Chancery Division, Companies Court 16 May 2013 (judgment given extempore) Administrator — Appointment — Formalities — Financial services company — Consent of Financial Conduct Authority required to be obtained for appointment of administrator — Notice of intention to appoint administrators filed prior to consent from Financial conduct Authority — Consent from FCA being filed on day after filing of notice — Whether failure to obtain prior consent invalidating appointment of administrators — Whether administrators being validly appointed — Insolvency Act 1986, Sch B1, paras 22, — Financial Services and Markets Act 2000, s 362A. Section 362 A of the Financial Services and Markets Act 2000 provides: '(1) This section applies in relation to a company or partnership of a kind described in section 362(1)(a) to (c). (2) An administrator of the company or partnership may not be appointed under a provision specified in subsection (2A) without the consent of the appropriate regulator…(3) Consent under subsection (2)(a) must be in writing, and (b) must be filed with the court along with the notice of intention to appoint under paragraph 27 of Schedule B1 to the 1986 Act or paragraph 28 of Schedule B1 to the 1989 Order. (4) In a case where no notice of intention to appoint is required (a) subsection (3)(b) shall not apply, but (b) consent under subsection (2) must accompany the notice of appointment filed under paragraph 29 of [Schedule B1 to the 1986 Act or paragraph 30 of Schedule B1 to the 1989 Order]'. The company concerned in the proceedings was a London based company which acted as an international property investment agent, specialising in luxury resorts in the Caribbean. Around mid-April 2013, the directors of the company, D and C, took insolvency advice and subsequently instructed solicitors to enter the company into administration. Prior to doing so, the solicitors contacted the Financial Conduct Authority (FCA) to enquire whether FCA consent was required, pursuant to s 362A(3)(b) of the Financial Services and Markets Act 2000 (the 2000 Act), as amended, prior to filing the notice of intention to appoint administrators. A representative of the FCA informed the solicitors, via telephone, that consent was not required. Relying on that advice, on the 3 May 2013, the solicitors filed notice of intention to appoint administrators pursuant to para 22 of Sch B1 to the Insolvency Act 1986 (the 1986 Act). The notice of intention was served on the company. The following day, the FCA sent an email to the company's solicitors, informing them that the previous information had been incorrect, that FCA consent was required, and attaching that consent. On the same day, the company's solicitors filed the FCA's consent with the court. Considering that the validity of the appointment of the administrators might be called into question because the FCA consent had not been filed on the same day as the notice of appointment of the administrators, the directors and the administrators of the company (together the applicants) applied to the Companies Court for a declaration that the administrators had been validly appointed. The issue for consideration was whether the administrators had been validly appointed having regard to the fact that the FCA's consent had been filed at court the day after the notice of intention to appoint administrators, rather than on the same date. The applicants submitted that the administrators had been validly appointed for alternative reasons. First, on the true construction of s 362A(3)(b) of the 2000 Act, the words 'must be filed with the court along with the notice of intention to appoint' did not require that consent be filed at court simultaneously with the notice of intention (the first submission). In support of that contention, reliance was placed on Re Ceart Risk (Ceart) [2012] BCLC 645; [2012] All ER (D) 43 (May) (para 19). Alternatively, the applicants submitted that, even if there was a defect, such defect was curable and had been cured when the FCA's consent had been filed (the second submission). The application would be granted. It was settled law that the words 'may not be appointed… without the consent of the Authority' clearly indicated that it was essential to obtain the FSA's consent. They did not clearly indicate that it was essential to do so prior to the appointment. It followed, as concluded in Ceart, that s 362A(2) should not be interpreted to mean that failure to obtain prior consent of the FSA should invalidate the appointment of administrators under para 22 of Sch B1 to the Act. On its true construction, the wording of s 362A did not compel the conclusion that the consent had to be filed at the same time as the notice of intention to appoint or notice of appointment, as the case might be. As the court held in Ceart, a consent filed the following day could still be said to have been filed 'along with' a notice of intention to appoint or to 'accompany' the notice of appointment. Further, Parliament should be taken to have intended that failure to obtain the FSA's prior consent constituted a defect in the appointment which was capable in appropriate circumstances of being cured subsequently. In respect of the first submission, there was no reason to depart from what had been said in Ceart and the court would adhere to the construction of s 362A(3)(b) of the 2000 Act in that case. The construction of s 362A(2) of the 2000 Act in Ceart was also adopted. Accordingly, there was no defect in the appointment of the administrators in the instant case. In short, the FCA's consent had been filed with the court along with the notice of intention to appoint administrators even though it had been filed the day after the notice of intention to appoint. In respect of the second submission, applying settled law, and for the same reason in Ceart, if there was a defect in the appointment of the administrators by virtue of the fact that the FCA consent had been filed the day after the notice of appointment, that defect was curable and had been cured when the FCA's consent was filed the following day. Accordingly, the administrators had been validly appointed on 3 May 2013. A declaration would be granted accordingly. Ceart Risk Services Ltd, Re; Bootes v Ceart Risk Services Ltd [2012] 2 BCLC 645 applied; Hill v Stokes plc [2011] BCC 473 Virtualpurple Professional Services Ltd, Re [2012] 2 BCLC 330 Euromaster Ltd, Re [2012] All ER (D) 84 (Aug) Bezier Acquisitions Ltd, Re [2012] 2 BCLC 322 considered.

Further to an earlier Upper Tribunal Decision, FSA has now published the Final Notice in respect of the above. The Tribunal had upheld FSA’s decision to reject the firm’s application for authorisation and the inpidual’s application for approval on the grounds of the latter’s lack of honesty and integrity.

This article considers the key legal and regulatory issues in the fast-developing world of mobile payments.

FRC has announced the closure of the investigation conducted under the Accountancy Scheme into the conduct of PwC in relation to the preparation of reports to FSA in respect of Barclays Capital Securities Limited’s compliance with CASS for the periods from 1 December 2001 to 29 December 2009, stating that it has been decided that there is no realistic prospect that a tribunal would make an adverse finding against PwC and that no further action will be taken.

Text of the above, given at FCA’s Markets Conference, follows. He discusses FCA’s market integrity, consumer protection and competition objectives, noting work on client assets and the forthcoming wholesale strategy review.

The Handbook Notice provides a synopsis Instruments passed at FCA Board meetings on 1 August 2013 and 26 September 2013. The following were passed on 1 August: Fees (Consumer Credit Interim Permission) Instrument 2013/59 and Consumer Credit (Designation) Instrument 2013/60. The following were passed on 26 September: Handbook Administration (No 31) Instrument 2013 /61;Mortgage Market Review (Training and Competence) Instrument 2013/62; Consumer Insurance (Disclosure and Representations) Act 2012 Instrument 2013/63; Mortgage Market Review (Pipeline Business) (Transitional Provisions) Instrument 2013/64; Client Assets Sourcebook (Indirect Clearing) Instrument 2013/65 and Capital Resources Requirements for Personal Investment Firms (Amendment No 2) Instrument 2013/67. It is noted that Instruments FCA 2013/66 and FCA 2013/68 have also been made by the Board but will be published at a later date. The changes will be summarised in the November Handbook Notice. The Instruments may be downloaded inpidually via the second link.

This paper consults on material changes to the rules in relation to client money, custody assets and mandates. FCA asks whether it should make a change to the client money distribution regime that will enable the insolvency practitioner of a firm that has begun insolvency proceedings to distribute client money based on the firm’s records (rather than agreed claims of clients). It is noted that if the Government introduces changes that could speed up the distribution of client money following the review of the Special Administration Regime (SAR – see below), then some of the proposals may not be necessary while others would be enhanced. FCA is also proposing changes to the rules in relation to matters raised in recent insolvencies, including the valuation of positions open at the time of insolvencies, treatment of multiple currencies and payment of interest. In Part II of CP12/22, FCA proposed to introduce multiple client money pools. In this CP, it responds to feedback received and consults on a limited introduction of client money multiple pools for clearing member firms. FCA consults on proposals to changes to the client money rules and custody rules. The changes relate to a wide variety of aspects, including reconciliations, delivery versus payment exclusions, buffers, unclaimed client money and assets and acknowledgment letters. FCA has also decided to clarify other client money and custody rules, adding guidance where appropriate and restructuring sections to make the sourcebook easier to understand and navigate. FCA proposes the introduction of new disclosure requirements that would see firms report to their clients at least annually on the client assets protections they provide them. It also proposes to increase the scope of the mandate rules by requiring firms to establish and maintain adequate records and internal controls for all mandates, including those not obtained in written form. Changes to client money rules and client money distribution rules to comply with EMIR regulatory technical standards regarding indirect client clearing are also set out. .The document provides an update on work being carried out with regard to the SAR review and FCA notes that it will review the proposals in this CP in light of any changes the Government intends to make and will aim to implement (subject to consultation feedback) all the proposals unaffected by changes the government introduces to legislation. Responses are required by 11 October 2013, with the exception of proposals regarding EMIR regulatory technical standards – in this case, the closing date is 12 August 2013

This consultation paper aims to help regulators improve the supervision of intermediaries holding client assets and provides principles for guidance on how regulators could enhance their supervision of intermediaries holding client assets by clarifying the roles of the intermediary and the regulator in protecting those assets. Responses are required by 25 March 2013.

Text of the following, given at the Practising Law Institute conference, follows. Topics include: ethical market behaviour, including market abuse regulation and surveillance; corporate governance; MiFID II; client assets regime.

FRC has announced the outcome of its investigation into the conduct of Members of the ICAEW and Ernst & Young LLP (“E&Y”), as auditors to Lehman Brothers International (Europe) (“LBIE”). It has decided that no action should be taken against E&Y or any inpiduals in connection with their conduct in this matter. It is noted that at the start of the investigation, it appeared that LBIE failed to comply with CASS rules in a number of respects, however E&Y signed off their accountant’s report to the effect that LBIE was in compliance with them. Among the concerns raised was whether the treatment of money LBIE received from affiliates, post MiFID, complied with CASS and another was whether money relating to LBIE Prime Brokerage clients required segregation. In the course of the investigation, the investigation team obtained and reviewed E&Y’s audit files and hard copy documentation. The team also interviewed E&Y audit team staff. This matter was referred to an expert to consider the case. Following this, it has been decided that there is no realistic prospect that a tribunal would make an adverse finding against E&Y in the UK or members within that firm. The investigation will therefore be closed and no further action taken.