The recent judgment of the Upper Tribunal in relation to the conduct of two directors of Catalyst Investment Group Limited serves as a reminder to those working in the financial services sector about the potential ramifications for individuals should consumers be misled. It also highlights a curious anomaly that now exists in the procedural relationship between the FCA and Tribunal.
Catalyst was a UK distributor of bonds issued by ARM Asset Backed Securities SA. ARM was a securitisation vehicle based in Luxembourg and its Bond Programme was registered with the Irish Stock Exchange and traded on its regulated market. ARM needed a licence to issue bonds from the Luxembourg regulator but did not have one. In November 2009 the regulator requested ARM to stop issuing bonds until it was granted a licence.
Notwithstanding the absence of a licence, Timothy Roberts, the Chief Executive of Catalyst continued to promote the bonds. He also approved a letter to investors containing misleading information about ARM's licensing status in March 2010 and, together with Andrew Wilkins, a director of Catalyst, allowed the firm to provide misleading information about ARM's licence in a letter to IFAs in December 2009.
The Tribunal found that Mr Roberts demonstrated a reckless disregard for investors' interests and that this constituted a serious lack of integrity. It also considered that he had acted without due care, skill and diligence in relation to ARM's financial promotions and agreed with the FCA's decision to prohibit him from undertaking any function in relation to any regulated activities carried on by an authorised firm. The Tribunal also directed the FCA to impose a financial penalty on Mr Roberts of £450,000, thereby upholding the fine previously imposed by the FCA.
Whilst the Tribunal agreed with the FCA's decision that Mr Wilkins had, like Mr Roberts, acted without due care, skill and diligence it did not agree with the regulator's view that he had acted recklessly and without integrity. Therefore the Tribunal remitted to the FCA the decision concerning what if any prohibition should be imposed on Mr Wilkins noting that it did "not consider that Mr Wilkins is not fit and proper as alleged by the Authority". The Tribunal made clear that this assessment related to both the director and customer adviser functions that Mr Wilkins had undertaken.
Additionally Mr Wilkins had success in relation to the fine to be imposed on him; the FCA had originally imposed a fine on him of £100,000, however the Tribunal reduced this to £50,000.
Clearly there have been serious consequences for both Mr Roberts and Mr Wilkins of pressing on with the distribution of misleading communications to customers.
Whilst many in the market would never consider engaging in conduct similar to Mr Roberts it is the case of Mr Wilkins that provides the more salutary lesson. Notwithstanding his success before the Tribunal he still has a significant regulatory black mark against his name. On any reading of the judgment Mr Wilkins' conduct was not particularly aberrant. Indeed it is noted at points that he not only deferred to Mr Roberts in relation to many of the critical issues, but that he sought views from external consultants. However he was aware of the risk that at some stage of the communications being distributed to customers, they would become inaccurate – and he did little to address this.
Others in the market should consider Mr Wilkins plight if they find themselves in similar situations.
Whilst providing a reminder to financial services professionals, this case has also thrown up a legal curiosity that now arises in some cases before the Tribunal.
Due to the amends made to section 133(6) of FSMA on 1 April 2013, if the Tribunal disagrees with the FCA's decision in respect of a prohibition order, it must now remit a challenge back to the FCA, with a direction to reconsider its previous decision. The position in relation to disciplinary matters, such as a fine, is that the Tribunal simply makes a final determination and remits the matter back to the FCA for the FCA to give effect to the Tribunal's determination.
Consequently the position has arisen in this case (and in the previous case of Tariq Carrimjee) where the Tribunal have disagreed with the FCA concerning a prohibition order and remitted the matter back (albeit with some very clear indications as to the Tribunal's view on what is appropriate).
It is not as yet clear whether the FCA will always follow the indication about what is thought by the Tribunal to be the appropriate resolution of the prohibition reference. However if the FCA does decide to ignore the indication given in the Tribunal's judgment then it is conceivable that the individual could refer the matter back to the Tribunal!
These changes were designed to limit the Tribunal's ability to interfere with supervisory decisions made by the two new regulators (when FSMA was changed to accommodate twin peaks regulation). However this change appears to have created what could develop into a truly perverse scenario of the FCA and Upper Tribunal engaging in a never-ending game of enforcement ping pong.