An Approved Person appealed to the Upper Tribunal against a decision by the Financial Conduct Authority making a prohibition order against him following a criminal conviction. It was the first time the Upper Tribunal had to consider a case where the FCA was seeking a prohibition order against an individual based on that individual’s conviction for a criminal offence not involving dishonesty and the behaviour was unrelated to the individual’s regulated activity.
Transcript
The basis for the Authority’s action was that Mr Frensham was no longer a fit and proper person to perform both his existing functions and any other function in relation to a regulated activity.
Mr Frensham (the applicant) referred the matter to the Upper Tribunal contending that the Authority had wrongly applied the fitness and properness tests to the facts.
This was the first time that the Tribunal had had to consider a case where the Authority was seeking a prohibition order against an individual based on that individual’s conviction for a criminal offence not involving dishonesty in circumstances where the behaviour concerned was unrelated to the individual’s regulated activity.
The Fit and Proper Test set out in the Authority’s Handbook stated that the Authority would have regard to a number of factors when assessing the fitness and propriety of a person. The most important considerations would be the person’s honesty, integrity and reputation, competence and capability and financial soundness.
Because of the way in which the Authority presented its case, the relevant considerations were whether it could be demonstrated that Mr Frensham lacked integrity or the requisite reputation to work for a firm which undertook regulated activities.
The correct legal approach to the question of integrity had been considered in many cases before the Tribunal and its predecessor, the Financial Services and Markets Tribunal.
The Tribunal was also referred to the later Court of Appeal case of Wingate v SRA where Rupert Jackson LJ made observations as to the standard of conduct expected of a professional person acting with integrity.
Wingate concerned the standard of conduct expected of a solicitor. In the Tribunal’s view, Mr Frensham, as the sole approved person in a firm acting as an independent financial adviser, would likewise be expected to adhere to higher standards than those expected from general members of the public because of the trust that the public rightly put in those who led regulated financial services firms.
This was one of the ways of distinguishing “integrity” from “honesty”. The latter concept was a basic moral quality which was expected of all members of society. Honesty involved being truthful about important matters and respecting the property rights of others.
It would be widely recognised that a person who committed a serious offence of the kind of which the applicant was convicted would be regarded as having acted without integrity.
However, as the authorities from the solicitors’ field demonstrated, that was not the end of the matter.
To justify regulatory action the behaviour concerned when, as was the case here, it occurred in the person’s private rather than professional life, must engage the standards of behaviour required of the individual concerned by the applicable regulatory provisions.
It was not simply a question of assessing whether the behaviour concerned demonstrated a lack of integrity at large, but whether the behaviour engaged the specific standards laid down by the relevant regulator.
The regulator concerned would have to consider whether in all the circumstances the failings of personal integrity also amounted to failings of professional integrity.
That issue was considered in the High Court’s recent judgment in Ryan Beckwith v SRA on appeal from the Solicitors Disciplinary Tribunal.
The Court made it clear that the requirement to act with integrity must be applied within the context of the relevant statutory framework. To the extent that there were applicable ethical standards, they must be found in or derived from the rules.
The issues for consideration in order to assess whether the Authority’s decision was one that could reasonably have been arrived at were as follows: (1) The relevance of Mr Frensham’s conviction to the performance of his functions as an independent financial adviser and whether or not the Authority had erred in its approach to that issue; (2) Whether the question of the relevance of the conviction was affected by the fact that in committing the offence Mr Frensham acted in breach of the bail conditions to which he was subject at the time; (3) The extent to which the Authority was entitled to place weight on the following matters: (i) Mr Frensham did not inform the Authority that he had been arrested on two occasions and had been remanded in custody; (ii) Mr Frensham carried on the business of his firm whilst he was on remand before a locum was appointed without reporting the matter to the Authority; and (iii) the failure of Mr Frensham to inform the Authority of the decision of the Chartered Insurance Institute (CII) to refuse to renew Mr Frensham’s Statement of Professional Standing and its decision to expel him from membership. (4) The extent to which the Authority had given appropriate weight to the length of time since the offence occurred and the evidence of Mr Frensham’s rehabilitation. (5) Whether a prohibition order was in all the circumstances disproportionate, taking into account Mr Frensham’s right to a private life under Article 8 of the European Convention of Human Rights.
The Tribunal’s overall conclusion was that whilst it was not satisfied that a decision to make a prohibition order against Mr Frensham based solely his conviction could have been reasonably arrived at by the Authority, it was satisfied that when the offence was considered in the light of (i) the circumstances in which it came to be committed and (ii) Mr Frensham’s failure to be open and cooperative with the Authority in a number of different respects following his initial arrest, the decision was one that was reasonably open to the Authority.
However, the basis on which the Authority sought to link Mr Frensham’s lack of personal integrity to his professional role regarding the nature of the offence alone was speculative and unconvincing.
Insofar as the Authority sought to establish a link between the offence and the consumer protection objective based on the applicant’s serious failure to act with personal integrity, that was not made out as a matter of fact in the present case.
The Authority was on sounder ground when it sought to establish a link between the offence and the integrity objective. The objective embraced public confidence in the financial services industry and in that context whether there was a significant risk that the confidence of consumers would be impaired if it were known that a person guilty of an offence of this nature was allowed to work as a financial adviser.
But, as with the consumer protection issue, the Authority’s case would have benefited from a more independent, analytical justification of the link between the offence and public confidence.
Consequently, had the Tribunal been asked to decide the case on the basis of the conviction alone, it was likely that it would have asked the Authority to reconsider its decision.
There were, however, factors which pointed in the other direction.
The Decision Notice made it clear that the Authority also placed considerable weight on the fact that the offence was committed in breach of bail conditions and that resulted in him being remanded in custody when the offence was committed.
The applicant took a deliberate decision to disregard the law in order to satisfy his own interests. That was directly relevant to the question as to whether he would put his own interests above those of complying with his duty of candour and his obligation to be open and transparent with his regulator. In the Tribunal’s view the applicant had, in a number of other respects, failed to comply with that obligation.
Indeed, the applicant sought to rationalise in his own mind why it was acceptable in the circumstances for the bail conditions to be ignored. That approach had a parallel in the way he dealt with his reporting obligations.
The applicant did not dispute in his evidence that he failed in his obligations to report the following matters to the Authority: (i) his first arrest and the imposition of bail conditions; (ii) his second arrest and remand in custody; (iii) that his SPS was not renewed and that he was under investigation by the CII; (iv) that the CII decided to expel him from membership.
Those failures followed a similar pattern. In respect of the CII’s decision to expel him, he rationalised that as he was appealing the decision it had not in fact happened. A person of integrity would not have taken that course of action.
It was clearly to the applicant’s credit that he had continued to deal with his client in what appeared to be a compliant fashion and there was no evidence that there was a risk of him reoffending. That had now continued for a period of over 4 years.
Nonetheless, the applicant still could not accept that he committed a criminal offence and showed no remorse for it. He still sought to justify his actions by explanations which the Tribunal did not find to be convincing.
On balance not much weight could be placed on the steps that the applicant had taken to rehabilitate himself.
In the Tribunal’s experience it was often the case that it was not the commission of a criminal offence that was fatal to the applicant’s case, but the manner in which he dealt with the consequences that followed.
In this case, the Tribunal found that the way the applicant dealt with those consequences demonstrated a lack of integrity which entitled the Authority to exercise the prohibition power in order to further its statutory objectives.
Although there were some flaws in the Authority’s approach to the relevance of the conviction, those flaws did not justify asking the Authority to reconsider its decision.
The reference was unanimously dismissed.