The Upper Tribunal, Tax and Chancery Chamber, has confirmed that it will only increase the sanction or financial penalty proposed by the FCA in its Decision Notice on a reference if the FCA's (lower) sanction or financial penalty is "clearly wrong".
On 8 July 2016, the FCA (via its Regulatory Decisions Committee, the “RDC”) issued a Decision Notice in respect of an individual, AT. That Decision Notice found that AT had recklessly made misleading statements and omissions to certain colleagues in relation to the existence of a cultural audit report on two occasions:
- in the context of senior management’s response to a whistleblowing email; and
- in the context of a request for information from the Federal Reserve Bank of New York.
The FCA considered that AT’s actions showed a lack of integrity in carrying out his controlled function in breach of the FCA’s Statements of Principle and Code of Practice for Approved Persons (APER)Principle 1.
The FCA’s proposed sanction was to:
- prohibit AT from performing any senior management function and any significant influence function in the financial services industry, pursuant to its powers in section 56 Financial Services and Markets Act 2000 (FSMA); and
- issue a public censure to AT, pursuant to its powers in section 66 FSMA.
The FCA did not propose imposing a financial penalty.
AT referred the FCA’s decision to the Upper Tribunal. The FCA also referred the question of the appropriate sanction to the Tribunal, arguing for a financial penalty to be imposed, despite one not originally being imposed in the Decision Notice.
References to the Upper Tribunal
A reference to the Upper Tribunal is not an appeal against the FCA’s decision, but a complete rehearing of the issues that gave rise to the Decision Notice. On a reference, the Tribunal may consider any evidence relating to the subject matter of the reference or appeal, whether or not it was available to the FCA at the time of its investigation, which ultimately led to the Decision Notice.
Whilst unusual, therefore, the FCA can seek to argue, and the Tribunal can find, that additional facts and circumstances existed and / or additional breaches have been committed, over and above the facts and circumstances and breaches found in the Decision Notice.
The Upper Tribunal’s decision
The Tribunal found that the FCA’s concerns in relation AT’s involvement in senior management’s response to the whistleblowing email were well-founded, and amounted to a lack of integrity in breach of APER 1, but those in respect of the request for information from the New York Federal Reserve were not.
The question, therefore, arose as to what the appropriate sanction should be, given that the FCA’s concerns in respect of only one – and not both – of the occasions had been established.
The Upper Tribunal powers on sanctions on a finding of misconduct differ dependent on whether the sanction was imposed under section 56 (the FCA’s power to impose a prohibition order) or section 66 (the FCA’s power to impose a financial penalty and / or issue a public censure):
1. on a reference in respect of a decision under s56, the Tribunal can either:
a) dismiss the reference; or
b) remit the matter to the FCA with a direction to reconsider and reach a decision in accordance with the findings of the Tribunal; whereas
2. on a reference in respect of a decision under s66, the Tribunal must:
a) determine what (if any) is the appropriate action for the FCA to take; and
b) remit the matter to the FCA with such directions (if any) as the Tribunal considers appropriate for giving effect to its determinations.
In other words, if the Tribunal upholds the particular reference, whether in whole or in part, the Tribunal can substitute its own determination (in its discretion) as to whether a financial penalty should be imposed, and if so in what amount, and / or whether a public censure should be issued. The Tribunal, however, can only ask the FCA to reconsider its decision to impose a prohibition order (and in respect of the proposed length) and then only if it is not satisfied that, in the light of the Tribunal’s findings, the FCA’s decision to impose the prohibition order was “within the range of reasonable decisions open to the [FCA]“.
Statute and case law is silent on whether it is possible for the Tribunal to impose a financial penalty, where none has been imposed by the FCA in the Decision Notice the subject of a reference. Whilst, as above, the Tribunal can find that additional facts and circumstances existed and / or additional breaches have been committed, over and above the facts and circumstances and breaches found in the Decision Notice, the Tribunal has previously considered that it should “be slow to increase a penalty save in a case where the RDC has plainly misdirected itself and the penalty imposed falls substantially below a proper amount, since its doing so might otherwise act as a disincentive to the making of meritorious references“.
The Upper Tribunal confirmed that this approach was correct and refused to impose a financial penalty under s66, as had been argued by the FCA. The Tribunal explained that: “[o]ur task on a disciplinary reference is to determine, on the basis of our findings of fact and conclusions, what is the appropriate action (if any) for the RDC to take. In making that determination, we have regard to the RDC’s reasons for issuing a public censure under section 66 of the FSMA rather than imposing a financial penalty under that section. Approaching the matter in that way, we consider that we should not impose a penalty where the RDC had decided not to do so unless we are satisfied that the RDC’s decision was clearly wrong. A decision not to impose a penalty would be clearly wrong if, for example, the RDC had misdirected itself and the penalty imposed was substantially below an appropriate amount. A decision might also be clearly wrong if, on a reference, the Tribunal had found that the facts of the matter showed that the misconduct or its consequences were more serious than the RDC had appreciated when making its decision on the appropriate sanction“.
The Tribunal considered the reasons given by the FCA’s RDC for imposing a public censure rather than a financial penalty under s66 in some detail and determined that there were no grounds on which that decision could be said to be “clearly wrong“. The Tribunal, therefore, refused the FCA’s request that a financial penalty now be imposed on AT.
The Tribunal also considered the reasons given by the FCA’s RDC for imposing the partial prohibition order under s56. The Tribunal was not satisfied, in the light of the “significantly different” findings that the Tribunal had reached, that the decision to make a partial prohibition order could be regarded as one that was within the range of reasonable decisions open to the RDC. It, therefore, remitted the case to the FCA with a direction to reconsider its decision to make a partial prohibition in the light of the Tribunal’s findings on the reference; in particular, the finding that there was no misconduct in relation to the New York Federal Reserve’s request. In doing so, the Upper Tribunal emphasised the length of time since the whistleblowing email issue had occurred and AT’s otherwise “spotless” disciplinary record.
In the light of the Upper Tribunal’s determination, the FCA issued its Final Notice with a public censure, and no financial penalty or prohibition.
This decision is welcome clarification for those who disagree with the FCA’s decisions in its Decision Notice and are considering whether or not to refer their cases to the Upper Tribunal. In particular, they can take comfort that, should the Upper Tribunal uphold the FCA’s decisions, it is unlikely that the result will be an increased sanction. Further, the case is a rare example of a successful (at least in part ) Tribunal reference, which might encourage others that it is worth challenging the FCA to the Upper Tribunal if they genuinely believe that the FCA’s decisions are wrong.