The Court of Appeal has handed down its decision in Personal Touch Financial Services Limited -v- Simplysure Limited and another.
Section 19 of the Financial Services and Markets Act 2000 (“The General Prohibition“) provides that “No person may carry on a regulated activity in the United Kingdom … unless he is (a) an [FCA] authorised person; or (b) … exempt …” from the obligation to be FCA-authorised because he’s an Appointed Representative (AR) of an authorised person instead.
Personal Touch Financial Services Limited (Personal) was an FCA authorised firm; and Simplysure Limited (Simplysure) was its AR. The AR agreement between them included (A) “Adviser” means “An individual that is authorized by [Personal] to give advice on behalf of the [AR]“; and (b) “It is a condition of the Agreement that the [AR] be aware of and abides by the rules of the regulator …”
Simplysure used staff who hadn’t been authorised by Personal, to meet potential insureds for an “initial fact find” conversation, before referring them “pre-research-quotation” to an adviser who had been authorised by Personal, for advice about private medical insurance (PMI).
Personal alleged (a) that the initial fact find conversation amounted to the carrying on of a regulated activity; and (b) that, because the fact find was carried out by staff who hadn’t been authorised by Personal, Simplysure had breached the General Prohibition and had therefore breached the terms of the AR agreement. The court at first instance and the Court of Appeal both agreed.
Completing the fact find with:
-
The potential insured’s “name, address and nationality, … date of birth, whether he or she was a smoker, occupation and employment status, and details of any children“; and
-
Existing policy details, including “who was covered and whether the cover was ‘Moratorium / Full Medical / Switch’” was (per Sir Stanley Burnton, in the Court of Appeal) in breach of The General Prohibition.
In particular, “The purpose of the completion of the first part of the fact-find was for the client to buy PMI, and arranging for an unauthorised person to visit or to interview the client was an arrangement within [1] Article 25(1) of the [Regulated Activities] Order [i.e. arranging (bringing about) deals in investments;] and [2] Article 25(2) [i.e. making arrangements with a view to transactions in investments] since it was an arrangement with a view to the client, who participates in the interview, buying PMI“.
Sir Stanley was “encouraged in this conclusion” by the fact that:
-
Simplysure was putting an unauthorised person in a position where he could give advice;
-
Completing the fact find required a degree of specialist knowledge; and
-
His findings were consistent with the FCA’s Guidance (PERG 5.6.2G and PERG 5.6.4G) about the meaning and effect of articles 25(1) and (2) of the Regulated Activities Order, which he “approve[d] as a correct explanation of the effect of” those articles … which is a little circular, but that doesn’t make it any less correct.
We anticipate that the Court of Appeal could (and probably would) have reached the same conclusions, even if the potential fact find had been restricted to gathering information about the potential insured (only), but not his existing policy details, so that no specialist knowledge was required, and there was no question of the Simplysure representative at the first meeting giving advice either way. After all, the “wording … of Article 25 is deliberately wide” (per Sir Stanley Burnton, with whom Gloster LJ and McFarlane LJ agreed), so the Simplysure arrangements could still easily have fallen within its scope.
Sir Stanley went on to find that if Simplysure “did act in breach of the general prohibition, it did not ‘abide by the rules of the regulator’. It follows that Simplysure acted in breach of … the [AR] Agreement” as well – a conclusion which seems to make perfect sense … although the General Prohibition is (for want of a better term) a Parliamentary rule, rather than “a rule of the regulator“, but that’s surely by the by, for now.
[View source.]
