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Witness name: Jonathan Hill
Statement No: WITN11110100
Dated: 1 March 2024
POST OFFICE HORIZON IT INQUIRY
FIRST WITNESS STATEMENT OF JONATHAN HILL
ON BEHALF OF POST OFFICE LIMTIED
1. I, Jonathan Hill, of 100 Wood Street, London, EC2V 7ER, say as follows:
A. Introduction
2. 1am Jonathan Hill, Compliance Director at Post Office Limited ("POL"). I joined
POL in 2004 as a senior manager in the team looking after bill payments and
commercial cash in transit. Around 2007 I became Head of Personal Financial
Services, liaising with our joint venture company with the Bank of Ireland, Post
Office Financial Services (“POFS”). In 2012 I was appointed the Head of Financial
Services (“FS”) Risk, Compliance, Strategy & Planning. In 2017 I became the
Head of Risk & Regulation, FS & Telecoms. In 2018 I was appointed as
Compliance Director. Prior to joining POL, I held various roles at different financial
institutions, including American Express, NatWest and Visa. This is my First
Witness Statement to the Inquiry (“Statement”). Whilst not having been employed
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by the Company during the whole period in question (the “Relevant Period” —
which I understand covers mid-1996 to June 2021), I feel that in my role as
Compliance Director and taking into account my previous roles, I am equipped
with the professional experience required in order to have acquainted myself with
the regulatory oversight of POL during the Relevant Period and so subject to any
caveats highlighted herein, I am the appropriate person to give this Statement on
behalf of POL.
. This Statement has been prepared in response to a request made by the Post
Office Horizon IT Inquiry (the "Inquiry”) pursuant to Rule 9 of the Inquiry Rules
2006, dated 16 February 2024 ("Request No. 51"). Request No. 51 asks for an
explanation of “the regulatory oversight of Post Office Limited (and any relevant
predecessors) during the relevant period (as defined in the list of issues), in
respect of matters relevant to the Inquiry’s terms of reference” and includes the
following:
a. A high-level overview of the regulatory role the Financial Conduct Authority
(“FCA”) (and any relevant predecessors) played in relation to POL in respect
of matters relevant to the Inquiry’s terms of reference; [See Section C]
b. Whether POL is/was subject to the FCA’s Senior Managers regime; [See
Section D]
c. Whether POL is/was regarded as either a bank or building society by the
FCA; and [See Section E]
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d. Whether any other regulators played a role in relation to POL in respect of
matters relevant to the Inquiry’s terms of reference, and if so, a high-level
overview of that role.
4. This Statement only addresses parts (a) to (c) of Request No. 51. I understand
that part (d) will be addressed in a separate statement. I have aimed to include
within this Statement evidence relating to all matters or issues detailed in parts (a)
to (c) of Request No. 51 insofar as the relevant facts are within my own knowledge.
The facts in this Statement are true, complete and accurate to the best of my
knowledge and belief. Where my knowledge and belief, as set out in this
Statement, has been informed by another person or by documents that I have
reviewed, I acknowledge that person or those documents. I have been assisted in
preparing this Statement by Burges Salmon LLP and Fieldfisher LLP (together
"BSFf"), who act on behalf of POL in the Inquiry. I have had online meetings with
BSFf to assist my preparation of this Statement.
B. Approach
5. Request No. 51 (as also set out in paragraph 3 above) refers specifically to POL
and so this Statement provides relevant high-level information on POL. I have not
commented on the extent to which subsidiaries or entities associated with POL
have been subject to regulation (either by the FCA or its predecessors).
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6. Insofar as regulation by the FCA is concerned, POL has an FCA authorised
subsidiary (Post Office Management Services Limited (“POMS"”)) which operates
with its own independent Board of Directors.
7. In addition, POL has been party to joint venture and other arrangements with the
Bank of Ireland for the provision of financial services. However, as I explain in
more detail below, POL itself has never been authorised or regulated by the FCA
or the Financial Services Authority (“FSA”).
8. Ina similar vein, in this Statement I have addressed POL’s position in relation to
the FCA (and FSA) from December 2001 onwards, being the point in time at which
the Financial Services and Markets Act 2000 (“FSMA”) was implemented. Prior
to this point in time, the financial services industry was regulated under a separate
regime, with which I am not familiar. In addition, as I joined POL in 2004, I only
have direct knowledge of the period from 2004 onwards. For the period between
December 2001 and when I joined in 2004, I have set out the position to the best
of my understanding’.
C. Regulation by the FCA and its predecessors
C1: The UK’s Financial Services Regulators
' This also applies to the periods before 2004 mentioned in paragraphs 10 and 11
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9. Before addressing the specific matters set out in Request No. 51, in order to give
context to what I say later, I have provided a brief summary of the evolution of the
financial services regulation in the UK during the Relevant Period.
10.Before 1997, the statutory Securities and Investments Board (“SIB”) set the rules
for the securities market in the UK and these rules were implemented by three
self-regulating bodies (the Personal Investment Authority, the Investment
Management Regulatory Organisation and the Securities and Futures Authority).
Her Majesty's Treasury directly supervised insurance companies.
11.In October 1997, SIB changed its name to the FSA. Responsibility for supervision
of different sectors was then transferred to the FSA piecemeal over the following
8 years, resulting in the FSA becoming the single regulator of all firms authorised
under FSMA (see Section C2 below). Responsibility for banking supervision was
transferred to the FSA from the Bank of England in June 1998. In May 2000 the
FSA took over the role of UK Listing Authority from the London Stock Exchange.
In October 2004, the FSA took on responsibility for mortgage regulation and in
January 2005 for the regulation of general insurance business.
12. The Financial Services Act 2012 (the “2012 Act’) came into force on 1 April 2013.
The 2012 Act created a new regulatory framework for financial services and
abolished the FSA. It gave the Bank of England responsibility for financial stability,
bringing together macro and micro-prudential regulation, and created a new
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regulatory structure consisting of the Bank of England's Financial Policy
Committee, the Prudential Regulation Authority (“PRA”) and the FCA.
13. The FCA has three operational objectives in support of its strategic goal — (i) to
protect consumers; (ii) to protect and enhance the integrity of the UK financial
system; and (iii) to promote healthy competition between financial services
providers in the interests of consumers.
14.The FCA’s Handbook contains detailed rules and guidance applicable across
authorised firms’ regulated activities. At the most fundamental level, authorised
firms must have appropriate resources, both financial and non-financial; have the
appropriate level of staff resource, skills and expertise; be fit and proper; and have
a suitable business model in place.
C2: FSMA
15.Since 1 December 20012, determining who (and what activities) are regulated by
the FCA (or the FSA before it) is governed by FSMA. This provides that carrying
on a ‘regulated activity’ by way of business in the UK requires either (i)
authorisation by the FCA (or its predecessor, the FSA\%); or (ii) that an exemption
applies*. For there to be a ‘regulated activity’ it is necessary for there to be both
(a) a specified activity carried on by way of business; and (b) in relation to a
2 Subject to transitional provisions as specified in SI 2001/2188 reg.15
8 The FSA had functions conferred on it by or under FSMA from 18 June 2001 until 31 March 2013, when the FSA was replaced by the FCA.
* Section 19 FSMA
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specified investment®. In broad terms, these activities relate to the provision and
sale of financial products and services®.
16. The breadth of the regulatory perimeter under FSMA (and consequently the FCA’s
jurisdiction) has expanded over time to encompass a wider range of activities. For
example, consumer credit regulated activities came under FSMA from 1 April
2014, having fallen under the Consumer Credit Act (and supervision of the Office
of Fair Trading) before then.
17.In simple terms, therefore, the FCA (and the FSA before it) regulated anyone who
performed one or more regulated activities — but who did not benefit from an
exemption. As I explain in more detail below, while POL did perform regulated
activities during the Relevant Period, it was not regulated by the FCA as it
benefited from an exemption.
C4: The Appointed Representative Exemption
18.At various points in time between December 2001 and the end of the Relevant
Period, POL has performed various regulated activities including the marketing
and sale of certain financial products, such as mortgages and consumer credit,
credit cards, travel insurance and life insurance. However, POL has never been
5 Section 22 FSMA
® The activities and investments are specified in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 ("RAO")
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directly authorised and regulated by the FCA (or the FSA), because it benefits
from an exemption as an ‘appointed representative’ (“AR’”)’.
19.An AR is defined by the FCA as being “a firm that conducts regulated business on
behalf of a directly FCA-authorised firm, who is its ‘principal’. The principal firm
takes regulatory responsibility for the appointed representative, and must ensure it
meets FSA requirements’. An AR is, in overview, an unauthorised person who
(a) is exempt in relation to certain prescribed regulated activities; and (b) carries
on such activities under a written agreement with an authorised person who has
accepted responsibility for those activities (the “Principal’).
20. The key premise of the AR regime is that it is the Principal who is authorised and
regulated by the FCA (of FSA before it) - not the AR. The Principal takes
responsibility for its AR and as such, the AR is not directly regulated by the FCA
(or the FSA).
21.To the best of my knowledge and belief, this was the case for POL from December
2001 to the end of the Relevant Period. POL’s entry on the FS Register? (FRN
409080) reflects POL’s status as an AR, with the FS Register stating that POL has
been registered as an AR since 1 February 2001. As such, in its capacity as an AR
7 A person may be an exempt person under FSMA, and therefore not need to be authorised, as a result of various provisions, the primary one being
section 39(1) FSMA, which covers the exemption of ARs. This exemption effectively came into effect on 1 December 2001
® www fea.ora.uk/publication/archive/fsa-responsibilty-appointed-representatives.pdf
® The FS Register (the Financial Services Register) is a public record that lists all regulated and approved financial services and individuals by the
FCA andlor the PRA
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and in accordance with the regime as outlined above, to the best of my knowledge
and belief POL is not (and was not) directly subject to regulation by the FCA.
22.The FS Register lists POL’s current and former Principals, for whom it has been
an AR.
C6: The Payment Services Regulations
23.POL also facilitates international money transfers. Such transfers are a form of
payment services that are regulated by the Payment Services Regulations 2017
(‘PSRs’), in respect of which the FCA is the principal regulator.
24.However, POL is not an authorised payment institution (which is one of the
categories of persons who may provide payment services under the PSRs).
Instead, (as POL’s entry on the FS Register (FRN 508905) reflects) POL provides
these services as a ‘PSD Agent’ on behalf of:
(a) MoneyGram International Limited; and
(b) Western Union Payment Services GB Limited.
25.As a PSD Agent, POL is not regulated by the FCA. The categories of persons that
can provide payment services without the need for further authorisation or
registration by the FCA under the PSRs includes “the Post Office Limited”.
However, POL is still required to comply with the applicable conduct of business
requirements of the PSRs and its reporting and notification requirements.
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26.POL’s compliance with those requirements is not directly regulated by the FCA.
Similar to the position with the AR regime under FSMA, regulation 36(2) of the
PSRs provides that the payment institutions who appoint a PSD agent (in this case
MoneyGram and Western Union) are responsible for anything done or omitted by
that agent (i.e. POL). So it is the payment institutions who are responsible for
monitoring POL’s compliance with the relevant rules.
27.Separately from international money transfers, POL has provided deposit and
withdrawal related services for various banks. During the Relevant Period, POL
has never been regulated by the FCA (or the FSA) in relation to these activities.
POL has explained to the FCA why it considers that it does not require FCA
authorisation to conduct these activities and the FCA has not objected to POL’s
position.
28.In a similar vein, and for completeness, while POL was not regulated by the FCA
(or the FSA) (in the sense of being authorised and carrying permissions to conduct
specific activities), it nonetheless liaises with the FCA frequently on a range of
matters. But to be clear, those interactions are not because the FCA regulates
POL - they are reflective of the fact that POL is a major industry participant, which
acts responsibly in relation to public bodies such as the FCA.
D. ECA’s Senior Managers Regime
29.The Senior Managers Regime (“SMR’) forms part of the FCA’s Senior Managers
and Certification Regime (“SMCR’), which was launched in 2016. The SMR covers
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senior managers who perform specified senior management functions (“SMFs”) in
authorised firms.
30.The SMCR (and in turn the SMR) only applies to FCA regulated firms authorised
under FSMA. As POL is only an AR and/or PSD Agent, SMCR (and therefore
SMR) does not apply to it.
3
.While SMCR does not apply to POL, as it is an AR it is still subject to the
predecessor of SMCR, the Approved Persons Regime (“APR”). This means that
applications to the FCA for the approval of relevant individuals performing
“controlled functions”'° should be submitted to the FCA (or FSA) by the relevant
principal firm (rather than POL or the individual). In this sense, therefore, there is
a supervisory link between POL’s senior management and the FCA.
32.The FCA may grant an application if it is satisfied that the candidate is a fit and
proper person to perform the FCA controlled function stated in the application form.
Responsibility lies with the firm making the application (i.e. the Principal firm, not
the AR) to satisfy the FCA that the candidate is fit and proper to perform the FCA
controlled function applied for.
‘Being, like SMFs, functions which are specified by the FCA as being ones which necessitate the individual function holder to be approved by the
FCA under section 59 FSMA. Such individuals then appear on the FS Register entry for the relevant AR(S). At present Nick Read, POL CEO, is.
the only approved person,
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33. The FS Register records the POL individuals who have been approved to perform
controlled functions in connection with POL’s activities as an AR (whether currently
or historically).
34.In summary, therefore, POL is not subject to the SMR but by nature of being an
AR, satisfaction of the fit and proper person test is required, as well as oversight
by the Principal, which may be relevant to the Inquiry’s terms of reference in
relation to matters of governance.
E. POL’s Status as a Bank or Building Society
35.POL has never been authorised as a Bank or Building Society by the FCA or PRA
or their precursors, during the Relevant Period. As far as I am aware, neither the
FCA nor the PRA have ever regarded it as such either.
Statement of Truth
I believe the content of this statement to be true.
Dated: 1 March 2024
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