The Financial Conduct Authority v Avacade Ltd & Ors

Article 25(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001/544 covers arrangements intended to encourage or assist investment transactions, even where they do not directly bring about the transaction. Pension transfers into SIPPs and subsequent investments may form one continuous set of arrangements. Commissions arising from the overall process may prevent reliance on the exclusions in articles 29 and 33. Article 33 requires independent advice or an independent exercise of investment discretion of sufficient scope to protect consumers from the introducer’s financial interest. Disclaimers do not prevent communications from amounting to regulated advice or financial promotions. Advice is assessed objectively by substance. Directors may be knowingly concerned where they know the facts constituting the contraventions and are actively involved, even if they do not know that those facts amount to legal breaches.

The Financial Conduct Authority brought civil proceedings under the Financial Services and Markets Act 2000 and the Financial Services Act 2012 against two unauthorised companies, their directors and another individual. The FCA alleged that Avacade and Alexandra Associates carried on regulated activities, made unlawful financial promotions, and made false or misleading statements. It also alleged that the individual defendants were knowingly concerned in the contraventions.

The central issues were whether the defendants’ pension-review, SIPP-transfer and investment processes amounted to making arrangements or advising on investments; whether statutory exclusions applied; whether communications were financial promotions; whether specified statements were false or misleading and made knowingly or recklessly; and whether the individual defendants were knowingly concerned.

1. Perimeter breaches. The activities of Avacade and AA involved making arrangements under article 25(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001/544. Article 25(2) is broader than article 25(1): it covers arrangements undertaken with a view to encouraging or assisting a transaction, even where they do not directly bring it about. The relevant activities included obtaining pension information, preparing reports, conducting telephone calls, completing forms and processing applications.
2. The transfer into a SIPP and the subsequent acquisition of investments could not realistically be separated. The transfer was an intermediate step intended to provide funds and a vehicle for acquiring investments. Commissions therefore arose from the overall arrangements, defeating the article 29 exclusion.
3. Article 27 did not apply because the defendants did more than provide means of communication. Article 33 did not apply. The purpose of the arrangements was to generate investment commissions, not merely to introduce consumers for independent advice. Cherish’s risk assessment was too narrow, and BlackStar’s advice was too focused and formulaic to constitute the independent advice required by article 33.
4. Advice under article 53. The Report Calls and Investment Calls involved opinions, value judgments and selected information which tended to influence consumers. The substance of the communications, rather than disclaimers or the parties’ contractual characterisation, determined whether advice had been given. Advice could relate to a particular SIPP even before the SIPP was formally established, where that SIPP was sufficiently identified.
5. Financial promotions. The websites, Brazil Investors Handbook, Report Calls and Investment Calls were invitations or inducements to engage in investment activity. The promotion of investments through the SIPP structure promoted the acquisition and exercise of rights under the SIPP, which involved buying or selling securities. The FPO introduction exclusion was unavailable because the commissions arose from the indivisible overall transaction.
6. False or misleading statements. The allegation that advice was required for transfers to personal or stakeholder pensions, but not SIPPs, was established. Statements presenting equities as more volatile or risky than the promoted investments, and describing the promoted investments as low risk, were also false or misleading and made recklessly. Other complaints failed because the statements were insufficiently established, insufficiently material, or were made by employees beyond the approved scripts without proof of the directors’ relevant state of mind.
7. Knowingly concerned. The directors knew the facts constituting the contraventions and were actively involved in developing and operating the businesses. Knowledge that the conduct was legally unlawful was unnecessary. All three individual defendants were knowingly concerned in Avacade’s contraventions; Craig and Lee Lummis were knowingly concerned in AA’s contraventions.
8. Section 23(3) of Financial Services and Markets Act 2000 provided a defence only in criminal proceedings for an authorisation offence, not in these civil proceedings. Precautions, due diligence and legal advice might be relevant to the later assessment of restitution, but not to whether the contraventions occurred or whether the defendants were knowingly concerned.

The FCA’s claims succeeded to the extent identified in the judgment. Consequential orders were to be addressed after further submissions.

First-instance decision. The judgment records an earlier interlocutory decision concerning an adjournment: [2020] EWHC 26 (Ch). The present judgment determined the substantive claims.