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You are here: BAILII >> Databases >> United Kingdom Financial Services and Markets Tribunals Decisions >> Khan (t/a Salman A Khan) v Financial Services Authority [2008] UKFSM FSM057 (18 January 2008) URL: http://www.bailii.org/uk/cases/UKFSM/2008/FSM057.html Cite as: [2008] UKFSM FSM057, [2008] UKFSM FSM57 |
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Reference – Cancellation of
Part IV permission – Threshold conditions, failure to submit on 3
occasions form RMAR – Importance of compliance with submission of form;
reference allowed in consideration of particular personal circumstances
and undertakings to the extent that FSA directed to substitute monetary
penalty with other conditions failing compliance with which directed to
cancel Applicant’s Part IV permission
FINANCIAL SERVICES AND MARKETS
TRIBUNAL |
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SALMAN KHAN T/A SALMAN A KHAN
Applicant
- and - |
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FINANCIAL SERVICES AUTHORITY
The
Authority |
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Tribunal: T GORDON COUTTS, QC
MR P V BURDON MR J PARSLOE |
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Sitting in public in London on
18 January 2008
Salman Khan, for the
Applicant
Simon Gerrish (in-house
Counsel) for the Authority |
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© CROWN COPYRIGHT 2008 |
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DECISION
1. This is a reference by the
Applicant of the decision by the Authority dated 19 September 2007
cancelling the permission given to Salman A Khan. The Authority took that
decision under the power granted by Section 45 of the Financial Services
and Markets Act 2000 (“the Act”). The permission gave authority to
undertake certain regulated activities. The reason given for the
withdrawal was given as failures, described by the Authority as “repeated
failures”, to submit at the due time a Retail Mediation Activities Return
(RMAR).
2.
On 8 October 2007 the Applicant wrote to the Tribunal a letter which
was taken by the Tribunal and the Authority as a reference by
him.
3.
The Tribunal heard evidence from Stephen Bland, the Director of the
Small Firms Division of the FSA a John Kirby, a manager of the Enforcement
Division of the FSA who spoke on policy, and had in front of it a witness
statement by Martin Badcock an Associate in the Enforcement Division of
the FSA to which no objection was taken by the Applicant. Mr Gerrish for
the Authority in the course of its conduct of the case also made various
statements to the Tribunal.
4.
Mr Khan, the Applicant, gave evidence on oath. In addition a
quantity of documents were produced to the Tribunal detailing the
background.
5.
There was little dispute about the factual background. With regard
to the Applicant’s duty to submit the various forms RMAR, the position we
find in fact, was as relied on by the Authority which was as
follows:
The Authority has given the Applicant;
(a) a
number of warnings as to the importance of the timely submission of the
RMAR Form;
(b) a
number of warnings as to the potential consequences of the failure to
submit the Form RMAR;
(c)
the history of the Applicant’s RMAR compliance is: |
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Notwithstanding, the Applicant
twice allowed matters to progress to a stage where the Authority issued a
Warning Notice that it proposed to cancel the Applicant’s permission
before submitting the RMAR Form. The Authority has discontinued its
proposal to cancel the Applicant’s permission on two separate
occasions. |
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The completion of the RMAR Form
and the payment of regulatory fees are the minimum supervisory
requirements for the Applicant and also for many other small firms. The
RMAR Form is often the only point of supervisory contact with the many
small firms who do not have a designated supervisor. The form is designed
to enable the Authority to conduct a desk based review to assess whether a
firm meets the minimum statutory requirements.
The Authority attaches very
considerable importance to the information provided in Form RMAR and its
timely submission.
6.
The Applicant was bound to submit a Form RMAR twice yearly in
respect of the questions therein asked and the matters to be certified,
six weeks after the end of the six month period into which its year was
divided.
7.
Mr Khan in evidence drew attention to the various reasons he had
given in the documents for non-timeous submission of the form. These
reasons were accepted by the Authority as sufficient to cause withdrawal
of its proposal to cancel the Applicant’s permission. The Tribunal also
accepted that the Applicant had been the victim of a number of unfortunate
events. He had had to deal with the aftermath of a family bereavement
which involved his absence in Pakistan from time to time, he had had
various physical troubles with the office in which he had been operating
including a catastrophic flood from the upstairs premises which destroyed
his computer. He had also other troubles with the tenants above his
office.
8.
More particularly however the Tribunal thought that Mr Khan who was
a somewhat anxious individual, may have become overwhelmed by the
regulatory requirements and the submission of the form. The guidance
given, admittedly and admirably, by the Authority did not appear to enable
him properly to concentrate upon the matter of the completion of the
forms. They were however ultimately completed and no question was taken
about them. It could have been, because it was apparent to the Tribunal on
an examination of the forms that the Applicant’s capital requirements were
deficient. This appeared on the face of the forms but no comment was made
by the Authority about that nor any action taken although a serious
deficiency continued for many months.
9.
For the future the Applicant’s evidence was firstly, that he had now
got his office properly organised, that his difficulties family and
otherwise were behind him, that he now employed a secretary and that he
was now fully able to cope with the smaller part of his business that
involved regulatory activities. He told the Tribunal that he was in a
position to fulfil the financial requirements immediately and that,
although the minor part of his business, conducting regulated activities
was very important to him.
10. The
Tribunal was of the view that the RMAR Form was not particularly
complicated and that most small firms would readily be able to cope with
it. |
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11. In
the situation in which this particular reference arises the law is not
complicated nor was it in issue.
12.
Section 45 of the Financial Services and Markets Act 2000 enables
the Authority to exercise its power in relation to an authorised person if
it appears to it that the authorised person is failing or is likely to
fail to satisfy the threshold conditions and provides that the Authority
may vary a Part IV permission or cancel it.
13.
Schedule 6 of the Act provides that the person concerned must
satisfy the Authority that he is a fit and proper person having regard to
all the circumstances, including … the nature of any regulated activity
that he carries on and the need to ensure that his affairs are conducted
soundly and prudently.
14. The
Authority has issued rules and guidance in its handbook. COND 2.5.4G sets
out some of the matters the Authority will take into account in
considering whether a firm meets and is likely to continue to meet
threshold condition 5. The relevant module of the handbook is referred to
as COND. COND 2.5.4G provides:
“(1) When determining whether the
firm will satisfy and continue to satisfy threshold condition 5, the FSA
will have regard to all relevant matters, whether arising in the United
Kingdom or elsewhere.
(2) Relevant matters include, but
are not limited to, whether a firm:
(a)
conducts, or will conduct, its business with integrity and in compliance
with proper standards;
(b)
has, or will have, a competent and prudent management;
and
(c)
can demonstrate that it conducts, or will conduct, its affairs with the
exercise of due skill, care and diligence.
(3) The
FSA will take into account relevant matters only to the extent that they
are significant (see COND 1.3.3G). In determining whether relevant matters
are significant to the firm, the FSA will consider significance in the
context of the suitability of the firm, having regard to the regulatory
objectives in section 2 of the Act (The FSA’s general duties); a series of
matters may be significant when taken together, even if each of them in
isolation may not be significant.
(4) In
making its assessment, the FSA will, therefore, consider the individual
circumstances of each firm on a case-by-case basis”.
COND 2.5.6G entitled “Conducting
business with integrity and in compliance with proper standards” provides
(in part):
“In determining whether a firm
will satisfy, and continue to satisfy, threshold condition 5 in respect of
conducting its business with |
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integrity and in compliance with
proper standards, the relevant matters, as referred to in COND 2.5.4G (2),
may include but are not limited to whether: |
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(1) the firm has been open and
co-operative in all its dealings with the FSA and any other regulatory
body (see Principle 11 (Relations with regulators)) and is ready, willing
and organised to comply with the requirements and standards under the
regulatory system and other legal, regulatory and professional
obligations; the relevant requirements and standards will depend on the
circumstances of each case, including the regulated activities which the
firm has permission, or is seeking permission, to carry on;
…”
15. The supervision module (SUP)
provides for timely reporting and in relation to the consequences of a
failure to submit reports provides:
SUP 16.3.14R provides:
“Failure to submit reports
(1) If
a firm does not submit a complete report by the date on which it is due in
accordance with the rules in, or referred to in, this chapter or the
provisions of relevant legislation and any prescribed submission
procedures, the firm must pay an administrative fee of £250.
(2) …”
SUP 16.3.14A G provides, insofar as is relevant:
“Failure to submit a report in
accordance with the rules in, or referred to in, this chapter or the
provisions of relevant legislation may also lead to the imposition of a
financial penalty and other disciplinary sanctions (see ENF 13.5 [below])
…”
15. The Enforcement section of
the Handbook, read shortly provides for the Authority bringing
disciplinary action and enforcement action and in an enforcement guide
(EG) provides at 8.5: |
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“Circumstances in which the FSA
will consider varying a firm’s Part IV permission in support of its
enforcement function include those where it has serious concerns about a
firm, or about the way in which its business is being or has been
conducted. Examples of these circumstances are where:
(1) in relation to the grounds
for exercising the power under section 45(1)(a) of the Act, the firm
appears to be failing, or appears |
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likely to fail, to satisfy the
threshold conditions relating to one or more, or all, of its regulated
activities, because for instance: |
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(a)
…
(b) the
firm appears not to be a fit and proper person to carry on a regulated
activity because:
(i) …
(ii) …
(iii) It has breached
requirements imposed on it by or
under the Act (including the
principles and the rules),
for example in respect of its
disclosure or notification
requirements, and the breaches
are material in number
or in individual seriousness
…
EG continues at 8.14
“… Examples of the types of
circumstances in which the FSA may cancel a firm’s Part IV permission
include …
(4) non-submission of regulatory
returns, or repeated failure to submit such returns in a timely fashion
…”
16.
Further the provisions of the Principles for Businesses which have a
status of rules and are made pursuant to Section 138 of the Act provides
by PRIN 2.1.1R:
“1.1 Relations with regulators: a
firm must deal with its regulators in an open and cooperative way, and
must disclose to the FSA appropriately anything relating to the firm of
which the FSA would reasonably expect notice”.
17. It was submitted for the
Authority:
(a) a
single continued failure to submit a Form RMAR may amount to a breach of
threshold condition 5.
(b)
that the repeated failure to submit Form RMAR on time is likely to
mean that a firm is in breach of threshold condition 5.
(c)
that where the failures continue over more than 12 months (i.e. more than
two RMAR forms are late for a firm that is required to submit RMAR forms
on a half yearly basis), means save in wholly exceptional circumstances,
that a firm is failing to meet threshold condition 5, and that it is
likely to continue to fail to meet threshold condition 5.
(d) on
the facts it was submitted that the Applicant has been very significantly
late in submitting the Form RMAR; therefore was repeatedly in breach of
Rule SUP 16.3.13R and that despite matters having progressed to the
Authority’s giving a Warning Notice, the |
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Applicant is still not ready or
able to comply with the minimum regularly standards, and rules. (e)
Accordingly the Tribunal was invited to dismiss the Reference and to
direct the Authority to cancel the firm’s Part IV permission; and to
consider issuing guidance for the determination of future cases relating
to the late submission of RMAR Forms.
18. The
submission by the Applicant might reasonably be described as a plea for
understanding and leniency in the circumstances. He said that the admitted
defaults would not happen again. He pointed to the improvement in the
level of lateness but said he understood that that was still
unsatisfactory. He said that he had reorganised his business, that he had
got appropriate premises and equipment and now had a secretary who helped
with administration. He pointed out that there had been no complaint by
any customer which had not been immediately resolved, and that his conduct
was not described anywhere as being dishonest. He felt that it was too
harsh at this stage to deprive him of his regulated business.
19. The
Tribunal anxiously considered the proper course in this particular case.
They were aware of the obligation under s.133(4) of Financial Services and
Markets Act 2000 to consider the whole matter of new. They do not feel
that they can or indeed should attempt to lay down any particular
guidelines in matters of this kind. Each case must depend on its
individual circumstances. So, for example, where there was any question of
dishonesty or complaint by customers or other matters affecting consumer
confidence there might be no other course but to withdraw permission. At
the other end of the scale simple administrative failures may or may not
be significant. In the present case the Authority did not find any
financial impropriety or shortfall; had it done so the situation might be
regarded as more serious.
20.
Where the Authority have as here a range of penalties, and the
Tribunal heard evidence that a financial penalty could have been imposed
instead of purported withdrawal, then as a matter of general principle the
most draconian punishment should be reserved for the most serious cases.
The Tribunal by the following decision is not intending to undermine the
general policy adopted by the Authority in such matters or to devalue the
importance of proper reporting to provide an economical method of
checking-up on small firms. On the other hand simply because it is
difficult for the Authority to keep track of the many firms it has to
regulate should not mean that a particular reporting requirement requires
to be enforced without regard to individual circumstances. It will usually
be the case that the appropriate progression of sanction would be warning,
financial penalty, withdrawal of permission and to skip from one to three
may not be appropriate.
21.
Accordingly the Tribunal finds that it is appropriate in this case
that a Direction be given to the Authority because it is plain that the
Applicant has fallen short of the requirements upon him and in any event
will require to make good his capital resource position before being
allowed to continue. |
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22. The Tribunal Directs the
Authority to impose a financial penalty upon the Applicant of £2,000, in
addition to the £250 administration fee he is bound to pay when late in
submitting returns and that the Applicant satisfy the Authority that his
capital resource position is in good order and all that within 28 days of
the issue of this Decision. Failing implementation by the Applicant of the
about matters to the satisfaction of the Authority it is Directed in that
event to withdraw the Applicant’s Part IV
Permission. |
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T GORDON COUTTS, QC
CHAIRMAN
FIN 2007/0016 |
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