The FCA has today published Decision Notices in respect of three former members of Keydata’s senior management: Stewart Ford (former chief executive), Mark Owen (former sales director) and Peter Johnson (former compliance officer).
All three individuals have referred their Decision Notices to the Upper Tribunal (the Tribunal) where they and the FCA will each present their case. The Tribunal will then determine the appropriate action for the FCA to take. The Tribunal may uphold, vary or cancel the FCA’s decisions. In the case of the decision to impose a penalty, the Tribunal will determine what (if any) is the appropriate action for the FCA to take, and remit the matter to the FCA with such directions as the Tribunal considers appropriate for giving effect to its determination. In the case of the decision to impose a prohibition order, the Tribunal will determine whether to dismiss the reference or remit it to the FCA with a direction to reconsider and reach a decision in accordance with the findings of the Tribunal. The Tribunal’s decision will be made public on its website.
The Decision Notices, which reflect the FCA’s view of what occurred and how the behaviour is to be characterised, set out that the FCA has decided to fine Mr Ford, Mr Owen and Mr Johnson £75 million, £4 million and £200,000 respectively and to prohibit all three from performing any role in regulated financial services.
In the FCA’s view, Keydata Investment Services (Keydata) designed and sold investment products to retail investors via IFAs. The products were underpinned by Keydata’s investment in bonds issued by Luxembourg special purpose vehicles called SLS Capital S.A (SLS) and Lifemark S.A (Lifemark). In turn SLS and Lifemark invested in portfolios of life settlement policies. The products were sold as eligible for ISA status, but they were not, in fact, eligible.
In the FCA’s opinion Mr Ford, Mr Owen and Mr Johnson failed to act with integrity and also misled the then Financial Services Authority (FSA) on a number of occasions in relation to the performance of the investment products.
The Decision Notices set out the FCA’s view that the three individuals permitted Keydata to continue to sell the Lifemark-backed products to retail investors when the individuals were aware that it was highly likely the products did not comply with the ISA regulations, that the financial promotions were unclear, incorrect and misleading, that the due diligence on the products was inadequate and that there were problems with the performance of the portfolio ultimately underlying the products.
Further, the Decision Notices set out the FCA’s view that Mr Ford and trusts set up for the benefit of his family received some £72.4 million in fees and commissions on sales of the Lifemark products and that Mr Owen received commissions on sales of the Lifemark products in the amount of £2.5 million. In the FCA’s opinion, Mr Owen’s commissions were not properly disclosed, nor was Mr Ford’s conflict arising from the payment of these fees and commissions adequately managed.
In the view of the FCA, with regard to the SLS-backed products, Mr Ford deliberately concealed the problems with the portfolio underlying these products from investors, IFAs and the then FSA. It is the FCA’s view that Mr Owen recklessly relied on assurances from Mr Ford that he would resolve the problems with the portfolio’s performance and solvency and agreed to Keydata funding the income payments to investors (which should have been funded by payments from SLS to Keydata) from Keydata’s own resources although he was aware this would conceal the portfolio’s solvency problems.
The FCA further considers that the individuals deliberately misled the FCA by making false representations to the FCA in compelled interviews about the performance of the investment products, having failed to disclose to the FCA problems with the SLS portfolio which impacted on the SLS products’ performance. Further, the FCA considers that Mr Johnson failed to ensure the FCA was aware of problems with the products and their financial promotions, identified by Keydata’s professional advisers and that Mr Ford and Mr Owen failed to disclose to the FCA the significant personal benefits and commissions they received from the sale of the Lifemark products, when they were aware of the FCA’s concerns around their involvement in Lifemark and the commissions they received.
Mr Ford, Mr Johnson and Mr Owen applied unsuccessfully to the Tribunal for an order preventing the FCA from publishing their Decision Notices.
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