Tenetconnect Services Ltd, R (on the application of) v Financial Services Lts & Anor

Factual and Procedural Background

Plaintiff, a convicted fraudster, defrauded multiple individuals, including Interested Parties, of approximately £2.9 million through a Ponzi-type scheme. The Interested Parties lost around £65,000 from their life savings. Plaintiff acted as a financial adviser trading under a business name and was an appointed representative of Company A, an authorised person under the Financial Services and Markets Act 2000 (FSMA). Plaintiff advised Interested Parties to sell specified investments and to transfer funds for investment in a property abroad and to provide business-related loans. In reality, the funds were gambled away or used to pay gambling debts.

Interested Parties complained to Company A without success and then to the Financial Ombudsman Service (FOS). The Ombudsman issued two Provisional Decisions and a Final Decision on 3 April 2017, concluding it was fair and reasonable for Company A to compensate Interested Parties for losses caused by Plaintiff’s fraudulent activities related to regulated activities.

Company A challenged the Ombudsman’s jurisdiction by judicial review, arguing that Plaintiff’s advice on disposing of investments was a regulated activity, but advice on the use of proceeds was not, and that the Ombudsman lacked jurisdiction over the unregulated advice which caused the losses. The Ombudsman rejected these arguments, finding a close connection between the two aspects of Plaintiff’s advice.

Legal Issues Presented

1. Whether the Ombudsman had jurisdiction to consider complaints relating to both regulated and unregulated activities when those activities are closely linked.
2. Whether the advice given by Plaintiff concerning the disposal of specified investments and the subsequent use of proceeds constituted "regulated activities" under FSMA.
3. Whether Company A, as the authorised person, was responsible under s39(3) FSMA for Plaintiff’s fraudulent acts, including those relating to unregulated activities.

Arguments of the Parties

Company A's Arguments

• The complaint related to unregulated activities (advice on use of sale proceeds), which fell outside the Ombudsman’s jurisdiction.
• Plaintiff’s regulated activities did not cause loss; only unregulated advice caused loss.
• Under agency law and s39(3) FSMA, Company A was not responsible for Plaintiff’s unregulated or fraudulent activities.
• The Ombudsman could not determine the nature or scope of the complaint if jurisdiction was contested.
• A bright line must be drawn between regulated and unregulated activities, regardless of factual interlinking.

Financial Ombudsman Service's Arguments

• Company A challenged the Ombudsman’s factual findings, which could only be challenged on rationality grounds.
• There was a rational basis to conclude Plaintiff’s advice on selling investments was intrinsically linked with advice on loans and property purchase.
• Drawing a bright line between regulated and unregulated advice was artificial and contrary to the purpose of the Ombudsman Scheme and statutory language.
• Company A’s challenge to jurisdiction was misplaced; the Ombudsman must interpret the law correctly and apply it to the facts.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Martin v Britannia Life Ltd [2000] Lloyd's Reports P.N. 412	Investment advice encompasses all financial advice connected to the purchase, sale, or surrender of investments, including ancillary transactions.	Supported the view that unregulated advice closely linked to regulated advice may fall within the scope of regulated activities and principal’s responsibility under s39(3) FSMA.
Emptage v Financial Services Compensation Scheme Ltd [2013] EWCA Civ 729	Distinction between regulated and unregulated activities; compensation applies only to regulated activities.	Clarified that losses flowing directly from regulated advice may include losses related to unregulated investments if intrinsically linked.
Chancery (UK) LLP v Financial Ombudsman Service [2015] EWHC 407 (Admin)	Judicial review of Ombudsman’s jurisdiction requires correct legal interpretation and rational application of law to facts.	Confirmed the Court’s role in reviewing Ombudsman’s application of law to facts while deferring to Ombudsman’s factual findings unless irrational.
Ovcharenko v InvestUK Ltd [2017] EWHC 2114 (QB)	Section 39(3) FSMA imposes liability on authorised persons for acts of appointed representatives, even if acts exceed authority or are unlawful.	Rejected argument that principal is not liable for acts outside appointment scope; held principal responsible for defaults of appointed representative.
Emanuel v DBS Management Ltd [1999] Lloyds Reports P.N. 593	Distinction between acts done in course of acting as appointed representative and those outside that scope.	Consistent with later cases; supports broad interpretation of business for which principal is responsible under FSMA.
R (Full Circle Asset Management) v Financial Ombudsman Service [2017] EWHC 323 (Admin)	Ombudsman’s assessment of complaint scope is a factual matter reviewed on rationality grounds.	Supported broad interpretation of complaint scope and deference to Ombudsman’s judgment on jurisdiction.

Court's Reasoning and Analysis

The Court examined the interrelationship between the advice to sell specified investments (regulated activity) and the advice on the use of proceeds (initially unregulated). It found that the advice was part of a single, inseparable stream of advice, with the unregulated advice intrinsically linked and coextensive with the regulated advice. The advice to sell was given specifically to enable the unregulated investments, and thus both aspects formed a "regulated activity" under FSMA.

The Court rejected the argument for a bright line separating regulated from unregulated activities when they are so intertwined, noting that such a distinction would be artificial and contrary to the purpose of the Ombudsman Scheme and FSMA. It emphasized that the Ombudsman must consider the complaint broadly and in context, not narrowly or precisely.

Regarding Company A’s responsibility under s39(3) FSMA, the Court held that Company A was liable for all acts of Plaintiff done in carrying on the business for which Company A had accepted responsibility, including fraudulent acts related to unregulated activities that were closely connected to regulated activities. The Court relied on precedent establishing that s39(3) imposes a statutory liability on authorised persons for their appointed representatives’ acts, even if those acts exceed authority or are unlawful.

The Court affirmed the Ombudsman’s jurisdiction to consider the complaint and upheld the factual findings that Plaintiff acted throughout as an appointed representative of Company A, and that the fraudulent advice was given in that capacity.

Holding and Implications

The Court DISMISSED the application for judicial review, holding that the Ombudsman had jurisdiction to consider the complaint against Company A.

The decision confirms that where advice on regulated investments is closely linked with advice on unregulated investments, the entire advice package may be treated as a regulated activity for the purposes of the Ombudsman Scheme and FSMA. Furthermore, authorised persons bear responsibility under s39(3) FSMA for the acts of their appointed representatives, including fraudulent acts connected to the regulated business, even if those acts exceed express authority.

The ruling emphasizes a purposive and pragmatic approach to the Ombudsman’s jurisdiction and the scope of regulated activities, reinforcing consumer protection against financial advisers’ misconduct. No new precedent was set beyond the application of established principles to the facts of this case.