The Financial Conduct Authority v Bright Management Solution Limited & Ors

Applications under section 382(3) of the Financial Services and Markets Act 2000 are compensatory rather than punitive. Where recoveries are insufficient and the facts cannot be established precisely, the court may adopt a rough-and-ready approach. A distribution scheme should be simple, fair and proportionate in cost.

The court should be satisfied that the regulator has taken all reasonable steps to identify qualifying persons and their losses, and that the proposed method of distribution is fair. Out-of-pocket losses ordinarily take priority over lost expectations. Distribution applications are fact-sensitive, and finality remains an important consideration.

The Financial Conduct Authority applied under section 382(3) of the Financial Services and Markets Act 2000 for approval of a scheme distributing recovered sums to investors who had suffered losses through an unauthorised investment scheme operated by Bright Management Solution Limited.

The defendants had previously admitted or been found liable for contraventions of the regulatory regime. The FCA had recovered sums from the defendants and proposed a pro rata distribution based on each investor’s net out-of-pocket loss. The issues were whether service on two dissolved companies should be dispensed with and whether the proposed distribution was fair and should be approved.

1. Service. The court had a wide discretion under CPR 6.28 to dispense with service of a document other than a claim form. Exceptional circumstances were unnecessary, but a good reason was required, consistently with the overriding objective. Cost and delay in restoring two dissolved companies, together with their lack of interest in the distribution application, justified dispensing with service.
2. Applicable principles. The purpose of an order under section 382 was compensation for persons adversely affected by regulatory contraventions, not punishment. Where there was a shortfall and the facts were not fully established, the court should do its best, generally on a rough-and-ready basis. The distribution method should be as simple as possible, while remaining fair to consumers and having regard to expense.
3. The court should be satisfied that the FCA had taken all reasonable steps to identify qualifying persons, identify their losses and devise a fair distribution method. Applications were fact-sensitive. Persons suffering out-of-pocket losses should generally have priority over those claiming expectation losses. The process should also achieve finality, although permission to apply for genuinely late claims could be included and would not be exercised lightly.
4. Application. The FCA had undertaken extensive investigations, analysed banking material, contacted potential investors, assessed evidence and investigated discrepancies. It had identified the qualifying investors and calculated their net investments by accounting for payments returned to investors. A pro rata distribution would provide the same proportion of recovery to investors with qualifying losses, was comparatively simple and did not distribute sums for anticipated profits.
5. The proposed scheme was fair and was approved in respect of sums already held and sums payable under the settlement with the Fifth Defendant. The order was to include permission to apply and temporal provisions governing further applications or amendments to the schedule.

The judgment was a first-instance determination of the FCA’s application under section 382(3) of the Financial Services and Markets Act 2000. Earlier judgments and a consent order had determined the defendants’ liability and recovery obligations.