Carrimjee v FCA
Mr Carrimjee ("C") founded Somerset Asset Management LLP ("SAML") on 9 January 2006 and was the firm's senior partner, in addition to acting as fund manager and investment adviser. In 2011 the FCA launched an investigation into C's role, after the discovery that C's client planned to manipulate the closing price of Gazprom GDRs in April 2010 and Reliance GDRs in October 2010.
At the time of these events C held a number of controlled functions as an approved person, namely Chief Executive, Partner, Compliance Oversight, Money Laundering Reporting and Customer Function. After this incident, C relinquished the compliance oversight and money laundering reporting significant influence functions ("SIFs") on 16 August 2012 and at the same time SAML hired a separate compliance officer to perform these functions.
The FCA issued a Decision Notice on 26 March 2013 withdrawing C's individual approvals pursuant to section 63 of the Financial Services and Markets Act 2000 ("FSMA"); prohibiting C from performing compliance oversight and money laundering reporting SIFs in relation to any regulated activity carried on by any authorised or exempt person or professional firm pursuant to section 56 FSMA; and imposing a financial penalty of £89,004 pursuant to section 66 FSMA for breaching Principle 1 of the FCA Handbook by failing to act with integrity.
C disputed these findings and referred the matter to the Upper Tribunal which put forward its decision on 4 March 2015. The Upper Tribunal directed the FCA to impose the penalty but to reconsider its decision in accordance with the Tribunal's finding that C acted without due skill, care and diligence, in breach of Principle 2 and remitted the decision to impose a prohibition order back to the FCA.
The FCA issued a Further Decision Notice on 26 November 2015, following a Draft Decision Notice on which C made oral and written representations to the RDC. In light of the Upper Tribunal's observations at the first reference, the only further decision the FCA considered was whether to impose a prohibition order banning C from carrying out compliance oversight and money laundering reporting SIFs. C referred this decision to the Tribunal which was recently determined on 20 October 2016.
In its judgment the Upper Tribunal outlined 2 issues to reconsider: the issue of C's competence and capability and the issue of whether improper considerations were taken into account during the decision making process.
Competence & Capability
C said that the FCA relied on a one-off incident nearly 6 ½ years ago whereas there was a wealth of evidence since that time to support his competence to perform the relevant functions. The Upper Tribunal found that the seriousness of C's failing in 2010 could not be diminished by describing this as a one-off incident, stating that this incident arose out of dealings and discussions which took place over a number of days. As a result, C would have had adequate time to reflect and consider whether to escalate any concerns, therefore his failings could not be characterised as a momentary lack of judgment. During this time, C ought to have noticed the clear warning signs of the possibility of market manipulation as a reasonably competent compliance officer.
The Upper Tribunal also held that it was no answer to say that C's failure arose in the context of highly specific circumstances, including over-reliance on an expert who was a personal friend. It was emphasised that there would be a clear risk to market integrity and confidence if those who perform compliance oversight functions do not display the necessary competence to identify clear warning signs of potential market abuse. The Upper Tribunal stated that those who exercise such compliance responsibilities need to respond to rare and unusual circumstances, and the ability to identify and respond to circumstances which are highly specific is required to discharge this function effectively. Furthermore, if C was not confident himself in dealing with the matter, C should have sought independent advice from an independent external source rather than a third party personal friend, although any reasonably competent compliance officer would have known it was not reasonable to rely on a third party.
The Upper Tribunal considered the prohibition order issued by the FCA in light of new evidence and further fact finding. C had since undertaken further specialist training in an attempt to learn from previous mistakes made, however the Upper Tribunal found this step was taken "late in the day". This conclusion was reached following the RDC meeting in September 2015 and C's resignation from his compliance position and his own self-enquiry was not enough to "sharpen his skills". In general the Upper Tribunal noted a lack of substantive responses and specific meaningful examples to evidence new skills.
C said that the Further Decision Notice erred in law by taking into account the FCA's desire to send a "message" to the industry and for the prohibition order to act as a deterrent. The Upper Tribunal held that there was no indication the FCA decided to exercise their power to prohibit for an improper purpose, such as a form of punishment. The Upper Tribunal stated that the prohibition order sent an important message that if individuals were guilty of serious misconduct they would be prevented from performing specified functions which would have a deterrent effect. It was emphasised that any such power would be exercised to give consumers confidence, and the overall purpose was to protect consumers and maintain market integrity. It was recognised that while the financial penalty was designed to deal with past misconduct, the purpose of the prohibition order was to prevent further misconduct, and there was nothing to indicate that the prohibition order was being imposed as an additional punishment.
Although the Upper Tribunal upheld the FCA's decision to impose a prohibition order, the parties remain open to appeal the judgment. Furthermore the Upper Tribunal made it clear that nothing prevented C from applying to lift this order in the future if he was able to demonstrate he has acquired the necessary capability to perform the relevant functions.
The Upper Tribunal took great pains to clarify that a prohibition order is not a punishment and does not revolve around "sending a message" but rather it serves to maintain market integrity and promote consumer confidence. Following recent news headlines of "rogue bankers" contributing to the global economic downturn, this would align with the greater aim to promoting positive public opinion towards the banking and finance industry following a swarm of negative feedback.
In the final analysis, the conduct was just too serious to cast it aside as a one-off aberration. It appeared to the Upper Tribunal that it required some thought and positive action from C which led to the conclusion that it could not be satisfied it would not happen again. Further, it had to send a message that this type of conduct, even if it is an outdated event in an otherwise unblemished career, will attract the most serious of sanctions that can be applied: Prohibition.