RECORD-KEEPING AND DOCUMENTATION

1. The SDM had found that
   1. “Bordeaux’s level of control over the role of the Investment Manager was significantly reduced by not maintaining or having sight of original documentation.”
2. He also found that
   1. transaction documents were missing for up to a year and a half and “[w]hilst, at all material times Bordeaux was aware of the transactions being entered into on behalf of the ICs, albeit after the event,
   2. The structure of these transactions and the fees being taken by Arch FP, any enquiry by Bordeaux was limited and insufficient.
3. Bordeaux should have
   1. Ensured that procedures were in place to prevent the fees being charged or paid as opposed to having to recover the fees after they had been paid”.
4. The Deputy Bailiff considered that these failings were not “serious”, but rather “ordinary”.
5. On this basis the SDM was entitled to conclude
   1. That missing documentation was symptomatic [indicative] of an absence of proper internal organisation.
6. In the Deputy Bailiff’s view the
   1. “Level of oversight, and so control, was reduced below what it would have been had more stringent steps been taken by Bordeaux.
   2. This all forms part of a pattern of the level of scrutiny of what was taking place by the Bordeaux Directors being inadequate”‘ [Para 53, RC Decision]

MISSING ATTENDEES AT BOARD MEETINGS [RECORD-KEEPING AND DOCUMENTATION]

1. The RC Decision acknowledges that it is common practice to use templates and draft board minutes; and the Commission should take account of this reality.
2. However, in this case there was evidence that some meetings were apparently minuted by a person not actually in attendance.
3. In those circumstances the Deputy Bailiff considered that the SDM was justified in concluding that
   1. “the records of the company would not have been accurate and represented a misleading record of affairs”
4. with the result that
   1. “[t]he conduct of the Board of Bordeaux demonstrates a failure to understand the requirement to keep full, proper and not misleading records in respect of the controlled investment business undertaken.”[ Para 55, RC Decision]

COMPLIANCE PROCEDURES AND TRAINING

1. The SDM had been critical about
   1. the absence of periodic reviews of Bordeaux’s written procedures, and
   2. Its client take-on procedures.
2. These findings were not challenged on appeal, but the Deputy Bailiff observed that these findings were also relevant to a consideration of the non-fulfilment of the MCL.
3. The RC Decision reproduces the SDM’s feeling that
   1. “[A]LTHOUGH Arch FP was authorised and regulated by the FSA, Bordeaux should have taken appropriate steps to monitor Arch FP, particularly as they were a new client to Bordeaux and Arch FP had not previously managed a Guernsey closed-ended fund before.
   2. Bordeaux should have ensured that appropriate client take-on procedures were in place to IDENTIFY POTENTIAL RISKS WITH NEW BUSINESS – Failure to do so was (amongst other matters) a failure to
      1. Fulfil the Fiduciary Law Schedule 1 para 3(2)(f).
   3. It also showed a failure to act with the appropriate level of skill and competence, and diligence.”[ Para 56, RC Decision]
   4. The Court was also of the view that two failings relating to training were also relevant to the consideration of the MCL.
      1. no relevant or effective sanctions training, and
      2. a failure to ensure staff were trained adequately or experienced enough

EFFECT OF THE FAILINGS

1. The Court rejected an argument from the appellants that it was necessary for there to be evidence of a causal link to loss by investors.
2. Ultimately the Deputy Bailiff concluded that each of the various failings identified in the SDM’s decision were all properly matters to be taken into account by him in considering compliance with the MCL. [Para 58, RC Decision]
3. The question the Deputy Bailiff then had to answer was
   1. whether the failings justified the sanctions imposed, and
   2. Whether the case had been made out under each of the applicable Regulatory Laws.
4. The appellants argued that no prohibition orders should have been made in the absence of a finding of dishonesty or serious lack of competence impacting on a person’s integrity.
5. This view was rejected by the Court, which held that prohibition orders
   1. “can be imposed where the combination of the failings identified leads to a risk to the public”[ Para 64, RC Decision]
6. In this case the RC Decision records that the numerous references to non-fulfilment of the applicable MCL opened the door for the imposition of prohibition orders under the POI Law and the Fiduciaries Law as follows.
7. Prohibitions under the laws (listed below) against the directors were set aside on the basis that the foundation for these decisions had not been set out adequately in the SDM’s statement of reasons.
   1. the Banking Supervision (Bailiwick of Guernsey) Law, 1994,
   2. the Insurance Business (Bailiwick of Guernsey) Law, 2002 and
   3. the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002
8. The Court did, however, expressly acknowledge that the Commission could
   1. Form the view that the failings found affected the directors’ fitness and propriety under these laws, and
   2. Choose to commence additional enforcement actions.

Part 3 of 3