________________________________________________________________________
IN THE GUERNSEY FINANCIAL SERVICES TRIBUNAL
20 February 2007
Before
Michael Blair QC, President
Mrs Carol Goodwin
Mr Stephen Jones
BETWEEN
Canivet
Webber Financial Services Limited
Applicant
-v-
The
Guernsey Financial Services Commission
Respondent
The Applicant Company
appeared by its director Mr Anthony Webber
Mr Jeremy Wessels appeared
for the Respondent
Heard at Duke of Richmond Hotel,
St Peter Port on 17 and 18 January 2007
DECISION
Introduction
1.
The
Applicant in this case is Canivet Webber Financial Services Limited (the
Company). It was incorporated in Guernsey in 1999, and it applied to the
Tribunal on 18 May 2006 for reconsideration of a provisional decision by the
Respondent (the Commission) to revoke the Company’s licence to carry on
business in the Bailiwick of Guernsey as an insurance intermediary. Mr Webber
is the sole shareholder and is now the only director of the Company.
2.
That
provisional decision was taken under section 9 of the Insurance Managers and
Insurance Intermediaries (Bailiwick of Guernsey) Law 2002 (the Law), which
enables the Commission, having gone through the procedure provided for by
section 41 of the Law, to “revoke a licence held by a . . . licensed insurance
intermediary if it appears to the Commission that (a) any of the criteria of
Schedule 4 are not or have not been fulfilled . . .”. The section 41 procedure
does not mention the existence of this Tribunal, which is still functioning on
a non-statutory basis, but the Commission has suspended the procedure for its
decision making under that section until it has received and considered this
Decision.
3.
We
were grateful to the parties for their presentation of the matters relevant to
our Decision at the two day hearing conducted in mid January.
4.
The
outcome of the case is that we believe the provisional decision to have been
correct at the time it was taken and that nothing has since changed to alter
that.
5.
We
deal with the facts of the case in due course, but first, we need to set the
scene, including an indication of what we consider to be the central issues
arising on the application, and a brief description of the relevant Law and
regulatory requirements.
The Central
Issues in the case
6.
The
single question which we have to decide is whether the decision of the
Commission to revoke the licence was justified not only at the time it was
taken (May 2006) but also in the current circumstances, so far as they have
been made known to the Tribunal. In other words, our decision has to be in the
form of advice to the Commission as to whether the Commission should confirm or
modify that provisional decision.
7.
By
the conclusion of the hearing it was apparent to us that the core of the
application concerns two separate but substantially overlapping issues, each of
which bears in different ways on that single question. The first issue is to
determine, to the best of our ability, what was the root cause of the Company’s
misfortunes and present predicament. This is an issue of fact. The second is to decide whether the Company
should be given yet another, no doubt final, opportunity to bring itself into
full compliance with the regulatory requirements. This is an issue involving an
exercise in discretion.
8.
The
two issues are linked in this sense. If the Company is responsible for its own
problems, then the case for a generous exercise of discretion may be relatively
weak. If, however, the cause of those problems has to be laid at the door of
the Commission, then the case for the Company being given another six months or
so to get its house into order may be relatively stronger.
9.
The
written case initially put forward by the Company contended, in its essentials,
that the condition and suspension had been improperly imposed, and that the
Commission had not behaved fairly during the procedure. Two particular aspects
of that were that the Commission, it was alleged, had not taken enough account
of the effect of demanding personal litigation involving the Company’s owner
and main director, and that it had been wrong not to accede to a request for a
further six month period free from restriction. It also alleged that the
Commission was wrong not to accept the suggested appointment of a particular
individual as a director of the Company. As the case proceeded, however, the
two issues (of fact and discretion) which we have described emerged as the ones
which were key to the decision we have to reach.
10. We need to say a word about
the burden of proof. It was made plain
to the parties that the burden of proving its case for the action it sought was
squarely on the Commission. The terms of section 9 of the Law are such that the
Commission cannot act to revoke a licence held by an insurance intermediary
unless it appears to the Commission that one of the statutory grounds for
revocation exists. We have therefore proceeded on the basis that the Commission
had to prove before us that the answers to the two issues are as they allege,
and that it was only if that burden was satisfied that the Company would have
to put forward material to answer them.
The Regulatory
Framework
11. We now need to consider the
law which is applicable to this case; the obligations with which the Company is
obliged to comply and the basis on which the Commission is entitled to revoke
the licence of a licensed insurance intermediary.
The Commission’s power to write
requirements and their legal status
12. The Law came into force on 5 November, 2002.
13. By section 18(1)(a) of the Law, the Commission was
empowered to issue Conduct of Business Rules. In addition, section 55(1) of the
Law enabled the Commission to issue codes of practice. On the day on which the
Law came into force, the Commission exercised the power in section 18 so as to
make the “Conduct of Business Rules for Licensed Insurance Intermediaries” (the
COB Rules) and the power in section 55 so as to make the “Code of Practice for
Insurance Intermediary Applicants and Licensees Conducting Business from within
the Bailiwick of Guernsey” (the Code of Practice).
14. Section 27(4) of the Law provides that: “A
licensee shall comply with this Law (and any Ordinance, regulation or rule
under it) and all applicable Conduct of Business Rules and codes issued from
time to time under this Law; and any failure by a licensee so to comply shall
(without prejudice to any other penalty or sanction in respect thereof) have
effect for the purposes of this Law as a contravention of a condition of that
licensee's licence.”
15. By section
7(6) of the Law, the contravention by a licensee of a condition of that
licensee’s licence is a ground for the suspension or revocation of the licence
so that, in effect, a failure by a licensee to comply with any requirement
contained in the Law, in the COB Rules or in the Code of Practice is a ground
for revocation or suspension.
16. The Commission also, from time to time, issues
Principles of Conduct of Finance Business (the Principles). These run across
the entirety of financial business and not merely the insurance sector. The
last such set of Principles was promulgated on the same day as the day chosen
for the COB Rules and the Code of Practice, 5 November 2002.
17. Schedule 4 to the Law sets out the minimum criteria
for licensing under the Law. Paragraph 1(2) of Schedule 4 states (under the
heading “Integrity and Skill”) that: “In conducting his business the applicant or licensee shall at all times
act in accordance with the Principles of Conduct of finance business issued by
the Commission, together with any Conduct of Business Rules and codes from time
to time issued under this Law and any guidance notes or international standards
relating to insurance and regulation, issued by a body recognised by the
Commission and identified in a code issued under this Law, as may be applicable
to him.”
18. Section 9(1)(a) of the Law gives the Commission power
to revoke a licensed insurance intermediary’s licence if it appears to the
Commission that: “any of
the criteria of Schedule 4 are not or have not been fulfilled - (i) in relation to the licensee; or (ii) in
relation to any person who is or is to be a director, controller, partner,
manager, authorised insurance representative or employee of the licensee”.
19. Failure on the part of a licensee to comply with the
Principles, the COB Rules or the Code of Practice is therefore a ground for
revoking a licensee’s licence by two separate legal routes. The machinery of a
deemed breach of condition (in sections 27(4) and 7(6)) is one route, while the
more direct power in section 9, coupled with Schedule 4, is another. We were
unable to see any relevant legal difference between these two routes, though we
note that the Commission’s proposed revocation is in fact based on the direct
route of section 9.
“Four Eyes” and the requirement for a
non-executive director
20. The requirement that a business be managed by “four
eyes” and the requirement for a non-executive director are in fact separate and
distinct requirements. That said, they have certain facets in common, so we
deal with them together here. The relationship between them is dealt with in
some detail below.
21. Paragraph 4(1) of Schedule 4 to the Law provides that
the business of a licensee must be effectively directed by at least two
individuals of appropriate standing and experience. However, paragraph 4(2) of
Schedule 4 provides that paragraph 4(1) does not apply in the case of a sole
trader who, immediately before the date of commencement of the Law, was a
registered insurance intermediary under and within the meaning of the Insurance
Business (Guernsey) Law, 1986 and who has not, since that date, ceased to be
licensed as an insurance intermediary under the Law.
22. The effect of this is that a licensee must be managed
by “four eyes”; but there is a transitional exemption, at the level of the Law,
from this obligation for “sole traders” who were registered insurance
intermediaries in November 2002. The Law contains no express definition of a
“sole trader”, but it seems to us that the Law was thinking of individuals
running a business without partners and without any incorporated body. That
said, it appears that the Commission treated the Company as if it were a sole
trader, on the basis that Mr. Webber was, at all material times, the sole
beneficial owner of the shares of the Company. In doing so, they were actually
being helpful to the Company.
23. However, the Commission have put in place some
requirements, applying to all licensed insurance intermediaries, in this
context. The Code of Practice, which applies to all licensed insurance
intermediaries, provides (in Clause 3, under the heading “Organisation of
Business and Human Resources) that: “The
Commission applies the “four-eyes” criterion and thus requires at least two
individuals to direct the business of an approved body.”
Business to be conducted prudently
29. Paragraph 6 of Schedule 4 to the Law provides that the
business of a licensee must be conducted in a “prudent manner” and goes on to provide that such a business will not
be regarded as being conducted in a prudent manner unless it “maintains,
or as the case may be, will maintain adequate accounting and other records of
his business and adequate systems of control of his business and records”. Such records
and such systems are not regarded as adequate unless they are “such as to enable the business
of the applicant or licensee to be prudently managed and the applicant or
licensee to comply with the duties imposed upon him by or under this Law”.
30. Principle 9 of the Principles provides that: “A
financial institution should organise and control its internal affairs in a
responsible manner, keeping proper records, and where the financial institution
employs staff or is responsible for the conduct of finance business of others,
should have adequate arrangements to ensure that they are suitable, adequately
trained and properly supervised and it has well defined compliance procedures.”
Staffing
31. In relation to paragraph 6 of Schedule 4 to the Law,
the Code of Practice provides, in Clause 3, under the heading “Organisation of
Business and Human Resources”, that: “The Commission also needs to be
satisfied that an applicant has sufficient staff resources to enable it to
carry on its business efficiently and effectively. It would not be acceptable to use a third party to manage the
business within the Bailiwick.” and in Clause 4, under the heading “Physical presence within the
Bailiwick”, that: “The Commission will expect to be able to
contact the licensee at all times and will insist that a head office is
maintained within the Bailiwick which is permanently staffed by Guernsey
residents. All client files and records must be held locally and available for
inspection by the Commission.”
Records
32. In addition to Principle 9, which is referred to
above, Rule 7 of the COB Rules provides that licensed insurance intermediaries
must ensure that detailed records and information received from and provided to
a client are maintained.
General
33. We observe that there was
little if any argument about the application or meaning of these requirements,
though the parties were not agreed as to their importance or seriousness in the
context of an ongoing business. However, we deal below with one area of
possible confusion, that is on the interrelationship between the requirement
for a company to have a non-executive director, and the requirement for any
applicant or licensee to comply with the “four-eyes” rule.
Outline of the
Facts
34. We now turn to the salient
facts relevant to this case, which appear to us to be as follows. The main
evidence, apart from that of the three witnesses who gave us oral testimony,
was a substantial correspondence bundle, amounting in all to some 350 pages. We
do not need to go through the course of events described in that bundle in full
detail, although we have all of course read the bundle and relied on it as well
as on the oral presentations at the hearing.
35. The Company was established
on 12 January 1999. It was granted an Insurance Intermediaries Licence on 28
January 1999. It was therefore licensed under the previous legislation on
insurance intermediaries, including the Insurance Business (Guernsey) Law 1986
and the Insurance Business (Amendment) (Guernsey and Alderney) Law, 1998.
Phase 1: from
first on-site visit to use of compulsory powers.
36. In February 2002, the
Commission conducted a first on-site visit into the Company following a letter
to the Company of 21 December 2001 informing the Company of a policy for such
on-site visits to all previously registered sole traders. The purpose of such
visits is to discover, to a greater extent than in the forms and returns which
a licensed business has to supply to the Commission, how the business is
conducting itself especially in relation to relevant regulatory standards
whether laid down by law or by the Commission’s own Codes and other
requirements. In this case the focus was primarily on procedures for running
the business, and arrangements for financial review and locum cover in the
event of absence.
37. The on-site visit threw up a
number of areas where attention was required in order to secure compliance. The
Company dealt with some of the matters identified by the end of February 2002.
Others were, however, still outstanding almost a year later in mid February
2003, despite three reminders from the Commission in August 2002 and January
2003(two). Mr Webber’s difficult personal circumstances (including litigation)
were first referred to at this stage as an impediment to his spending time on
bringing the Company into full compliance.
38. On 20 February 2003, the
Commission sent what can best be described as a final reminder. The letter
contained a proposal to impose a condition on the Company that it should cease
to write new business. This would have been done under the powers in section 7
of the Law, which had by now come into force. Although the letter did not actually
mention that section it gave the reasons for the proposed action and mentioned
the right to make representations given by section 41 of the Law. Mr Webber replied at length on 27 February
2003, within the 28 period allowed by the Law. We note that, in a later letter,
the Commission stated that they considered that the Company had not made any
representations, but we consider that the letter of 27 February was written
with that purpose in mind.
39. The Commission then
proposed, on 13 March 2003, a second on-site visit on 29 April, to assess the
effectiveness of the Company as a licensee, and to consider the action taken
since the outcome of the first on-site visit. It also asked for 10 items of
information to be made available, and an attempt to answer these was supplied
by the Company on 15 April 2003. Gaps identified by the Commission in the
responses to the 10 points were mentioned to the Company on 23 April. The visit
was then postponed, at the request of the Company, because of litigation difficulties
and other absences, to 13 May 2003.
40. On 12 May, however, Mr
Webber learned from the Judge considering one of his cases that a Court
appointment for 13 May had to have precedence over the on-site visit. He
therefore requested a further postponement by fax on that day. The Commission’s
response was to indicate that if the staff could not have entry to the premises
as agreed, a recommendation would be made to the Commissioners to impose the
condition that the Company could write no further business.
Phase 2: the
first period of use of compulsory powers.
41. Although Mr Webber had asked
to discuss the matter with the Commissioners to explain his situation in more
detail, the decision the Commission took was to impose the condition, with
effect from 16 May 2003. From that day, therefore, until 22 August 2003, the
Company could not write new business. The Commission also warned the Company on
16 May that revocation of the licence was proposed, on four grounds on which
representations were requested.
42. A third on-site visit also took place on 5 and 6 June 2003. The
Summary Recommendations of 19 June showed some limited progress towards
securing compliance, but also some new issues. A 12 week period was allowed for
the action to be completed (with interim reports every four weeks).
43. On 17 and 23 July the
Commission pressed for the first of the interim reports; Mr Webber’s view on
the latter date was that he had supplied it by means of a letter about his
difficulties and a requested meeting with the Commissioners, and by taking some
of the required action.
44. In the course of August Mr
Webber was able to supply his response to the Recommendations from the third
on-site visit, and the Commission felt sufficiently encouraged by that (and by
the arrival of a third party willing to make arrangements to assist with
supervision and management oversight of the Company’s business) to lift the
condition restraining the writing of new business with effect from 20 August
2003. This was done even though the Commission considered that action was still
required to bring the Company into full compliance with the relevant
requirements.
45. By 11 September 2003, Mr
Webber plainly thought that he had completed the action required, as he asked
the Commission to confirm that he had, but the Commission still considered that
some major points were outstanding, and the timetable was extended to 31
October 2003.When progress was reviewed at a meeting on 12 November 2003, it
was ascertained that the Company had processed no new business since May (even though
the restriction on new business had been operative for only about half of that
time); Mr Webber was taking a sabbatical because of the time needed for his
three court cases. Although we accept that, at that time, Mr Webber may very
well have thought that he was not all that far from reaching a state of full
compliance, it seems plain from the evidence that the Commission for their part
continued to consider that a substantial amount of action was still required
for full compliance. The Commission may also, we consider, have been
disappointed that there had been so much delay even at that relatively early
stage. We do not, however, need to make any findings about the state of affairs
at that point for this reason. The only way in which the state of compliance
could have been verified would have been by a further on-site visit. This is
what the Commission rightly determined to do, and what the Company rightly
agreed should be done.
Phase 3: The first use of compulsory powers
46. A fourth on-site visit was
then planned for 16 December 2003 to check on the completion or non-completion
of the required action. Mr Webber asked for it to be postponed because of his
Court appearances, and a revised date of 13 January 2004 was fixed. A further
request to postpone it once again to February 2004 was in substance refused. We
say this because, technically, an offer by the Commission to allow postponement
of the fourth on-site visit was made conditional on voluntary suspension or
surrender of the Company’s licence.
47. The Commission then convened
a meeting on 7 January 2004 to consider the position; and then and at a
subsequent meeting, chaired by the Director General in person, a strategy was
agreed upon. This was that the Company would apply for a voluntary suspension
of the licence. This, being unannounced, would be less damaging to the Company
than the Commission’s only alternative of compulsory and announced suspension.
Mr Webber asked for a further extension of time to rectify matters, but was
told that that was not acceptable; as a result of this he applied for the
suspension, though he was not happy about having to do so. The application was
made on 15 January 2004, and the suspension took effect on 20 January 2004. In
the course of his cross examination by Mr Wessels, Mr Webber told us that at
the time (January 2004) he did not realise the problems that the suspension
would cause. We accept that this was a true reflection of the state of affairs
at the time.
48. The correspondence shows
that the suspension could be lifted if certain required action points about
compliance were completed, but that Mr Webber’s sabbatical, on account of
litigation and other preoccupations, was still continuing.
49. From that date until the
present, the Company has not been able to transact or seek to transact any
insurance business. Servicing of existing clients was initially undertaken by
the third party firm mentioned above and thereafter by another firm.
Phase 4: from
the voluntary suspension to the proposed revocation
50. It is not necessary to go through
the correspondence and documents from January 2004 to April 2006 in detail.
Suffice it to say that it contains a number of recurrent themes, including, in
particular, the following:
a.
Mr
Webber’s litigation difficulties and their effect on his ability to give time
to the Company’s affairs both continued;
b.
Very
little, if any, business with or for clients was conducted, even though there
were arrangements during most of the period for the clients of the Company to
be serviced by one or other of the two third party firms;
c.
The
Commission was anxious to ensure that the position of the clients was secured
in one way or another and that the Company was able to reach a conclusion on
the outstanding compliance matters;
d.
The
Company received a considerable amount of attention from the Commission,
including numerous meetings and correspondence;
e.
The
Company put a good deal of effort into the replacement of the arrangement with
the first third party firm with an arrangement with another, and the second set
of arrangements was in place from December 2004 until April 2006;
f.
As
far as can be seen, little if any substantial progress was made on the
outstanding matters, some dating, it appears, from 2002;
g.
Mr
Webber’s approach to the matters under discussion was, in general terms: to
seek to obtain more time in order to put the Company’s house in order; to
emphasise the truly exceptional nature of the difficulties confronting him, and
to ask that the suspension should be lifted, since it was in his view a severe
impediment to the recovery of the business and to the achievement, in
consequence, of full compliance with the Commission’s requirements, and
h.
By
3 December 2004 at the latest it was apparent that notice of the suspension of
the licence was on the Commission’s website, though the fact itself did not
excite any press attention until August 2005.
51. It was also apparent to us
from the material prepared for the hearing that the Company’s financial
position slipped from a position of near balance between income and expenditure
in the calendar year 2002 to a seriously negative position as at the last date
of audited accounts (31 December 2004) and the last set of management accounts
(to 30 September 2005). In that
context, we were informed by Mr Webber that some part of the negative figures
in the accounts was due to commission clawback on business written earlier
which had “gone off” (viz been discontinued), and that he had taken steps and
could continue to take steps to ensure that the Company was able to satisfy the
solvency requirements of the Commission. Writing off of loans to the Company
and injection of family money were given as examples of steps taken or to be
taken. As against that, however, it emerged at the hearing that the Company has
at least one substantial debt on its books, and that no proposals to pay that
debt off are envisaged until it is clear whether the Company is to be permitted
to commence trading again as an insurance intermediary.
52. The Commission returned, on
26 November 2004, to the possible use of its statutory power in section 9 of
the Law to revoke the Company’s licence. The letter of that date recounted part
of the history, and gave as reasons
a.
Inability
to address the outstanding issues;
b.
That
clients were not being serviced (the arrangements with the first firm having
lapsed), and
c.
The
suspension itself.
As a result, it was said, there was a breach of
section 9(1)(d) and Schedule 4 (see further below), and the interests of the
public, policyholders, potential policy holders and clients were jeopardised.
53. That notice must be regarded
as overtaken by events and, in any event, was replaced by a further notice of
intent to revoke dated 31 March 2006. This third notice of intent was the basis
for the subsequent formal proceedings of the Commission leading to the
provisional decision which is the subject of these proceedings.
54. In that letter, the
Commission restated part of the history and included a series of paragraphs
headed as follows:
1. Director
2. Four-eyes and locum arrangements
3. Internal procedures and compliance
4. Office
5. Records
Additional points raised by the Assessment
Committee.
The additional points included long absences from
Guernsey, repeated requests for additional time when approaching deadlines, and
the absence of evidence to show that remedial action had been taken even when
the condition preventing new business was lifted between 20 August 2003 and
early 2004.
All this added up to a provisional conclusion of
breach of the minimum criteria for licensing.
55. We need say little more
about the Commission’s formal procedures in April 2006, beyond the following:
a.
Although
the second firm supplying assistance to the Company had evidently not been paid
for some time, it was none the less willing as at 5 April 2006 to negotiate a
new contract for the post licence-reinstatement period should it occur;
b.
At
the meeting with Commissioners held on 7 April, Mr Webber asked for a period of
six months or even less with no restriction on business so as to bring the
company into compliance, and take on another adviser or perhaps to team up with
another company.
c.
On
25 April, the Company put this request into writing for a possibly longer
period of “at least six months”.
d.
On
28 April the third party firm decided to terminate the arrangements at the end
of April if the Company did not pay its debts, and wrote to the Commission on 4
May to inform them of the termination.
e.
On
15 May 2006 the Commission’s decision letter was issued, setting out the
reasons why the Commission had (provisionally) decided to revoke the licence.
The reasons were substantially similar to those in earlier letters. The letter
did not explicitly refer to the request for a further period of six months or
thereabouts, but indicated, as had indeed been mentioned in earlier exchanges,
the Commission’s view that the licence (which had been suspended on 20 January
2004) could not remain suspended indefinitely.
Phase 5: the
tribunal proceedings
56. The Company duly exercised,
on 18 May 2006, its right to refer the matter to the Tribunal. It was asked to
send the notice to commence the proceedings by 12 June. That date was extended
on 21 June to 7 July, and then to 31 July. Litigation problems were still
besetting Mr Webber, but on 9 August he was able to write a letter setting out
in an informal way what the substance of his case would be.
57. Thereafter, on 23 August,
the Tribunal itself took the exceptional step of preparing a draft application
for the Company, and the position was eventually reached by 12 September that
that draft was treated as the application itself, supplemented by a letter from
the Company of 7 September.
58. The Commission’s case and
bundle of correspondence was duly received on 16 October. No reply to the
Commission’s case was received from the Company, and no documentation was put
in by it.
59. The hearing, initially
projected for November or early December 2006, was postponed at the Company’s
request to January 2007.
60. In the two days before the
hearing there was a last minute exchange of correspondence and requests for
further documents. Most of the issues raised in that period were resolved,
except that Mr Webber informed us at the hearing that he was not content that
the Commission had been unable to produce copies of internal notes that may
have been made by the Commission following conversations or meetings, so far as
these did not already appear in the bundle. He also repeated a request, first
made to the Commission on or before 31 May 2006, for details of which
Commissioners were present and how each Commissioner voted. Although the
Commission staff at that time (31 May 2006) had anticipated that the minutes of
the Commission meeting would be made available to the Tribunal, this did not in
fact occur, though Mr Wessels was authorised to and was able to confirm to us
that the Commission decision appeared to have been unanimous.
61. We mention the history of
the preparation for the hearing on 17 and 18 January for two reasons:
a.
First
we were anxious to be sure that the comparatively long time taken to bring the
matter on for hearing (May to January) had not prejudiced the Company, and we
were assured by Mr Webber that it had not;
b.
Secondly,
although the Company indicated at the hearing that it had a right to expect
that the Commission disclosure would be more ample than it actually was, we
ourselves did not feel under any difficulty about deciding the case on the
strength of the material which the Commission did produce. We did not at the
hearing ourselves ask the Commission to obtain anything in addition to what
they were able to and did produce. We also do not consider that the Company was
at anything of a disadvantage in so far as there may have been documents within
the Commission’s files to which neither the Company nor we had access; the
Commission in our view produced before or at the hearing all that was required
for a full and fair reconsideration of the case. We observe that the Company
did not actually produce any material of its own for the hearing, and indeed we
were informed that one or two of its documents that were mentioned in evidence,
and which might have been material, were not immediately available, in one case
because the documents had been placed into store.
The Main Issue
of Fact
62. We therefore turn first to
the main issue of fact. This means considering the correspondence and the oral
evidence with a view to determining the cause of the Company’s trouble.
63. In cross-examination and in
his own evidence, Mr Webber sought to establish that the real cause of his
Company’s problem lay with the Commission; they had been unsympathetic to his
problems, had not fully realised how serious the impact of multiple litigation
could be, had not helped him sufficiently to know and understand what the
standards were with which he was expected to comply, had been changeable in
their approach, and, indeed, may have had a hidden agenda to take steps to
remove his Company and others like it from the Guernsey financial scene. Above
all, an unnecessary restriction on his ability to transact business has been
the major cause of his commercial troubles; without it, he would have been able
to continue to earn and to put in place the remedial measures to which the
Commission attached importance. So his entire problem was caused by the
Commissions precipitate, unsympathetic and unnecessary over-reaction to the
minor problems that they had uncovered and his inability to put them right.
64. We have considered these
allegations with care, and indeed were grateful to the Commission’s Counsel and
witness for exploring this area with us as frankly as they did. In our opinion,
there is nothing whatever in these allegations. The Commission set out fairly
and openly in their guidance and codes what was required (we will return below
to one aspect of this, but its existence does not shake our main finding on
this matter).
65. The Commission, in our view, were more than tolerant of the
shortcomings of the Company; they leant over backwards to be accommodating to
Mr Webber with his litigation difficulties. His expectation that, for instance,
the Commission would prepare a standard set of compliance documents for
companies like his to adapt to their own circumstances was, frankly, naive. Mr
Webber seemed to us to expect the regulator to do far more than was remotely
reasonable to help him to comply with the duties that had been laid upon him by
and under the Law. This expectation would have been unreasonable for any
insurance intermediary to have expected; it was even more unreasonable for Mr
Webber to have expected this of the Commission in relation to a Law passed by
the States of Guernsey while he himself was a Deputy, and, on his own account,
when he was one of those in the States who had keenly supported the passage of
the legislation.
66. We do not find that there was a hidden agenda; the Commission had
statutory duties to comply with in terms of protection of clients and possible
policy holders, and in terms of the reputation of the Bailiwick. If anything,
they were more exposed to the criticism that they had been unduly lenient with
the Company, in not taking action more decisively and firmly, than they were to
the suggestion, which we reject, that they were too harsh on the Company. There
are several instances in the narrative where the potential solution to the
Company’s problems was identified by the Commission rather than by the Company,
and it is our view that the number of postponements and the degree of
flexibility greatly exceeded what an average regulated firm, even one with
severe personal problems in its midst, might reasonably have expected.
67. We consider that any
regulator worth its salt would have concluded by 2003-4 at the latest that
regulatory action was required in order to secure that the firm came into full
compliance with the relevant regulatory regime. The suggestion of a voluntary
suspension in January 2004 was, in our view, the most flexible, considerate and
accommodating response that could have been made by the Commission to the
issues confronting them. We also accept the point admitted by Mr Webber that,
during part at least of the time when no income was being earned, he personally
was on “sabbatical” in order to cope with the litigation and therefore unable
to earn in any event. So the restrictions on the business of the Company from
May to August 2003 and from January 2004 onwards tell only a small part of the
story.
68. The evidence shows, in our
view extremely clearly, that the real cause of the Company’s problems lay with
Mr Webber himself. We cannot hazard a guess as to how many of those problems
would still have been present had he not been engaged in protracted litigation
on several fronts. It is not necessary for us to do so. Nor have we been able
to assess in any way the extent to which the litigation cases in question truly
needed the degree of concentrated attention apparently accorded to them by Mr
Webber. We did not find it necessary to go into this, as the relevant issue is
not whether Mr Webber needed to be so preoccupied, but whether he in fact was
so preoccupied. We accept his own evidence that he was very substantially
distracted by the litigation, for a period of some years, from the task of
giving his attention to the Company’s business. The fact, for example, that he
wrote no business for a period of several months in late 2003 when he was under
no regulatory restriction is a good example of this.
69. In our view all the
allegations made by Mr Webber, in the course of the proceedings, of improper
conduct or inadequate consideration on the part of the Commission, are
unsustainable. The true picture emerges of a Company which was led by one
person who was, at least from 2003 onwards, unable to manage the affairs of his
company. He was apparently distracted by other pressures. But the steps that he
took to enable him to cope with those pressures and still to behave in the
manner expected by the regulatory requirements were sadly inadequate.
70. The picture which emerges
unmistakeably from the evidence, both oral and written, is one of a person who
responded only to pressure from outside. There is a series of deadlines which
were missed or sought to be postponed. Action on the substance, even if it was
regarded by him as minor and inessential paperwork, was often achieved only by
the application by the Commission of regulatory pressure. The file as a whole
does not read as one about a regulated firm that is likely to be able to
achieve of its own initiative an acceptable standard of policyholder protection
and regulatory compliance. The oral evidence given by Mr Webber for the Company
was not able to dispel that impression. Nor did the very helpful and balanced
evidence given by the witness called by Mr Webber, Deputy Gollop, seek to show
that Mr Webber was fully able on his own to carry out the responsibilities now
required of a regulated firm. We return to that evidence below.
71. We therefore find as a fact
that the cause of the problems is squarely to be laid at the door of the
Company and its sole owner and director, Mr Webber. The Commission can not in
any way be faulted for the way in which they conducted themselves in relation
to him; the staff of the Commission were at all times careful, considerate and
flexible in their approach.
The Main Issue
on Discretion
72. The second main issue that
we need to determine is whether to advise the Commission, in the light of this,
to agree to the Company’s request to be given another six months to get its
house in order.
73. In favour of this course is
the fact that Mr Webber assured us in evidence that he considered his
litigation problems to be on the brink of resolution. He also was able to give
us (albeit only when questioned about it by the Tribunal) some indications to
suggest that he had in place the rudiments of a plan for the resumption by the
Company of its regulatory responsibilities. There was no evidence to show that
any written plan was in existence. It could also be added that the decision
letter from the Commission does not explicitly give any reasons for deciding
not to accede to this last minute request; the only (indirect) reason in the
letter appears to have been that the Commission was of the view that the
suspension could not go on indefinitely.
74. On the other hand, there is
much to put into the opposite scale. First, and most importantly, the Company
has, it seems to us, had ample opportunity to deal with the outstanding
matters. The Commission were, in our view, considerably more generous in their
willingness to allow further time for the task of reaching full compliance than
any regulated firm had any right to expect. We say this having made full
allowance for the difficulties which Mr Webber was experiencing over his various
sets of litigation. We would be surprised if there were, on the Commission’s
books, any other licensed firm which had had, over a four year period, not only
four on-site visits (though the fourth, we note, was turned into a
file-inspection off site when the fixing of the visit became difficult), but
three successive notices of intent to revoke the licence.
75. It is not denied that there
were breaches of various of the regulatory requirements. Even allowing for the
arguments that some of these were relatively small, that the Commission did not
have evidence of any actual harm to consumers, and that some of the
rectification required (such as obtaining professional indemnity cover) could
not be achieved while the Company was suspended, the fact remains that the
Company was not, and indeed never had been since 2002, in compliance with the
regulatory requirements imposed upon it by law.
76. After the very substantial
time that had been allowed to put things right (over 4 years on our
estimation), it seems not unreasonable that any fresh attempt to put the
Company back into an acceptable condition should be done on the basis of a new
application for a licence, rather than by seeking to obtain a spark from the
ashes of the old one. The Commission is entitled in our view to insist that the
resurrection of a vehicle capable of carrying on business to the required
standard should be done in a way that does not involve any risk to the public
or to the clients of the firm. The Commission could well be open to criticism if
it were to permit the resurrection of this firm to take place, even over a
limited period of a few months. When the Commission took its provisional
decision, it was aware, from the history, that there still were breaches of the
requirements, with consequential risk to the public or to consumers. Since then nothing has happened to diminish
that risk. In our view, even if it were to appear probable that the defects
would be rectified promptly, it would still be the better course that there
should be a fresh application. Since there is no evidence to convince us that
the defects would be rectified promptly and faultlessly, the case for allowing
the existing licence to remain in being is even weaker.
77. The entire history of the
matter shows a consistent pattern that, when the pressure is removed, nothing
is done to deal with the issues of concern to the Commission. The Company, we
conclude, did not and does not see the outstanding issues as having the
importance that the Commission rightly attaches to high standards of compliance
and business efficiency. The likelihood, therefore, that the six month period
asked for would be successful seems to us to be low.
78. It is not an unfair
conclusion to reach from the evidence as a whole that Mr Webber is rather
better at excuses for inaction than he is at actually delivering the desired
result on the ground. His optimism nearly always turns out to be misplaced and
the file has an air of procrastination about it.
79. We offer two examples of
this. The requirement for an insurance intermediary to take and pass the
examination for the Guernsey Insurance Certificate was made mandatory in
January 2003 and everyone in that class had to have the Certificate before the
final deadline of 1 June 2006. Mr
Webber does not have the Certificate. He told us that he had missed the most
recent opportunity to sit the examination and that he hoped to take the
examination in the next eight to ten weeks. Had he been serious about the plan
to reinvigorate the Company, he would in our view have made sure that he had
passed the examination well within the final deadline.
80. Secondly, we take as a kind of vignette the actual conduct by the
Company of the proceedings before ourselves. It was marked by delay, excuses,
undue reliance on others to do the Company’s work for it, no apparent advance
preparation, and a last minute flurry when the deadline was approaching. This
approach to the proceedings is markedly similar to the approach to the
resolution of the earlier regulatory issues.
81. We take into account that such
evidence as Mr Webber was able to adduce, on the question whether the pressures
on him are likely to ease, is not strong and is not in any way corroborated.
For example, the plans which were mentioned by Mr Webber for the resumption of
the ability to carry on business seemed to us somewhat sketchy and
insubstantial. They emerged only at the very last opportunity in the hearing
(Mr Webber’s final speech) and had the distinct air of having been recently
thought up in response to questions put to him in cross examination. Had there
been a real, workable, plan, we would have expected it to have been produced in
the proceedings well in advance of the hearing, or at the very latest at the
opening of the Company’s case. But, just as Mr Webber offered no such material
to the Commission in 2006, so he offered none to us until we pressed him upon
the point. We therefore have to conclude that there is no real substance behind
the submission that we should recommend a last opportunity for rectification.
82. If it be the case that the
litigation truly is over, and that Mr Webber will soon have the energy to
reconstruct an insurance intermediary business from the ashes of the present
one, then it should of course be open to him to make a fresh application for a
licence for a new company, or even conceivably for a further licence for the
Company itself. However three points need to be emphasised in this context.
83. First, the standards
to be required of any such fresh application will have to be the current
exacting ones that the Law and Commission rightly require in the public
interest. There can be no question of obtaining a licence for an undertaking
that is not fully compliant at the outset, even if it does not have customers
at that stage.
84. Secondly, we would not wish
to suggest that the Commission should be willing to consider any proposal for transfer
of the existing policies of any remaining clients of the Company to a new
undertaking; the goodwill, if any remains, would have to perish with the
Company, and new client contacts would have to be established.
85. Thirdly, we would suggest
that Mr Webber would need, in this context to recognise his own strengths and
weaknesses. We found helpful the evidence of Deputy Gollop when he indicated
that Mr Webber would have done well to have sought the assistance of others
with experience in the field. He told
us, in this context, “I saw the problems of the business. I didn’t see
them in every micro-cosmic detail but I thought the solution was for Mr Webber
to stay, obviously, in role as a full practitioner mortgage and insurance
broker but that he needed urgently to find one or two professionals in the
field to start the trio that would then be able to get up and running again. .
. . . I feel that Mr Webber has lots of
skills, skills of selling, of marketing, of talking, of getting the client to
open up but that the skills he lacked, and I couldn’t help him there, were more
to do with time management, organisational skills, filing, computer skills,
regulatory skills you could say. Therefore
a collective of people working together would have been the ideal solution in a
more complicated era.” That conclusion, albeit
relating to the time when Deputy Gollop was engaged in the venture with Mr
Webber, seems to us to have some relevance to any attempt to reapply for a
fresh licence.
Other Matters
86. Before concluding, we wish
to deal with two other sets of issues. One is to offer some comments on the
four eyes/non executive director requirements already discussed above; and the
second is to make plain that there are four matters that were not in any way at
issue in the case. We hope that these points or some of them may be of some
assistance to one or other of the parties in the future.
The four
eyes/non-executive director requirements
87. In the documents and in the hearing itself we found that there may
have been some lack of clarity as to the two overlapping requirements in
paragraphs 4 and 5 of Schedule 4 to the Law (four eyes (paragraph 4) and
non-executive director (paragraph 5)). At one stage the merits of describing
the two together as “six eyes”, or preferably “four eyes plus” were discussed.
We find it helpful to think of the first requirement (paragraph 4) as mandating
“effective, executive, direction”,
and the second (paragraph 5) as mandating, for companies, “independent, non-executive, oversight at board level”. Where the
applicant or licensed entity is incorporated, the effect is that it has to have
a non-executive director, and, in addition, either an executive director or
someone else with real executive powers (even if not actually on the Board).
88. We obtained the impression that Mr Webber may have been in some
(perhaps understandable) confusion as between the two requirements; for
instance at one point in the argument he mentioned that (but for the
suspension) he could easily have found two further directors to make a total of
three if that was what was required.
89. Secondly, we also suspect that the Commission’s own approach to
the way that they were looked at in this case may have changed during the
course of the hearing. Although an application had been made for a member of
the Company’s staff to be made a director, and this was plain to us at the
outset, later on it seemed to us that the Commission had been addressing that
application as if the staff member had been put forward for “four-eyes”
purposes. The test being suggested at that stage by the Commission appeared to
us to relate to executive direction and not to external independent oversight.
We observe, of course, that an employee or former employee is not in any event
eligible to be put forward as a non-executive director, since an “employee” is
an “associate” within the definition of those terms in Schedule 3 to the Law:
we did not enquire too closely into the question whether the staff member was
or was not an employee for this purpose.
90. A third point on the
“four-eyes” requirement is also of interest. As already stated, paragraph 4(2)
of Schedule 4 to the Law contained a specific transitional exemption for sole
trader insurance intermediaries in post in November 2002. It follows that the
requirements in the Code of Practice, together with the Commission’s
discretionary approach resulting from that, go beyond what was strictly
envisaged by the States when the Law was enacted. This is not a matter for
complaint; a transitional provision is in any event intended to have a short
term effect, and it is in principle desirable that there should be equality of
treatment after a while for those licensed before and those licensed after a certain
date. Further, if we are right in construing the undefined term “sole trader”
in the transitional provision, it was never in any event applicable to the
Company. Mr Webber to his credit made no claim to be entitled to the benefit of
it, and we would have found against him on the point had he attempted to do so.
91. Nonetheless, we found it of interest that the States evidently
foresaw that sole traders might well have difficulty with the four-eyes
requirement in the short to medium term. That foresight has turned out to be
justified by events, though we see nothing to complain of in relation to the
Commission’s pragmatic approach to accommodating the sole traders in existence
in November 2002. We also note that the Commission has made and announced a policy,
in Clause 3 of the Code of Practice, that “new sole traders will not be
licensed”, with the consequence that in future new licensed intermediaries will
either be partnerships or bodies corporate with at least two directors of one
kind or another. “Single director
companies” will therefore in due course be a thing of the past.
92. It may therefore be that the
Commission would wish to give consideration, when it next revises the relevant
documents, to offering some guidance, in the insurance sector and perhaps also
elsewhere, as to how the requirements for executive and non-executive control
and oversight relate to each other in the case of an incorporated entity.
What is not in
issue
93. The second set of matters to
be covered in this section are five items which were in any event not at issue
in this case. Neither of the parties sought to stress any of the five items
that follow. (In fairness, we need to say in the context of the first item that
Mr Webber made it plain that he considered that the Commission’s approach had
been too heavy handed and insufficiently flexible. We have already made our
views plain on that aspect.)
94. The five matters not in
issue are as follows:
a.
First, no point arises on the fairness of
the regulatory regime as required by the Law. This extends to the entirety
of the material described above, including the Law, the COB Rules, the
Principles and the Code of Practice;
b.
Secondly, the Commission did not seek to take
any point on the quality of the advice that had been given to customers
by the Company. The Commission sought to show that there was inadequate
evidence to demonstrate that the advice had been of the requisite quality, but
that is of course a very different point;
c.
Thirdly, the Commission did not raise any
issues about Mr Webber’s honesty or integrity. The battleground
throughout was on competence to carry on a regulated business to the requisite
standard;
d.
Fourthly,
although there was evidence of indebtedness by the Company, the Commission did
not seek to mount its case on any lack of financial resources, perhaps
in part because of assurances by Mr Webber that he had, and would if necessary
continue to, put private or family money into the Company to keep it off the
rocks. Had we ourselves been in any doubt about the main conclusions we have
reached, we might have been inclined to invite the parties to go into this area
in more detail. Financial soundness and propriety are of paramount importance
for any licensed body. As it is, however, we are content to leave that area
unexplored, since the consequence of our conclusions is likely to involve a
liquidation or reconstruction of the Company in any event:
e.
Lastly,
Mr Webber’s qualities as a salesman and marketing person are not in
issue either. The Commission did not seek to challenge the prima facie evidence
led on behalf of the Company to the effect that Mr Webber had had a successful
period as a representative of Allied Dunbar for some years before he founded
the Company and started to run it.
Procedural
matters
95. Finally, we must mention two
procedural matters.
96. The first is one to which we
have already referred. The Company asked the Tribunal, rather at the last
minute before the hearing and again during the hearing itself, to encourage the
Commission to produce more documents for the hearing. We say “encourage” since
the Tribunal is not set up by any Law and has no powers as such to order
anything to be done. In particular the Company asked for sight of the
Commission’s own notes of telephone calls with Mr Webber, notes of the staff’s
deliberations, and a full note (or possibly a transcript) of the Commissioners’
meeting at which the revocation was provisionally decided upon. We record here
that we consider that the Commission has produced before or at the hearing all
that was required for a full and fair reconsideration of the case. We accepted
the Commission’s submission that the specific material sought was in any event
irrelevant. The decision letter on the proposed revocation was full and
reasoned, and as to the internal notes what matters was what the Commission
did, and not its own thought processes on the way.
97. Secondly, we also record
that Mr Webber himself suggested that there should be a means of providing
legal assistance for cases like this where the Company and its owner/director
are not able to afford legal representation. This raises issues potentially of
relevance to the eventual legislation that will be required to place the
Tribunal or its successor on a statutory footing. That is not a matter for us.
However we observe that there is some machinery of that kind in the United
Kingdom for cases before the Financial Services and Markets Tribunal, albeit
limited to cases involving allegations of market abuse. This case could in our
view have been dealt with in one day had the applicant been represented, but in
fact required a hearing lasting over two long days.
Recommendation
98. We unanimously consider that
the Commission’s provisional view was right at the time, and that nothing has
happened in the interim to render that decision unsafe or unsatisfactory. The
licence of the Company should be revoked. There should be no restriction on Mr
Webber setting up another vehicle in due course if he is able to re-establish
himself in the industry in the meantime. But it is not in the interests of the
Bailiwick that more time should be allowed for a further attempt to resuscitate
this vehicle. The risks to the public and to the Commission’s duties that would
be involved in that course are too great, and the chances of its being
successful are too slight. The Commission has already spent a disproportionate
amount of time and money in seeking to help Mr Webber to little apparent
effect, and it would be unrealistic to expect any more time and expense to be
incurred in a further attempt.
20
February 2007
Signed