UT/2023/37 - [2024] UKUT 00229 (TCC)

We agree with the submissions of Mr Fell and find that the inclusion of NGTNs by Promethean in the Register is in breach of s24 FSMA. We accept Mr McGruer’s evidence that there was a risk that consumers might be misled into believing that when they engaged with one of the websites listed as a NGTN, they would have the protections available to consumers dealing with authorised firms. We find that the use of NGTNs by Promethean was likely to give consumers the impression that the websites listed on the Register were those of an authorised firm and the risk that a consumer would make a decision that he would not otherwise have made. These risks are heightened by the fact that many of the consumers of the services provided by the IPs and Promethean are likely to be vulnerable by reason of heavy indebtedness, low income and/or limited financial understanding. We find that this gives rise to a breach of principles 6 and 7 of PRIN 2.1.1R and of GEN 4.5.6G.

We find that the inclusion of the NGTNs in the Register by Promethean gives rise to a risk that Promethean is in breach of the threshold condition in paragraph 2E(c), Schedule 6, FSMA having regard to Promethean’s need to ensure that its affairs are conducted in an appropriate manner having regard to the interests of consumers.

We find that Mr Maddison’s submission that the NGTNs are not legal entities does not engage with the Authority’s concern that the inclusion of the NGTNs may result in consumers being misled into believing that the registered websites belong to an authorised firm. We find that the trading name guidance was issued by the Authority to assist authorised firms to comply with their legal obligations. We agree with Mr Maddison that breach of the guidance does not of itself give rise to a breach of the requirements of FSMA or the Authority’s rules. But the breach of the guidance may have the consequence of such a breach arising – in this case a possible breach of s24 FSMA by the owners of the NGTN websites, and a breach by Promethean of principles 6 and 7 of PRIN 2.1.1R and of GEN 4.5.6G (and the risk of a breach of the threshold condition in paragraph 2E(c), Schedule 6, FSMA). We find that the fact that the NGTNs are not the names of legal entities is irrelevant. We also consider that Mr Maddison’s reference to the Authority’s guidance that the registration of trading names has no legal effect is misplaced. When taken in context, it is clear that the reference to “legal effect” in the trading name guidance is to the regulated status of the person using the trading name – in other words registering a trading name of a third party does not cloak the third party with any regulated status.

We find that the activities of the IPs using the NGTNs is not covered by any exemption from regulation. We find that art 72H RAO and art 55B FPO are limited in scope, and do not provide a blanket exemption for all activities and financial promotions of regulated insolvency practitioners. The broad exemption applying to insolvency practitioners under paragraph 52 of Schedule 1 to the Financial Services and Markets Act 2000 (Exemption) Order 2001 (SI 2001/1201) was revoked in 2014 by article 8 of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2014 (SI 2014/366). Art 72H RAO provides that specific activities listed in the article carried on by insolvency practitioners are excluded from regulation. Art 55B FPO provides that restrictions on certain financial promotions made by insolvency practitioners do not apply to activities which would be regulated but for art 72H RAO. However, none of the activities listed in art 72H RAO are engaged in relation to the matters before us. It follows that, as none of the activities listed in art 72H RAO are engaged, the exemption in art 55B FPO (which is limited to the art 72H activities) cannot be engaged. We find that the “exemptions” in art 72H RAO and art 55B FPO do not apply to any of the activities of the IPs that are relevant to this reference. As none of the IPs are authorised representatives of Promethean, we find that they cannot benefit from Promethean’s authorised status in relation to these financial promotions either.

We find that the fact that the Register entry includes a warning that not all of Promethean’s activities are regulated is irrelevant. The inclusion of the NGTNs on the Register carries with it the implication that these websites form part of Promethean’s regulated business. We note that Promethean itself had websites that it did not include on the Register as these related to its unregulated activities (Footnote: ⁵). So, Promethean must have understood that the inclusion of the NGTN on the Register carried the implication that these trading names related to its regulated business. Indeed, the whole purpose of including the NGTNs on the Register was in order to satisfy Google that these website domains related to FCA authorised businesses.

We find that the fact that some of the NGTN websites included references and links to MoneyHelper’s website does not exonerate Promethean. This is because there were examples included in the evidence of other NGTN websites where there was no such reference, or the relevant link was to the “Money Advice Service” which was outdated. In the case of one of the websites to which Mr Maddison referred in his submissions, the evidence of Mr McGruer was that the reference to MoneyHelper was insufficiently prominent, as it was included in a footer in small print. Whilst Mr Maddison challenges Mr McGruer’s evidence about prominence, we prefer Mr McGruer’s evidence and find that the references were insufficiently prominent to meet the requirements of CONC 8.2.4R. In any event, the existence of links to MoneyHelper in some of the NGTN websites is not an answer to the Authority’s concern that consumers were at risk of being misled about the regulatory status of the NGTNs, nor to its other concerns about the NGTNs as set out by Mr McGruer in his evidence (Footnote: ⁶).

We agree with Mr Fell, for the reasons given by him, that A1P1 is not engaged, and that the actions of the Authority do not give rise to any breach of Promethean’s rights under the European Convention (including Protocol 1). If Promethean sold its business (including its goodwill), the purchaser would not acquire Promethean’s authorisations under FSMA, but would need to apply afresh to the Authority for authorisation. It follows from Bloomsbury, and we find, that any loss of future earnings which somehow relate to Promethean’s authorised status do not deprive Promethean of its possessions under A1P1.

But even if the rights of Promethean under the Convention are engaged, we find that the actions of the Authority are reasonable and proportionate. The NGTNs included on the Register were not trading names used by Promethean itself and in that sense were not “genuine” (and that anyone reading the consumer warning would understand that is what the Authority meant). We accept Mr McGruer’s evidence that there was a risk that consumers might be misled into believing that when they engaged with one of the websites listed as a NGTN, they would have the protections available to consumers dealing with authorised firms. The fact that no complaints had been made to Promethean, to the IPs or to the Authority (otherwise than via the ASA) is irrelevant. Also irrelevant is the absence of any evidence of actual consumer detriment. We find that it is legitimate for the Authority to take actions intended to ensure that circumstances that might lead to breaches (and complaints) would not arise. We find that there was no breach of any duty owed to Promethean by the publication of the consumer warning, and that its publication did not prejudice Promethean’s case before us. We note that the Authority was under a duty to publish the requirements imposed on Promethean pursuant to s391(5) FSMA, and we find that it must follow that reference to Requirement 1 in the consumer warning cannot give rise to a breach of any duties the Authority might owe to Promethean and must be fair.

We find that the actions of the Authority are consistent with its consumer protection objective under s1C(1) FSMA.

We find that the process followed in respect of the Second Supervisory Notice complies with Promethean’s Article 6 rights. Promethean has the right to refer the Authority’s actions to this independent Tribunal – and by doing so, Promethean has taken advantage of its Article 6 rights.

We also find that Mr Maddison’s submissions about “opinions” are misplaced. We agree with Mr Fell that the operation of the scheme of regulation under FSMA involves the Authority having opinions – and this is apparent from the language used in s55L and s133 FSMA. The issue we need to address in respect of this reference is whether the opinions held by the Authority are “reasonable” and whether the decision reached by the Authority was one that was reasonably open to it.

We find that that no consultation is required under s139A(5) FSMA in respect of the trading names guidance. These provisions only apply in respect of guidance given in relation to “rules”. We agree with Mr Fell that as the guidance in respect of trading names was not given in respect of a specific rule or rules (such as the guidance included in the Handbook using the suffix “G”), it follows that there is no obligation on the Authority to undertake a consultation in accordance with s139A(5).

We find that any change in the commercial relationship between Promethean and the IPs has no relevance to any of the issues before us.

However, we find that it was unfair for the Authority to take nearly four months to respond to Promethean’s message of 20 December 2022 – the response being the issue of the First Supervisory Notice on 11 April 2023. We also find that the Authority were mistaken in their belief that “org” domains carry an implication that the owner is a charity or not-for-profit entity. We also agree with Mr Fell that the breaches by Promethean’s authorised representatives in respect of their financial promotions were technical (although we agree they are not immaterial).

Overall, we find that the Authority’s powers under s55L FSMA were engaged, and the requirements imposed by the Second Supervisory Notice were within the range of reasonable regulatory/supervisory judgments that the Authority could make in response to the circumstances. We agree with Mr Fell that it is reasonable and proportionate for the Authority to require the NGTNs to be removed from the Register, for its written permission to be obtained before Promethean enrolled new trading names on the Register, and for the Authority to require Promethean to review its financial promotions and systems, and to report back to the Authority.

We have to consider if we remitted the reference to the Authority whether, in the light of our other findings, it would be inevitable that the Authority would make the same decision. We find that none of the errors are central to the Authority’s case, and it follows, and we find, that it would be inevitable that the Authority would reach the same decision if we were to remit the reference to it. We therefore decline to remit the reference in respect of any of the errors.

In exercising a supervisory jurisdiction, we are required to dismiss the reference unless we make findings which lead us to the conclusion that the decision reached by the Authority was not one that was reasonably open to it. As we have found that the decision reached by the Authority was within the range of reasonable regulatory/supervisory judgments that the Authority could make, we must dismiss the reference.