On 25 July 2019, the Upper Tribunal (Tax and Chancery Chamber) published a decision in respect of Sussex Independent Financial Advisers Limited (Sussex).
Sussex sought to challenge a Supervisory Notice issued by the FCA which removed all of the firm’s permitted regulatory activities with effect from 8 July 2019. It also imposed requirements restricting Sussex’s use of its assets (which were not the subject of the reference). The Supervisory Notice was issued as a result of the FCA’s concerns over Sussex’s non-payment and handling of four Financial Ombudsman Service (FOS) final awards to former clients of the firm (with a total value of £447,419.37).
The FCA considered that, taking into account the FOS awards, Sussex appeared insolvent and so failed to meet its regulatory requirement to hold appropriate resources. In addition, the FCA also considered that Sussex did not meet the threshold condition of suitability. This was because: (i) Sussex had written to the FOS complainants, encouraging them to settle for less than the full amount and stating that otherwise, the firm would be rendered insolvent; and (ii) Sussex had continued to pay significant dividends while not paying the FOS awards.
In response, Sussex maintained that it did have adequate resources, particularly when taking into account an unresolved complaint the firm had made to the FOS about its Professional Indemnity Insurer’s refusal to cover one of the FOS awards, and in view of its ongoing proposals to settle with the FOS complainants. Sussex also maintained that the dividends paid to its shareholder were part of the shareholder’s remuneration for his ongoing advice work for Sussex, and that there was nothing untoward about this.
Rule 5(5) of the Tribunal Procedure (Upper Tribunal) Rules 2008 (the Rules) gives the Upper Tribunal the power to direct that the effect of an FCA decision (in this case the Supervisory Notice) is to be suspended pending the determination of the reference if (among other requirements not relevant to this application) it is satisfied that to do so would not prejudice the interests of any persons (whether consumers, investors or otherwise) intended to be protected by that Notice. The burden is on the applicant (in this case Sussex) to satisfy the Tribunal that the interests of consumers will not be prejudiced. Even if the Tribunal is satisfied, it nonetheless retains a discretion over whether the suspension should be granted.
The Tribunal (before Judge Raghavan) declined Sussex’s application to suspend the Supervisory Notice, pending the outcome of the firm’s reference because it was unable to be satisfied that, if the suspension was granted, the interests of the persons intended to be protected would not be prejudiced.
Judge Raghavan found that it was readily apparent from the financial resources of Sussex, which showed a significant deficit, that it was in breach of the regulatory requirement to hold appropriate resources. As a result, he found that if the Notice was suspended, there was a significant risk of prejudice to the interests of existing and future consumers of Sussex, as well as its former consumers (for instance, to the extent further redress claims arose). Judge Raghavan noted Sussex’s claim that the FOS award recipients would be significantly worse off if no suspension was ordered because without the requisite regulatory permissions, Sussex could not continue its trade, and so the complainants would receive far less than they would receive under Sussex’s proposed settlements. Judge Raghavan considered that this argument invited the Tribunal to be drawn into the exercise of balancing the interests of different categories of consumers. He noted that to do so would not properly respect what is required by the condition stipulated in Rule 5(5).