ABS Financial Planning Ltd & Ors, R (on the application of) v Financial Services Authority & Anor

A compensation scheme manager allocating levy costs must identify the regulated activity in respect of which the relevant claims arise. The statutory expression in respect of is broader than claims directly for a particular activity. Ancillary financial promotion may therefore be connected with the regulated activity which it promotes. The classification of complex financial activity is primarily entrusted to the specialist regulator, and judicial review intervention is justified only where the decision is irrational. Managing investments ordinarily requires discretion relating to the composition or management of the assets, not merely limited choices about timing, acceptance of applications or sale. Where consultation is undertaken, it must be conducted properly, but its content is contextual. A levy allocation decision of this kind may require consideration of representations without requiring a full consultation of every affected firm.

The claimants, 217 financial and investment businesses, sought judicial review of the Financial Services Compensation Scheme Ltd’s decision to impose an interim levy of approximately £32 million on firms in the investment intermediation sub-class. The levy related to compensation claims arising from the failure of Keydata Investment Services Ltd.

The claimants argued that the relevant activities were fund management rather than investment intermediation. They also alleged that the defendant had failed to consult them fairly before making the allocation decision. The central issues were the proper classification of Keydata’s activities and whether the decision-making process was procedurally unfair.

1. Substantive challenge dismissed. The defendant had to allocate compensation costs by reference to claims arising in respect of particular regulated activities under the Financial Services and Markets Act 2000 and the FEES 6 rules. That expression was broader than claims directly for the performance of the activity.
2. The claimants’ attempt to separate Keydata’s marketing activity from its subsequent purchase and safeguarding of the bonds was artificial. The brochures induced investors to enter arrangements under which Keydata would act as their agent in purchasing the bonds and would carry out related regulated activities. The marketing was ancillary to the purchase of bonds as agent and the claims could properly be allocated to the D2 investment intermediation sub-class.
3. The defendant was also entitled to conclude that the claims did not arise in respect of managing investments. Under Article 37 of the 2001 Order, managing investments involved managing another’s assets in circumstances involving discretion. Product design, deciding whether to accept an application, limited choices concerning timing, and selling on cancellation or termination did not amount to management of the investments. It was particularly significant that Keydata had no input into the composition of the underlying portfolios.
4. The specialist defendant had primary responsibility for applying the technical regulatory criteria. Applying the approach in R v Monopolies and Mergers Commission, ex parte South Yorkshire Transport [1993] 1 WLR 23, the court would intervene only if the conclusion was so aberrant that it could not be regarded as rational. The decision was not irrational.
5. Procedural challenge dismissed. The court doubted that the statutory scheme imposed a full duty to consult every member of the affected sub-class. The liability arose from rules already made by the FSA, the defendant had limited discretion in allocating costs, and the decision depended principally on Keydata’s affairs rather than the individual firms’ circumstances.
6. Even if a duty to consult arose, the process was adequate. The defendant gave reasons, invited representations, engaged with submissions from the claimants’ solicitors and trade bodies, amended its position paper, and conscientiously considered the representations before the final decision. The requirements identified in R v North and East Devon HA, ex parte Coughlan [2001] QB 213 were satisfied in the circumstances.

The claim was dismissed.