Upper Tribunal Decision: Keydata appeal

The Upper Tribunal has upheld a decision of the FCA to fine and ban Stewart Ford and Mark Owen, respectively the former CEO and sales director of Keydata Investment Services Ltd (Keydata, a structured product provider).

The FCA’s Decision Notices were issued on 07 November 2014 following a high-profile investigation by the Financial Conduct Authority (FCA). The FCA highlighted various failings in respect of the management of Keydata, as well as failings by individual managers to act with integrity and to deal with the regulator in an open and cooperative way. Mr Ford and Mr Owen, respectively the former CEO and sales director of Keydata, appealed the FCA’s original decision on the grounds that they denied the activities of Keydata constituted misconduct, and that their actions as managers did not demonstrate a lack of integrity or a failure to deal with the regulator appropriately.

The Background to the Keydata appeal

A chronology of the key events in the Keydata investigation can be found here. Keydata designed and distributed structured products (the Products) to retail customers, as well as offering third party administration services. In December 2007, Keydata was investigated by the FSA in relation to concerns regarding the Products. During the course of the investigation, the FSA became concerned about the behaviour of Mr Ford and Mr Owen (as well as the Compliance Office for Keydata, Peter Johnson) and commenced investigations into them personally.

In its Decision Notices of 07 November 2014, the FCA found that Mr Ford and Mr Owen failed to act with integrity in carrying out their controlled functions, and that they had deliberately misled the FSA during the course of its investigation. The FCA found that the individuals had permitted Keydata to sell the Products to retail investors when they were aware that there were significant inadequacies in the financial promotions for them, in the due diligence carried out on them, and in the portfolio underlying them. The FCA also found that Mr Ford had extracted fees of around £73m from the Keydata product structure despite a conflict of interest (which the FCA found was not adequately managed), and that Mr Owen had received undisclosed commissions of approximately £2.5m.

The Appeal

Mr Ford and Mr Owen appealed the Decision Notices of the FCA to the Upper Tribunal (the Tribunal), which upheld the original decisions. The Tribunal found that both individuals had acted without integrity and had failed to deal with the FSA in an open and co-operative way, and directed the FCA to fine Mr Ford £76m and Mr Owen £3,240,787. Both men have been banned from performing any regulated role in regulated financial services.

In particular, the Upper Tribunal found that the substantial fees extracted by Mr Ford “could not be justified commercially” and that he “had…a misplaced conviction that it was a matter for him to resolve any problems that arose and that those issues were not something that should be disclosed to those with a material interest…It was inconsistent with the conduct expected of a regulated person.” Whilst the Upper Tribunal did not consider that Mr Owen’s level of wrongdoing reached the “egregious”, “extensive regulatory misconduct” of Mr Ford, it found that he had also materially misled the FCA, and had failed to act on professional advice in key instances.

Commenting on the decision, Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said that Mr Ford had “deliberately [set] aside his regulatory responsibilities driven by the desire to maximise and preserve financial gain for himself. Those who commit such misconduct have no place in the financial services industry.”

Conclusion

This decision brings the Keydata saga to an end and emphasises the importance of co-operation with the regulators, as well as the need to ensure that misleading information given not only to regulators but also to investors, is remedied in a timely and appropriate manner. The comments of the Upper Tribunal in respect of Mr Owen also highlight the need to ensure that professional advice concerning potential regulatory issues should be acted on appropriately.