Stephen Joseph Burdett & Anor v The Financial Conduct Authority

A person may lack integrity without dishonesty. Recklessness requires awareness of a risk and an unreasonable decision to take it, assessed subjectively and objectively. In the financial-services context, an adviser and an investment manager may each have suitability responsibilities for the same transaction. Contractual arrangements cannot remove regulatory duties owed to a client under the Handbook.

An experienced investment manager who knowingly allocates a substantial proportion of pension funds to obviously high-risk, concentrated and unsuitable investments, while presenting portfolios as cautious or balanced, may act recklessly and without integrity. Performing a controlled function without approval, while knowing that approval is required and has not been granted, may likewise amount to reckless conduct and justify a penalty and prohibition order.

The Financial Conduct Authority issued Decision Notices imposing penalties and prohibition orders on Stephen Burdett and James Goodchild. The allegations concerned arrangements under which retail pension holders transferred pensions to a Westbury SIPP and approximately 40% of the transferred funds was invested in investments connected with The Resort Group plc, an offshore property-development group.

Mr Burdett referred the penalty and prohibition decisions concerning his role at Synergy Wealth Ltd. Mr Goodchild referred corresponding decisions concerning his controlled functions at Westbury Private Clients LLP. The references were heard together. The central issues were whether Mr Burdett knowingly performed the CF1 director function without approval, whether either applicant acted without integrity, whether Westbury had suitability responsibilities to the pension holders, and what sanctions were appropriate.

1. Outcome. The references against the prohibition orders were dismissed unanimously. The references were remitted to the Authority with directions. The Tribunal determined penalties of £265,071 plus continuing interest for Mr Burdett and £47,600 for Mr Goodchild.
2. Integrity and recklessness. The Tribunal adopted the approach summarised in Seiler v Financial Conduct Authority [2023] UKUT 00133 (TCC). Integrity is fact-specific and may be lacking without dishonesty. Recklessness has subjective and objective elements: the person must be aware of the relevant risk, and it must be unreasonable to take that risk in the circumstances known or believed by that person. The Tribunal could infer awareness from inherent probabilities and the response expected of a reasonable professional.
3. Mr Burdett. He was acting as a director of Synergy and his decisions and actions were regularly taken into account by its governing body. He knew that approval was required, knew that his application had not been approved, and nevertheless continued to act. He also knew that approximately 40% of each pension holder’s funds would be invested in TRG Investments irrespective of risk profile. Those investments were obviously high risk and unsuitable. His conduct was reckless and lacked integrity.
4. Mr Goodchild. COBS 9.2.1R applied both to personal recommendations and to decisions to trade. Westbury and Mr Goodchild were required to take reasonable steps to ensure that trading decisions were suitable for the pension holders. A firm could not remove that responsibility by describing the intermediary as the sole client or by contractually excluding retail rights. The due diligence was superficial, the concentration in TRG Investments was unsuitable, and the names Global Cautious and Global Balanced were misleading. Mr Goodchild knowingly ignored obvious risks and acted recklessly and without integrity.
5. Sanctions. The Tribunal followed the Authority’s DEPP framework while making its own assessment. Mr Burdett’s penalty included disgorgement of his net financial benefit, interest, and a level 4 penalty component. Mr Goodchild’s cooperation was recognised, but the breach was serious and the penalty imposed by the Authority was not excessive. The Tribunal declined to reduce either penalty for alleged financial hardship.

The judgment does not describe an appeal from another court. It concerns references to the Upper Tribunal from FCA Decision Notices dated 19 August 2022.