This landmark decision of the Financial Services and Markets Tribunal was handed down on 12 October 2006. The background concerned a decision of the Financial Services Authority ("FSA") that the two individuals, D and T, were guilty of market abuse. The FSA had imposed fines of £750,000 and £100,000 respectively on these individuals for their role in allegedly placing a spread bet on the 2002 flotation of biotechnology firm, Cyprotex. In May 2006, the Tribunal (which acts as a quasi-appeal body to the FSA) overturned the FSA's decision on the basis that, although spread-betting had taken place, the practice on this occasion did not fall foul of the provisions in the Financial Services and Markets Act 2000. The Tribunal then went on to consider the question of costs at a hearing in October 2006 and, for the first time, awarded costs against the FSA. The bill for the FSA is estimated at £5-10 million.

The Tribunal found its discretion to make the award of costs against the FSA in the Financial Services and Markets Act 2000. The 2000 Act provides a statutory power to award costs against the FSA where it has either acted "vexatiously, frivolously or unreasonably", or where its decision was unreasonable. Whilst the former ground was not proven, the Tribunal highlighted a number of shortcomings in the FSA's original decision and the processes whereby it had been reached, sufficient to establish unreasonableness. In terms of the processes, the criticisms included a failure to make every possible effort to obtain full telephone records when it was clear that the existence of such records would be crucial in determining the credibility of evidence. Having regard to the decision itself, the Tribunal censured the FSA's references to "collusion and concealment", as there had been no direct evidence that this had taken place. The Tribunal also founded upon the lack of a dedicated legal function within the FSA, independent of its enforcement division, although it acknowledged that the FSA had introduced regulatory changes to rectify this deficiency in the period between its original decision and the Tribunal hearing.

The Tribunal's decision on costs will no doubt primarily provide firm encouragement to individuals considering an appeal against a decision of the FSA, but it does also act as a disquieting reminder to all regulators subject to the control or intervention by an appeal body that statutory powers such as those relating to costs in the 2000 Act can and will be exercised contrary to the regulator where it is seen to have fallen below the standards of investigation and adjudication expected of it.

In particular, the case highlights the need for regulatory bodies to ensure that all their cases are properly investigated and the terms of their decisions fully supported. Moreover, the Tribunal's concern over separate investigation and enforcement processes perhaps demonstrates to other regulators with less advanced or sophisticated regimes that such structures may now be viewed as a necessary facet of a fair and equitable regulatory regime.