Other Author      Georgia Stylianou, Trainee Solicitor

On 25 March 2022, the England & Wales Court of Appeal handed down its decision in Financial Conduct Authority v. Ferreira1, which confirmed that in order for a restitution order to be made against a defendant for being "knowingly concerned" in a contravention of the general prohibition of financial promotions in the Financial Services and Markets Act 2000 ("FSMA"), they must have known that a potentially relevant exemption to that prohibition did not apply. The decision clarifies that it is insufficient for the defendant only to have known of the bare facts giving rise to the contravention.

Statutory provisions

This case concerned so-called financial promotions or, to use the language of section 21 FSMA, communications of invitations or inducements to engage in investment activity. In general, financial promotions are prohibited unless the person making the communication is authorised by the Financial Conduct Authority ("FCA"), or the communication has been approved by an FCA-authorised person.

Section 21(1) and (2) FSMA provides:

"(1) A person ("A") must not, in the course of business, communicate an invitation or inducement to

(a) engage in investment activity, or

(b) to engage in claims management activity.

(2) But subsection (1) does not apply if—

(a) A is an authorised person; or

(b) the content of the communication is approved for the purposes of this section by an authorised person."

Pursuant to section 25(1) FSMA, a breach of section 21 is a criminal offence punishable by, amongst other things, imprisonment and/or fine. However, section 25(2) provides a defence where the defendant can show:

"(a) that he believed on reasonable grounds that the content of the communication was prepared, or approved for the purposes of section 21, by an authorised person; or

(b) that he took all reasonable precautions and exercised all due diligence to avoid committing the offence".

Under section 382 FSMA, the FCA can apply to the court for an order (a "restitution order") requiring a person to make a payment to the FCA, to make good losses caused to others or to disgorge profits accrued in contravention of a requirement under FSMA. In making such an order, the court must be satisfied that the person "has contravened a relevant requirement, or been knowingly concerned in the contravention of such a requirement…" (emphasis added).

Factual background

A company called Our Price Records Limited (the "Company") raised £3.6m from over 250 retail investors, but never traded properly and went into administration with a substantial deficit. The FCA brought a claim against a number of defendants in connection with misleading or false statements in materials promoting shares in the Company. Amongst these defendants was one of the Company's directors, Ms Ferreira.

It was not disputed that the Company had breached section 21 FSMA in its financial promotions, but it was also accepted by the court that Ms Ferreira had not known, and nor had she reason to suspect, that section 21 was being contravened. Although Ms Ferreira was aware of the existence of financial promotions, she had relied on others to ensure that the financial promotions were communicated in a way that complied with the relevant regulatory requirements; in particular, that their content was approved by an authorised person.

Against Ms Ferreira, the FCA sought a restitution order pursuant to section 382 FSMA, on the basis that Ms Ferreira had been "knowingly concerned in the contravention" of a requirement under FSMA, the requirement being that financial promotions must be approved by an authorised person. The order sought against Ms Ferreira was for a payment of around £2.7m to the FCA for the benefit of the Company's investors.

The central question

The key issue was whether, for the court to issue a restitution order pursuant to section 382 FSMA, it was sufficient that Ms Ferreira knew that the Company was issuing financial promotions, or whether she must also have known that the relevant communications had not been approved by an authorised person. In other words, what is the meaning and effect of the words "knowingly concerned in the contravention" under section 382 in this context – does this refer only to the communication itself under section 21(1), or should it also include the fact that the exemptions under section 21(2) did not apply in the circumstances?


At first instance, the High Court ruled in favour of the FCA, finding that it was sufficient that Ms Ferreira knew that there was a financial promotion, and that the communication was made in the course of business. On this basis, it was held that Ms Ferreira had been "knowingly concerned" in the contravention of section 21(1) FSMA, as she was aware that communications relating to the Company's shares had been circulated by the Company.

However, the High Court's decision and its reasoning were overturned by the Court of Appeal. Delivering the leading judgment, Snowden LJ held that, to be liable under section 382 FSMA, Ms Ferreira's knowledge must have included knowledge that the exemption at section 21(2) was inapplicable in the circumstances, i.e. that the financial promotions in question had not in fact been approved by an authorised person. In so deciding, Snowden LJ made the following observations.

  • First, the test applied at first instance would suggest that the word "knowingly" (in "knowingly concerned") added little or no meaning to section 382. This, he remarked, was "not a promising starting point for an argument on statutory interpretation", hinting that the general starting point should be that each word in a statutory provision was included deliberately, for a purpose, and would therefore make a difference to the meaning of the provision. Similarly, it was noted that the High Court's interpretation of section 382 in the circumstances did not appear consistent with the defence provided by section 25(2)(a) – "that [the defendant] believed on reasonable grounds that the content of the communication was prepared, or approved for the purposes of section 21, by an authorised person…". If all that is needed is knowledge of the financial promotion itself, in principle this defence should not exist.
  • Second, Snowden LJ considered the argument that the effectiveness of section 382 FSMA would be undermined if assessing whether a defendant was "knowingly concerned" in a contravention required consideration of the defendant's knowledge or belief of the facts behind the transgression, because it would be too onerous for the FCA to establish this. Snowden LJ rejected this argument, noting that, in practice, by the time the matter comes to court the FCA will have already formed a view as to why a certain contravention took place and its surrounding circumstances, including the defendant's knowledge or otherwise relating to the contravention. At any rate, determining disputed questions of who knew what, how, and when "is something that courts do routinely".
  • Snowden LJ remarked that section 382 FSMA in effect empowers the court in appropriate circumstances to lift the corporate veil, by making an order against an individual for contraventions committed by a company. The implications of the first instance decision would lift the corporate veil "in a much wider set of circumstances than those in which the courts have conventionally thought it appropriate to pierce the corporate veil" in that, usually, some finding that a company has been used as a sham or façade to perpetrate wrongdoing is required in order for the corporate veil to be lifted or pierced. Here, it would seem inconsistent with that general principle to hold a director liable in circumstances where she was not aware that there had been a contravention at all. The Court confirmed that it should be assumed that Parliament would not intend such a dramatic departure from the basic principles of limited liability and separate legal personality, unless there are very clear indications to the contrary.


Financial promotions have been subject to increased regulatory attention recently, as reflected in the recent FCA consultation on proposals to strengthen the rules on financial promotions for high-risk investments, and proposed changes to the rules applying to authorised firms which approve and issue financial promotions. There have also been firm signs over the past two years or so that the FCA is seeking to exercise its powers of enforcement more readily than previously. These two recent trends suggest that we will continue to see FCA enforcement actions in respect of financial promotions – including, as here, applications for restitution orders on behalf of retail investors.

The Court of Appeal's decision in this case therefore highlights the importance of ensuring that all fundraising activities and financial promotions are fully compliant with applicable regulatory requirements, as the FCA might not be shy in taking investigatory and enforcement steps and, if necessary, bringing cases to court to test the limits of the relevant statutory powers.

From a legal perspective, the Court of Appeal's judgment and reasoning provides welcome clarification on this "short but important point of construction on section 382". In particular, the decision effectively narrows the scope for the FCA to obtain restitution orders against individuals indirectly involved in financial promotions to those who had knowledge that the communications contravened a requirement under FSMA. As such, the clarification may be particularly welcome for directors of companies engaged in fundraising activities. In terms of principle, the Court of Appeal's decision does appear broadly consistent with the general position that in order for an individual to be held liable for the acts of a company, knowledge of wrongdoing or irregularity is required.