The courts considered the arguments from the JFSC concerning integrity of an investment adviser (SWM) when they dealt with two complaints.
- In complaint No 1 SWM refused to re-open a compliant after being directed to do so by a 3rd party – the court stated
- it is not unreasonable on the part of the Commission to have concluded that the refusal to re-open the complaint just crosses the line into a lack of integrity.
- in complaint No 2, it was argued and conceded that SWM pressurised a client to withdraw a compliant – the court stated
- a failure to realise the effect of the words which he was using can properly be regarded as suggesting there has been a malfunction of his ethical compass (and that of the Compliance Officer) and can reasonably be taken as amounting to a lack of integrity.
- It follows that we do not find the Board’s decision in this respect to have been unreasonable.
As can be seen in both instances the courts agreed SWMs actions amounted to a lack of integrity.
- Jersey financial service businesses should be very careful when dealing with complaints and ensure that at all times they act (and can be seen to act) objectively and impartially
On the 4th June the Jersey Royal Court considered an appeal by SWM Limited (“SWM”) against a decision of the Respondent (“the Commission”) dated 7th August 2018 to revoke SWM’s registration as an investment business and to issue a public notice to that effect (“the Decision”).
The appeal was heard over 3 days and we were provided with voluminous material comprising some 16 files.
Those involved in the appeal were
- Sir Michael Birt, Commissioner,
- Jurats Crill and Ronge
- SWM Limited – Appellant
- Advocate O. A. Blakeley for the Appellant.
- Jersey Financial Services Commission – Respondent
- Advocate D. J. Benest for the Respondent.
One particular part of the case dealt with compliant handling and whether a regulated firm acts with integrity.
- “SWM demonstrated a lack of integrity in the context of client complaints handling by refusing to re-open a client complaint when advised to do so by Grant Thornton, when Grant Thornton had concerns regarding the robustness of SWM’s investigation of the complaint
- This was also demonstrated by SWM when it applied, what was reasonably interpreted by a client as undue pressure to dissuade the client from bringing a complaint against SWM
The key aspects of this case are shown below – a full transcript can be read here https://www.jerseylaw.je/judgments/unreported/Pages/JRC100.aspx
The Perchard complaint
- The first matter relates to the Perchard complaint which we have already outlined when setting out the factual background.
- The GT report concluded that SWM had failed to produce any contemporaneous evidence to show that it had properly investigated Mr Perchard’s complaint about the advice to invest in Matrix.
- In particular he complained that the ‘high risk element of investing in this fund was not disclosed clearly and was misrepresented.’
- The GT report recommended that Mr Perchard’s complaint should be re-opened due to concerns regarding the robustness of SWM’s investigation and the lack of available evidence as to the steps taken to investigate the complaint.
- SWM has refused to do so on the basis that it did not consider it to be necessary and would not benefit anyone.
- An additional reason given by SWM for not re-opening the investigation is that the Commission has refused disclosure of its file in relation to the Perchard complaint.
- Advocate Blakeley submitted that the refusal to disclose its file in relation to the Perchard complaint was unfair and unacceptable behaviour by the Commission which explained SWM’s refusal to re-open investigation of the complaint.
- There might well be material in the Commission’s files which showed it was happy with the way the Perchard complaint was investigated at the time or other material which would be relevant to the decision as to whether to re-open the investigation of the complaint.
The Courts view
- Despite our best efforts, we are unable to follow this point.
- The recommendation in the GT report was very straightforward. Because of the lack of appropriate evidence as to how SWM had dealt with the complaint, it recommended that the investigation of the complaint be re-opened. It was a very simple request and we cannot see any reason why it should not have been complied with and why SWM needs to see the files of the Commission which relate to the complaint. All the information to determine whether the complaint is well-founded will be available in SWM’s files, as it was SWM which dealt with Mr Perchard at the time of the investment. SWM does not need anything else to decide whether the complaint is justified and whether it was properly dealt with on the first occasion.
- We should add that, as a precaution, the Commission has subsequently asked its lawyers to look at its file in order to see whether there is anything there which might undermine the Commission’s case in this respect and has been advised that there is nothing.
- The question therefore is whether it is appropriate to categorise SWM’s refusal to re-open the complaint as showing a lack of integrity.
In the Court’s opinion,
- such conduct might more naturally be categorised as ‘obstinate’ or ‘unjustified’ conduct rather than conduct which shows a lack of integrity.
- However the test is not what the Court considers to be the position but rather whether the Board’s decision is unreasonable. Does the refusal in this particular case suggest a malfunctioning ethical compass?
- On balance the Court has concluded it is not unreasonable on the part of the Commission to have concluded that the refusal to re-open the complaint just crosses the line into a lack of integrity.
The Smith complaint
- Mrs Smith wrote to SWM on 29th February, 2016, regarding her investment in PATF, which had declined in value. The next day Mr Le Fondré, the director of SWM who had advised Mrs Smith in connection with the investment, telephoned and spoke to Mr Smith, who was clearly not expecting the call.
- The stated purpose of the call was to determine whether or not the letter from Mrs Smith was a complaint against SWM. Tracey Freeman, who was the acting Compliance Officer of SWM, sat in on the telephone call.
- During the call Mr Le Fondré advised Mr Smith that if Mrs Smith pursued the complaint against SWM, SWM would no longer be able to act as her financial adviser.
- “It is not acceptable for a firm to state that it will cease advising a client who has brought a complaint against a firm unless they drop the complaint. It is also not acceptable for a firm to state this in circumstances where it would reasonably be understood by the client to be an ultimatum or pressure tactic used to dissuade them from bringing a complaint.”
- This was reflected in the Notice when, as quoted above, the Board said at sub-paragraph (c):-
- “This [a lack of integrity] was also demonstrated by SWM when it applied, what was reasonably interpreted by a client, as undue pressure to dissuade the client from bringing a complaint against SWM.”
- In his second affidavit, Lord Eatwell confirmed this meant what it said and that accordingly there was no finding by the Board that Mr Le Fondré intended to apply undue pressure.
- In his written submissions, Advocate Blakeley stated
- that SWM disagreed with the Board’s conclusion that undue pressure was put upon the client during the telephone call. In our judgment, this is a wholly untenable view on the part of SWM. We have been shown the transcript of the call. It is perfectly plain that Mr Le Fondré is making it quite clear to Mr Smith that proceeding with the complaint would mean that SWM could no longer act as their adviser but that if the complaint was dropped, SWM could continue.
- For example, to quote only one remark by Mr Smith to show that he fully understood this “Yeah, yeah. And the only way I can stay with you then, really, is to withdraw the claim?”
- In his oral submissions,
- Advocate Blakeley did not maintain this position on behalf of SWM. He accepted it was reasonable for the Board to find that the words used by Mr Le Fondré during the call amounted to undue pressure to withdraw the claim and that it was reasonably understood in this way by Mr Smith.
- He submitted however that, in the absence of an intention on the part of SWM to apply undue pressure, there could be no lack of integrity, merely a question of competence.
- We disagree.
- The words spoken by Mr Le Fondré – and the position was aggravated by the fact that the acting Compliance Officer was listening in but did not intervene to correct anything said by Mr Le Fondré –could only be taken as applying pressure to withdraw the complaint if the client wished SWM to continue to act as investment adviser.
- The words could have no other meaning. Where words used are so clearly improper then, even in the absence of an intention on the part of Mr Le Fondré to apply undue pressure,
- a failure to realise the effect of the words which he was using can properly be regarded as suggesting there has been a malfunction of his ethical compass (and that of the Compliance Officer) and can reasonably be taken as amounting to a lack of integrity. It follows that we do not find the Board’s decision in this respect to have been unreasonable.