In this era of record fines and with a broad range of non-monetary enforcement tools at the regulators’ disposal, the Upper Tribunal is a crucial recourse for firms and individuals that are subject to regulatory enforcement decisions. Sidney Myers considers recent decisions that demonstrate the readiness of the Upper Tribunal to challenge the regulators head-on.

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The Financial Services and Markets Act 2000 contains a number of vital checks and balances to guard against bad decisions by the FCA or PRA. One of the most important is the right of any person who is the subject of an adverse enforcement notice to refer the matter to an independent tribunal, the Upper Tribunal (Tax and Chancery Chamber).

The vital role of the Upper Tribunal

What is not always well understood is that the Upper Tribunal is neither an appellate court nor an administrative court tasked merely with reviewing decisions made by the FCA’s Regulatory Decisions Committee (“RDC”). Crucially, the function of the Upper Tribunal is to decide matters completely afresh, rather than simply determine whether the regulator reached the wrong decision due to a procedural irregularity or some other ground of judicial review. It hears live evidence, with witnesses subjected to cross-examination, and considers detailed legal argument in a way that the RDC is simply not equipped to do. In short, the Upper Tribunal is a specialist court, hearing cases where the burden of proof is on the regulator.

The statutory right to refer matters to the Upper Tribunal is therefore a fundamental safeguard for those on the wrong end of a decision notice from the regulator, and applies to all decisions to impose a financial penalty, censure or a prohibition order. Even an individual who is not actually the subject of a notice has the right to refer the matter to the Tribunal if they are identified in a warning notice which, in the regulator’s opinion, is prejudicial to them.

Initial concerns

Given its role as a critical safeguard in enforcement cases, an obvious question arises: how independent is the Upper Tribunal? Can the firm or individual seeking to challenge a decision of the regulator expect to receive a fair hearing from a neutral panel of judges or is it, in reality, little more than a rubber-stamp? This question was hotly debated when the Financial Services and Markets Bill was going through its Committee Stage and several commentators expressed concern at the time as to whether the Financial Services and Markets Tribunal (as it was originally known) would be truly independent. However, a string of recent cases has hopefully laid to rest any notion that the Upper Tribunal is not wholly independent of the regulators.

The Upper Tribunal shows its teeth

The majority of references to the Upper Tribunal are made by individuals who have been found to have committed misconduct or been knowingly concerned in a breach by their firm. Enforcement action can be especially damaging for someone facing a prohibition order, which could prevent that individual from working in the financial services sector indefinitely. Given how high the stakes are, an individual who is facing the loss of his or her livelihood will wish to consider bringing a legal challenge.

However, before doing so, they will rightly seek reassurance that the judges hearing the case are not likely to be predisposed in favour of the regulator. I have analysed each Decision by the Upper Tribunal over the last six years and highlight in the infographic above those where the Applicant was at least partly successful. In my opinion, these clearly dispel any lingering doubts about the Upper Tribunal’s independence.

A continuing trend?

As the infographic shows, the Upper Tribunal has, in some cases, dramatically reduced the level of fines. Leaving aside the highest fine (which was itself reduced by £300,000), the combined effect of the Upper Tribunal’s decisions was to reduce the total amount of fines imposed by the RDC by some 83 per cent. Furthermore, the Upper Tribunal has also overturned findings of lack of integrity, modified the scope of prohibition orders and, on one occasion, refused to impose a prohibition order even though it found that the Applicant had failed
to act with integrity.

The Tribunal’s recent Decision in the case of Angela Burns is, in many respects, the most remarkable. Not only did the Tribunal award Ms Burns £100,000 in costs due to the FCA’s unreasonable conduct of the proceedings, but it also lambasted the FCA, saying “we…deplore the Authority’s…failure to retain a sense of proportion in its approach to this case”. It is almost unprecedented for the FCA to have an award of costs made against it, and judges rarely make such stinging criticisms of regulators. This extraordinary Decision is bound to make the FCA think long and hard before making serious allegations of dishonesty without very strong supporting evidence.

Ever since its decision in the landmark case of John Pottage in 2012, the Upper Tribunal has shown a willingness to reverse almost every type of decision by the regulator, sometimes criticising it in fairly trenchant terms. This is likely to embolden those who are minded to challenge enforcement decisions made against them. Whilst all cases are, of course, decided on their particular facts, the Upper Tribunal’s readiness to keep the regulators in check is a trend we will continue tracking.

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