Financial Services Authority v Bayshore Nominees Ltd & Ors

Advice on investments may fall within the United Kingdom regulatory prohibition even when given by telephone from abroad. The relevant activity is not necessarily confined to the adviser’s location. Because advising is complete only when the investor receives the advice, the activity occurs at least at the investor’s location, or possibly at both locations. An overseas adviser cannot avoid the prohibition merely by operating outside the jurisdiction where the advice is received by a United Kingdom investor.

The Financial Services Authority brought proceedings concerning a share-selling scheme involving five defendants. The first three defendants reached a compromise with the FSA. The fourth and fifth defendants, alleged to have advised investors and communicated invitations or inducements to invest, did not participate in the proceedings.

The court considered whether advice given by persons abroad to investors in the United Kingdom constituted activity carried on in the United Kingdom for the purposes of the regulatory regime. It also considered the evidence supporting the alleged arranging, safeguarding, administering, advising and financial-promotion activities.

1. Regulatory contraventions. The evidence established the FSA’s allegations against the defendants under the relevant provisions of the Financial Services and Markets Act 2000 and the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, including arranging investments, safeguarding and administering assets, advising on investments, and communicating invitations or inducements to engage in investment activity.
2. Territorial scope of investment advice. Advice on the merits of buying or selling a particular investment is a specified activity only when carried on in the United Kingdom. The prohibition could not sensibly be avoided merely because the adviser was located abroad. The purpose of the restriction was to protect United Kingdom investors from advice given by unauthorised persons.
3. The exclusion concerning advice given by an overseas person following a legitimate approach also contemplated that an overseas person could fall within the ambit of the prohibition. More decisively, the core of advising lay in the receipt of the advice by the investor. Advising could not be completed until the investor received it. The activity therefore occurred at least where the investor was located, or potentially at both the adviser’s and investor’s locations.
4. The evidence showed that those responsible for the fourth and fifth defendants advised investors and invited them to invest in the shares. The FSA’s case against them was made out. The court approved the two consent orders concerning the first, second and third defendants, subject to drafting amendments, and proceeded to determine the precise relief against the fourth and fifth defendants.