The defendant’s business involved the transmission of trading signals to customers via Whats App and Telegram containing recommendations as to trades in CFDs, spread betting and options in relation to FX and commodity prices. Customers were ‘guaranteed’ returns if they followed those signals. The defendant displayed sponsored links to ‘partner’ brokers, with whom its customers could open accounts to execute trades in CFDs. The defendant also offered reduced fees for the signals service to customers who opened such accounts and earned significant levels of commission from this.
Arranging Deals in Investments
Article 25 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the “RAO”) specifies two activities. The first type of activity (art 25(1)) is known as “arranging (bringing about) deals in investments”, whereas the second type of activity (art 25(2)) is known as “making arrangements with a view to deals in investments”.
While the decision in 24Hr Trading concerns the art 25 activities, they correspond to the RAO art 25A activities of “arranging (bringing about) regulated mortgage contracts” and “making arrangements with a view to regulated mortgage contracts”. As such, the decision in 24Hr Trading has implications for the scope of the art 25A activities.
General Comments on Art 25
A person can “make arrangements” for the purposes of arts 25(1) and (2) even if that person’s actions do not involve or facilitate the execution of each step necessary for entering and completing the transaction (at [53(3)]).
Art 25(1): Arranging (Bringing About)
Art 25(1) is concerned with arrangements for another person to acquire a particular investment. It is thus more specific than art 25(2) in that it is directed at arrangements which are likely to have the effect of causing a transaction in a particular investment to be concluded by that other person (at [53(4)]).
The Deputy Judge refused to grant the FCA summary judgment on the issue of whether the defendant business had engaged in the RAO art 25(1) activity. The Judge said (at -):
“In my judgment the Defendants have a realistic prospect of establishing that, on a fuller examination of the facts, the “causation requirement” of Article 26 is not met with the result that Article 25(1) is disapplied … the “arrangement” on which the FCA relies for the purposes of Article 25(1) only put a customer in the position of receiving Signals and having the capability (an account with AvaTrade or Vantage FX) which would enable CFDs to be entered into. If the customer then entered into a CFD, I consider the question of causation would be at large depending on the extent to which the customer applied independent thought or judgment before entering into that transaction. If the evidence demonstrated that customers tended to exercise independent judgment then a court at trial might well conclude that, even though the customer had received “advice” in the form of a Signal, the true cause of the transaction effected was the customer’s own judgment. At the other extreme, if the evidence demonstrated that customers tended simply to copy Signals without exercising any independent judgment, the causation condition might well be satisfied.”
Art 25(2): Arrangements with a View
The Deputy Judge endorsed the analysis in Financial Conduct Authority v Avacade Ltd (in liquidation)  EWHC 1673 (Ch): the phrase in art 25(2) “with a view to” describes a more inchoate form of activity, which is not necessarily causative of the transaction in the sense that it brings it about, but which nonetheless helps it to happen.
The Judge in 24 Hr Trading agreed that the statement in Adams v Options SIPP  EWHC 1229 (Ch) that the steps taken ‘with a view’ to a transaction would have to be capable of satisfying a “notional causation test”was obiter (at ).
While the High Court had declined summary judgment on art 25(1), it did grant summary judgment in the FCA’s favour on art 25(2). The requisite “arrangements” for the purposes of art 25(2) were the defendant’s display of sponsored links to ‘partner’ brokers, with whom its customers could open accounts to execute trades in CFDs.
The defendant denied that its arrangements were “with a view to” customers acquiring CFDs, as its customers might not execute any trades immediately after opening an account (at ). However, the Court held (at ) that art 25(2) was not concerned with a causative relationship between an arrangement and a particular transaction; it was immaterial whether actual trades were executed.
Secondly, the defendant argued that its arrangements were “with a view to” customers opening accounts with partner brokers, rather than “with a view to” their acquiring CFDs using those accounts. The Court also rejected this submission (at ). The Signals transmitted by the defendant specifically instructed the customers how to give electronic instructions using the brokers’ platforms to generate CFDs corresponding to those Signals.
The FCA was granted a restitutionary order under subsection 382(2) of the Financial Services and Markets Act 2000 (“FSMA”).
The Court made a restitutionary order in respect of the commission paid by the brokers to the defendant company. Such commission was a “direct result” of the defendant undertaking the art 25(2) activity in breach of the general prohibition and contravening the restriction on financial promotions. The commission was paid as consideration for the very act of referral to the brokers that was at the heart of the contraventions (at ).
The order also included an interest element, at a rate of 2% above base. “Profits” within the meaning of s382 included both the sums received themselves and further sums that can be obtained by investing them .
The restitutionary order was made against the second defendant (Mr Maricar) personally, rather than against the first defendant company. Mr Maricar was the first defendant’s sole director and sole shareholder. The reason the order was made against him, rather than against the company, was that the FCA had not established a “profit” made by the company as a result of the contravention (at ). The commission had been paid directly into Mr Maricar’s personal bank account.
Summary by Ruth Bala (currently instructed as sole counsel to defend similar proceedings by the FCA in the regulated mortgage contract)