JFSC lose another round in ongoing battle with SWM

Friday 13 May 2016

Financial advisors SWM will not have to write to a group of investors informing them of a critical report into their investment practices, the Royal Court has ruled after rejecting an application by the financial services regulator.

The Jersey Financial Services Commission wanted to force SWM Synergy Ltd to write to clients who lost money during the 2008 financial crash, to tell them about a Grant Thornton report which alleges they were given unsuitable advice.

JFSC and Grant Thornton have contended that the investments were better suited to expert investors but were sold to retail clients, but the accuracy of that report is hotly contested by SWM, and the company wants to commission a second independent report.

SWM argued that to send a letter at this point would be misleading to clients who may then believe they are entitled to compensation, based on what they say is a one-sided report. The Royal Court agreed: 

“In essence SWM argues that to send a letter at this point builds up an impetus for a finding by the Commission at the end of its decision-making process that may be against the weight of available evidence,” said the judgment. 

The Court said JFSC seems to believe Grant Thornton’s “....conclusions are unassailable."

Finding in support of SWM’s claims, the judgment said: “We cannot see that there is any benefit in sending the letter required by the Commission at this stage. As we have already noted all of the investors will be aware of the loss that they have suffered – what they may not be aware of is that there is a report that suggests that in some manner SWM may be responsible to some extent for those losses. To send the letter now would, in our view, inevitably encourage claims against SWM where a fuller evidentiary picture may not.

“We cannot see that there is any benefit in sending the letter required by the Commission at this stage,” the Court said. “As we have already noted all of the investors will be aware of the loss that they have suffered – what they may not be aware of is that there is a report that suggests that in some manner SWM may be responsible to some extent for those losses. To send the letter now would, in our view, inevitably encourage claims against SWM where a fuller evidentiary picture may not.”

SWM Managing Director Simon Dowling yesterday welcomed the court’s decision, saying: “This is the second favourable judgment the court has issued to SWM against the JFSC and is one further step in a longer journey. We welcome the judgment in which the Court makes very strong criticisms of the way the Enforcement Division of the JFSC has handled our case, and it does raise serious concerns as to whether we will get a fair hearing from the Commission in this matter, since it appears they have already reached their conclusions.  That is not the conduct we would have expected from a regulator."

The JFSC have accepted the court's judgement, but say that they remain concerned that they had not been given any details of the "second opinion" that SWM wanted to commission - including the cost and likely timeframe.

In a statement, the JFSC said: "The JFSC requested key information from SWM, including, as noted, details of the anticipated time-frame and expected cost in relation to the proposed second professional opinion, in order to understand the potential financial impact on SWM.  SWM failed to provide any of the requested information to the JFSC.  

"The JFSC considered the request for information to be appropriate in the light of the JFSC’s overarching statutory duties, including the duty to have particular regard, amongst other matters, to the 'reduction of the risk to the public of financial loss…'.

"Protecting the interests of investors was an important consideration for the JFSC."