The FCA has prohibited Simon John Varley and imposed a financial penalty on him of £68,300. Whilst an unsurprising result given the facts, the case provides a reminder about how the cover up can often be far worse than the underlying issue; matters relating to competence can become far more serious questions of integrity. As discussed below, this is particularly timely given the now completed roll-out of the Senior Managers and Certification Regime (SMCR).
The facts are relatively involved, but can be summarised for present purposes as follows. Mr Varley had held various controlled functions at Dickinsons Financial Management Ltd since 2005. These included the director function, the compliance function and the customer function. Dickinsons' business involved providing financial advice to retail clients. On 31 December 2012, the FSA's Retail Distribution Review (RDR) took effect. The core purpose of RDR it will be remembered, was to bring about an enhanced minimum standard of training and competence for retail investment advisers. On 28 January 2013 Mr Varley submitted a Form C on behalf of Dickinsons to withdraw his customer function (CF30). He later told the FCA that he had done so because he had failed one of the necessary examinations to meet the requirements of RDR, that he had successfully re-taken the exam in the following weeks and then re-applied to have his CF30 status re-instated. Mr Varley also told the FCA that after waiting six months before placing business, he believed that his application had been acknowledged by the regulator, and so he commenced placing retail business for Dickinsons again. However, the FCA had no record of any re-application (Form A) from Mr Varley to perform the CF30 function and his business register showed that he had placed business from January 2013 onwards, without any hiatus.
On three occasions in 2013 and once in August 2017, only when challenged, Mr Varley provided information to the board of Dickinsons that the matter of his qualifications and FSA/FCA approval was in hand. It was not until September 2017 that one of the directors of Dickinsons called the FCA to enquire as to why Mr Varley's name still did not appear on the FCA register as a CF30. When challenged, Mr Varley also told Dickinsons that he had taken the required exam successfully and made an application. Mr Varley was subsequently suspended by Dickinsons who instructed an internal investigation into the matter. This concluded that Mr Varley did not have the relevant qualifications and that he had misled Dickinsons and its clients (Mr Varley signed off on suitability reports containing a declaration that he was FCA approved) regarding his FSA/FCA approved status. In December 2017 Dickinsons notified the FCA of these matters.
This all had a significant knock-on impact on Dickinsons. In May 2018 PI insurers avoided cover for that policy year, refused any claims in respect of Mr Varley for the same period and reserved its rights in respect of claims in preceding policy years. This meant that Dickinsons was in effect not insured for the advice that Mr Varley provided (though to date the FCA reports that only one complaint has actually been made, which was not upheld by the FOS). Mr Varley had been the individual at Dickinsons responsible for preparing the indemnity proposal forms, which also contained inaccurate and misleading information about his qualifications. In 2019 Dickinsons was placed into voluntary liquidation.
The FCA concluded that Mr Varley had knowingly performed the CF30 controlled function when he knew that he was neither qualified nor approved to do so. The FCA further concluded that Mr Varley had sought to mislead it, the board of Dickinsons, its insurers and its clients. The FCA determined that Mr Varley lacked fitness and propriety by virtue of failures of honesty and integrity. It imposed a full prohibition and a financial penalty of £68,300 based on an assessment that Mr Varley's wrongdoing was at level 4 of 5 in terms of its seriousness.
That the FCA determined that Mr Varley's conduct lacked honesty and integrity and that a full prohibition was warranted, is unsurprising. As Mark Steward (Head of FCA Enforcement) said in an associated press release, Mr Varley abused his position of trust and posed a risk to consumers and the UK financial system. So what lessons can be learned from such an extreme case?
First, this case is reminiscent of the decision of RDC (upheld by the Upper Tribunal, albeit for different reasons) in Arif Hussein (2018). In that case what was in essence a failure of competence became a matter of integrity because of Hussein's submissions as part of the subsequent enforcement process and proceedings before the RDC and Upper Tribunal. This speaks to a broader point of significance that we often come across in the context of misconduct at regulated firms. That is, that the approach taken by a regulated person to dealing with an act or omission, whether as part of an internal process or subsequent regulatory proceedings, can be as important if not more important than the underlying act/omission. It has the potential to turn even low-level matters, or matters relating to competence only, into significant failures of honesty and integrity. This is important, not least because only very serious competence failings will result in a prohibition.
Second, whilst perhaps Mr Varley's misconduct was able to go undetected for so long because he was in a position of trust as a director and the compliance officer, it is striking that for over four years, nobody at Dickinsons seems to have really taken issue with the fact that the FCA register did not show that Mr Varley was a CF30. As will be well known, under the relatively recently introduced SMCR, firms certify individuals as "fit and proper" (including following an assessment of training, qualifications and competence) rather than relying on the FCA to do so. This means that not only must firms be on top of training and competence requirements but, more so than before, they must also be sure that they are not open to being misled regarding exams and qualifications – they must ensure that appropriate diligence is performed and that there is prompt challenge where needed. Core and Enhanced firms will also have a Senior Manager with the prescribed responsibility of ensuring the firm complies with the requirements of the certification regime, therefore any similar failure on these facts today could (at least in principle) also result in Enforcement action against the firm and the relevant Senior Manager.