Financial Services Authority v Fradley and Woodward

Reference: [2004] EWHC 3008 (Ch)

Court: Chancery Division

Judge: Mr John Martin QC

Date of judgment: 21 Oct 2004

Summary: Gambling - Horse racing betting scheme – Financial Services Authority – Contravention of Financial Services and Markets Act 2000


The Financial Services Authority (“FSA”) claimed that the Defendants, by running a betting scheme whereby they collected money from the public and placed bets on horse races on their behalf, had contravened s.19 of the Financial Services and Markets Act 2000 (“FSMA”), which prohibits a person from carrying on a regulated activity in the UK unless he is authorised or exempt, and s.21 of the FSMA by communicating an invitation or inducement to engage in investment activity.


Whether the Defendants had breached s.19 and s.21 of the FSMA by running their race horse betting scheme.


The scheme (at least for part of the time it was operating) fell within the definition of a ‘collective investment scheme’ as the three limbs of the test set out in s.235 FSMA were satisfied: firstly, the scheme resulted in arrangements with respect to the public money contributions whose purpose was to enable the participants to receive profits from the management of those contributions (the ‘profits’ being betting winnings and ‘management of contributions’ being the placing of bets); secondly the contributors did not all retain day-to-day control of the management of their contributions; and thirdly, the contributions and profits were pooled and the property was managed as a whole by the operator of the betting scheme. The second defendant was also held to have contravened s.19 on the grounds that he knew all the elements of the facts on which the contravention was based – it was not necessary for the FSA to prove that he knew the facts amounted to a contravention.


Operators of betting schemes need to be aware of this case and the fact that, in certain cases, the activity they are carrying out could fall under the remit of the FSA. In order to be found in breach of the FSMA it is enough for the FSA to show that an operator of a scheme was involved in the scheme and knew of the elements which result in a contravention; the fact that an operator may have believed their betting scheme fell outside the FSMA is not a defence. The fact that the scheme is a betting scheme and betting is already a heavily regulated industry was a point that was made, unsuccessfully, by the Defendants in this case.