The Financial Services Authority (FSA) v Anderson & Ors

For the purposes of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, an unsecured loan repayable at an agreed time is generally a deposit unless an express exclusion applies. Calling the transaction a loan, or giving a personal guarantee, does not alter that conclusion.

Deposit-taking is carried on by way of business where it is undertaken regularly, over a substantial period, on a substantial scale and with a view to profit. The Business Order exclusion for deposits accepted only on particular occasions requires both limbs of the exclusion to be satisfied. Repeated acceptance of deposits on regular dates is not acceptance on particular occasions.

The FSA sought summary judgment and injunctive relief against three defendants alleged to have carried on, or purported to carry on, the regulated activity of accepting deposits without authorisation under the Financial Services and Markets Act 2000.

The defendants contended that the monies were loans rather than deposits and that, in any event, their activities were not carried on by way of business. They also relied on the exclusion for deposits accepted only on particular occasions. The application required the court to decide whether those defences had a real prospect of success and whether declarations and injunctions should be granted.

1. Summary judgment principles. The court applied the realistic-prospect test in Swain v Hillman [2001] 1 All ER 91, while avoiding a mini-trial. Plausible factual disputes were assumed in the defendants’ favour, but implausible assertions or assertions contradicted by documents were not accepted. The court could decide a short point of law where the evidence was sufficient.
2. Deposits. Under article 5 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, a sum repayable with or without interest at an agreed time or on agreed circumstances, and not referable to property, services or security, was a deposit. The defendants’ transactions satisfied that definition. A personal guarantee merely duplicated the contractual promise to repay and was not security. Calling the transactions loans did not prevent them being deposits.
3. Regulated activity and business. The defendants at least purported to carry on deposit-taking because they represented that the money would be lent on. The activity was carried on by way of business. Relevant factors included the profit motive, regularity, duration, number of transactions and depositors, scale of sums, use of business accounts and the defendants’ own descriptions of the activity as business or commercial.
4. Particular occasions. The Business Order exclusion required both statutory limbs to be satisfied. Deposits accepted on the first and fifteenth of each month over substantial periods were not accepted only on particular occasions. The dates did not possess distinguishing characteristics, and different interest rates concerned the terms of the deposits rather than the occasions themselves. The court treated observations in SCF Finance Co Ltd v Masri (No 2) [1987] 1 QB 1002 as obiter and distinguished them because the later legislation supplied additional guidance.
5. Orders. Each defendant had no real prospect of successfully defending the claim. The court identified regulated-activity start dates of 1 September 2005 for Mr Pruthi, 1 April 2007 for Mr Anderson and 15 September 2007 for Mr Peacock. Declarations would be made only if the FSA abandoned any earlier-date claim; otherwise the trial would proceed on the basis of the findings already made. Injunctions restraining future regulated activity were granted.