The Supreme Court  ruled yesterday that two businesses shut down by the Financial Services Authority (“FSA”) were trading as unauthorised businesses.

The two companies – Digital Satellite Warranty Cover Ltd (“Digital”) and Satellite Services (“Satellite”) were set up in the late 2000’s. In return for an insurance premium of between £6.49 and £11.49 per month, the firms warranted that they would cover any and all callouts regarding parts and labour costs for fixing Sky digital boxes. Digital apparently made over £10 million profit in 2010 and Satellite made a turnover of £2.1 million. However, it subsequently came to light that neither of these businesses were authorised by the FSA. Under s.19 of the Financial Services and Markets Act 2000 any person dealing with contracts of insurance (classed as an “investment”) must be authorised to do so by the FSA – a failure to do so if both a criminal and civil offence. The FSA therefore subsequently investigated the companies and forced both companies to stop trading in a High Court action in 2011. The companies appealed this decision to the Court of Appeal, which rejected their appeal. This decision was in turn appealed to the Supreme Court.

The Supreme Court ruled that the services that the companies were providing did in fact fall under s.19 of the Financial Services and Markets Act 2000. The companies were therefore unauthorised to carry out such business. However, although a fine can be imposed (and the business prevented from operating) on the business it is thought that there is little prospect of former clients of the business being reimbursed. Both businesses (and a third business which did not appeal the decision of the High Court) are in liquidation.

Under s.19 of the Financial Services and Markets Act 2000 only authorised or exempt persons are allowed to carry out “regulated activities” (dealing in investments, arranging deals in investments, managing investments, and/or advising on investments). If a non-exempt person and/or an unauthorised person carries out one of these activities then they are committing a criminal offence.

Tracy McDermott, head of enforcement and financnial crime at the FSA, stated that this was an “important” judgment and that it should help protect consumers from “inadvertently dealing with unauthorised businesses”. She also said that it should help to encourage other, similar firms to obtain advice from the FSA as to whether they should be seeking to obtain authorisation for the services they offer.

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