicant relating to his general insurance business. There was no real, immediate risk to consumers. 39. Mr Fatchett went on to argue that the decision of the Financial Ombudsman Service was not given to the current business. It related to advice given in 1989 at a time when the Applicant’s firm was acting as an independent financial adviser and was authorized by the Personal Investment Authority. Rule 1.9.4(d) of the Rules of the Personal Investment Authority provided that a person who had ceased to be a member had to co-operate fully with any adjudication or direction of the PIA Ombudsman but no adjudication had been given by the PIA Ombudsman. Also Rule 1.9.5(4) provided that the contract between an individual and the PIA ended 30 months after the name of an individual was removed from the register and the obligations of an individual continued for the duration of the contract. Mr Fatchett accepted that the final decision of the Financial Ombudsman Service was binding on the Applicant personally but argued that the Applicant was finding it difficult to comply with the decision as he did not have the necessary technical competence nor did he have the financial resources. The Applicant should have been referred to the Financial Services Compensation Scheme. 40. Finally, Mr Fatchett argued that the procedure adopted by the Authority did not comply with the convention in the Schedule to the Human Rights Act 1988 as the Applicant had been given no opportunity to make representations to an independent Tribunal. If the Notice was not suspended then the Applicant could not carry on his business and would have no resources to meet the final decision of the Financial Ombudsman Service. The arguments for the Authority 41. For the Authority Mr Thornton argued that, in submitting both the High Street Firms application form and the controlled functions and individual controller form, the Applicant had failed to disclose that he had been erased from the Register of the Insurance Brokers Registration Council on 6 September 1993; that the Personal Investment Authority had issued an intervention notice on 15 November 1996 preventing the Applicant from conducting any investment business with immediate effect; and that his authorization had been revoked by the Personal Investment Authority on 30 July 1997. Although the non-disclosure of the Applicant’s erasure from the Register of Practising Insurance Brokers was not considered sufficiently material to affect authorization, had the Authority known about the action of the Personal Investment 10

United Kingdom Financial Services and Markets Tribunals Decisions