The FCA Issues £76m in Fines and a Ban from Regulated Financial Services

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On 16 January, the FCA published its Final Notice in respect of Stewart Owen Ford (Ford)
and Mark John Owen (Owen), respectively the former CEO and Sales Director at Keydata
Investment Services Ltd (Keydata).The FCA has fined Mr Owen £3.24 million and Mr Ford
£76 million for their respective failings, and both of them have been prohibited from
performing any function relating to any regulated activity.

The Final Notice follows the Upper Tribunal’s decision in November 2018, to uphold the FCA
decision notices issued in November 2014 to Owen and Ford (and to Peter Johnson,
Compliance Officer, and Craig McNeil, Finance Director).

The FCA found that starting in 2005 Keydata designed and sold investment products to retail
investors via Independent Financial Advisers (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 US life settlement policies. The products were sold as eligible for ISA (Individual Savings
Account) treatment, although they were not. Ford replicated the SLS structure using a
company, Lifemark, of which he was the beneficial owner, earning himself £73.3 million in
fees out of the £373m invested in Keydata’s ‘Lifemark’ funds. Ford personally paid Owen
undisclosed “commissions” of more that £2.5 million, based on the volume of sales of the
Lifemark products. Despite being made aware of various concerns about the SLS and
Lifemark products, Ford and Owen failed to disclose these to investors, IFAs or the
regulator. Keydata collapsed in 2009 hundreds of millions in claims were subsequently paid
out by the Financial Services Compensation Scheme.

In the FCA’s opinion Ford and Owen failed to act with integrity in carrying out controlled
functions, and misled the then Financial Services Authority, the FCA predecessor, IFAs and
investors on a number of occasions, including compelled interviews, in relation to the
performance of the investment products. They continued selling the Lifemark-backed
products to retail investors, although they 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. They received feed and commissions from the sale of Lifemark products, without
properly disclosing these commissions nor adequately managing the conflict arising from
them. The FCA established that Ford personally benefitted by over £72.4 million, and also
considered that additional earnings from Keydata over the relevant period account to over £
1.3 million.

Ford and Owen referred their Decision Notices to the Upper Tribunal (the Tribunal) which
could have upheld, varied, or cancelled the FCA’s decisions. The Tribunal unanimously
concluded that the actions taken by the FCA were fully justified. However, the Tribunal
concluded that Ford’s misconduct was materially more serious than that of Owen and
reduced the fine for Owen from £4 million to £3.24 million.

What is noteworthy in this case is that the fine imposed on Ford is the largest fine imposed
against an individual. This reflects the FCA’s view on the seriousness of the individual
breaches and behaviours, which include deliberately misleading the regulator by making
false representations, and causing consumer detriment. “Recklessly” and “deliberately” are
terms often used in Decision Notice to describe Ford’s behaviour.
What lesson can we learn from this case?

The FCA has sent a clear message that there is no place for misconduct in the financial
services industry. Misleading investors, misleading the regulator, not fulfilling
responsibilities, especially when carrying out controlled functions is not accepted or
condoned. The effective disgorgement of Ford’s income from this activity should give
anyone pause from behaving in a similar fashion.

With only few months to go before the Senior Managers and Certification Regime (SM&CR)
comes into effect for solo regulated firms, it is critical for firms in scope of the new regime
to understand and ensure that misconduct should find no place in their organisation. Acting
with integrity, being open with the regulator, and ensuring the conduct of business brings
no detriment to consumers are key for everyone in the industry.

Should you wish to discuss this case further, or to understand how the SM&CR
requirements apply to your firm, please do not hesitate to get in touch with us (on 02034
573 283 or by email at srb@objectivus.com), or visit our SM&CR dedicated webpage.