The Financial Conduct Authority v Argento Wealth Limited & Anor

For a distribution under Financial Services and Markets Act 2000, the court may direct payment of money voluntarily recovered in connection with a claim under section 382(2), even where no order was made under that subsection. The court should compensate persons affected by the contraventions, adopt a simple method consistent with fairness and expense, and use a broad-brush approach where the facts or recovery are incomplete. Separate schemes should ordinarily be treated separately where the recovered money can be attributed to them. A Quistclose trust requires an objective intention that the recipient cannot freely dispose of the money. General contractual restrictions, vague investment purposes, absence of segregation and the commercial context may show that the money was an ordinary loan rather than trust property.

The FCA sought directions for distributing approximately £841,763 derived from loans made under an unauthorised loan-note scheme and £1,046,488 derived from a separate investment scheme. The underlying FSMA proceedings had been adjourned generally under a Repayment Deed, without admissions or findings of liability. The FCA relied on section 382(3) of Financial Services and Markets Act 2000, CPR 64.2(a) and the court’s inherent jurisdiction.

The principal issues were whether section 382(3) permitted distribution although no section 382(2) order had been made, whether the loan monies were held on Quistclose trusts, which investors were qualifying persons, and how the recovered funds should be allocated.

1. The court had jurisdiction under section 382(3) of Financial Services and Markets Act 2000 to direct distribution of money voluntarily paid to the FCA under the Repayment Deed. Following the purposive approach in FCA v Paradigm Consultancy SA [2019] EWHC 3648 (Ch), money properly received in connection with a section 382 claim could be treated as obtained in pursuance of an order under section 382(2), although no such order had been made.
2. The court adopted the principles summarised in FCA v Exall [2023] EWHC 1130 (Ch): the purpose is to compensate persons affected by the contraventions; a shortfall may be addressed on a rough-and-ready basis; the distribution method should be as simple as possible consistently with fairness and expense; and the FCA must take reasonable steps to identify qualifying persons and losses and formulate a reasonably fair proposal.
3. The loan agreements did not create Quistclose trusts. The question was whether, objectively, the lenders intended the money to be at the borrower’s free disposal or confined to a particular purpose. Applying Twinsectra v Yardley [2002] UKHL 12, and the contractual-construction approach in Bellis v Challinor [2015] EWCA Civ 59, the references to insurance-approved trading opportunities were vague and imprecise. The agreements permitted potentially inconsistent expenses, required no segregation, and their commercial and marketing context indicated general business investment. The money was therefore advanced as ordinary debt investments.
4. Non-AWL investors in EMB were not qualifying persons because their alleged loss was too remote from the Defendants’ contraventions. AWL-EMB investors were qualifying persons for the TW Residue, and all AWL lenders, including cryptocurrency investors, were qualifying persons for the Starling Residue.
5. The FCA was directed to distribute £841,763 among the AWL lenders pro rata by net investment after deducting interest or compensation received, and £1,046,488 among the AWL-EMB investors pro rata by investment amount. Distribution remained subject to any necessary Crown Court approval for release from the criminal restraint orders.