ENF 9.5 The FSA's power to require restitution

The FSA's administrative power to require restitution from a firm which has breached a relevant requirement is set out in section 384(5) of the Act (Power of FSA to require restitution). This power is exercisable without a court order. Section 384(1) states that the FSA may exercise this power if it is satisfied that a firm has contravened a relevant requirement (see ENF 9.4.4 G), or has been knowingly concerned in a contravention of such a requirement, and:

1. (1)

   that profits have accrued to him as a result of the contravention; or

2. (2)

   that one or more persons have suffered loss or been adversely affected in any other way as a result of the contravention.

Section 384(7) states that a relevant requirement means a requirement-

1. (1)

   which is imposed by or under the Act; or

2. (2)

   which is imposed by or under any other Act and whose contravention is an offence which the FSA has power to prosecute under the Act.

The FSA's administrative power to require restitution in cases where a person, whether authorised or not, has engaged in market abuse is set out in section 384(2) and (3) of the Act. Together section 384(2) and (3) state that the FSA may exercise this power if it is satisfied:

1. (1)

   that a person has:

   1. (a)

      engaged in market abuse (section 384(2)(a)), or

   2. (b)

      by taking or not taking any action, required or encouraged another person or persons to engage in behaviour which, if engaged in by that person, would amount to market abuse (section 384(2)(b)); and

2. (2)

   that he has profited as a result; or that another person has suffered loss or been adversely affected in any other way as a result of the market abuse.

However, under section 384(4) of the Act the FSA may not require restitution under section 384(2) if, having considered any representations made in response to a warning notice, there are reasonable grounds for it to be satisfied:

1. (1)

   that the person concerned believed, on reasonable grounds, that his behaviour did not fall within section 384(2)(a) or (b) (see ENF 9.5.3 G (1)); or

2. (2)

   that he took all reasonable precautions and exercised all due diligence to avoid behaving in a way which fell within section 384(2)(a) or (b) (see ENF 9.5.3 G (1)).

The FSA's administrative power to require restitution where there has been a breach of a relevant requirement or market abuse allows the FSA to require the person concerned to pay to the appropriate person (see ENF 9.5.6 G), or share between the appropriate persons identified by the FSA, an amount which the FSA regards as fair. Such an amount will be determined having regard to:

1. (1)

   in a case falling within paragraph ENF 9.5.1 G (1) or the first part of ENF 9.5.3 G (2), the profits that appear to the FSA to have been made; or

2. (2)

   in a case falling within paragraph ENF 9.5.1 G (2) or the second part of ENF ENF 9.5.1 G (2), the extent of the losses or other adverse effect; or

3. (3)

   in a case falling within paragraph ENF 9.5.1 G (2) and ENF 9.5.1 G (2) or both parts of ENF 9.5.1 G (2), the profits that appear to the FSA to have been made and the extent of the loss or other adverse effect.

An 'appropriate person' is a person that appears to the FSA to be someone:

1. (1)

   to whom the profits referred to in ENF 9.5.1 G (1) or the first part of ENF 9.5.3 G (2) are attributable; or

2. (2)

   who has suffered the losses or other adverse effect referred to in ENF 9.5.1 G (2) or the second part of ENF 9.5.3 G (2).

Where the FSA proposes to exercise its administrative power under section 384(5) in relation to a person it must give him a warning notice. This must state the amount which the FSA proposes to require the person to pay or distribute in accordance with section 384(5) (see ENF 9.5.5 G). The FSA's policy and procedure in relation to warning notices is set out in DEC 2.2 (Warning notice procedure).

Where the FSA decides to exercise its administrative power under section 384(5) in relation to a person it must give him a decision notice. Section 386(2) of the Act (Decision notices) provides that the decision notice must:

1. (1)

   state the amount that he is to pay or distribute as mentioned in ENF 9.5.5 G;

2. (2)

   identify the person or persons to whom that amount is to be paid or among whom that amount is to be distributed; and

3. (3)

   state the arrangements in accordance with which the payment or distribution is to be made.

The FSA's policy and procedure in relation to decision notices is set out in DEC 2.3 (Decision notice procedure).

If the FSA decides to exercise its power under section 384(5), the person in relation to whom the power is exercised may refer the matter to the Tribunal. Further information about referrals to the Tribunal is set out in DEC 5.1 (The Tribunal).

Where the FSA takes action:

1. (1)

   on the decision notice (if the matter has not been referred to Tribunal); or

2. (2)

   on the direction of the Tribunal or court (if the matter has been referred to the Tribunal, or later appealed);

it must give a final notice to the person in relation to whom the power is exercised.

The provisions relating to final notices in these circumstances are set out in section 390 of the Act (Final notices)(seeDEC 2.3.11 GDEC 2.3.12 G). Section 390(6) states that a final notice to make a payment must state:

1. (1)

   the persons to whom;

2. (2)

   the manner in which; and

3. (3)

   the period in which;

the payment must be made.

The obligation imposed on a person by a final notice is enforceable, on application by the FSA, by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988.