It has long been recognised that some types of non-financial misconduct (for example criminal convictions relating to offences involving dishonesty or fraud) can be so serious that they render a person not fit and proper to perform a role in the financial services sector.
But in what circumstances will other types of non-financial misconduct have similar consequences - in particular, non-financial misconduct involving a lack of personal integrity but not a lack of honesty?
The Upper Tribunal’s decision in Frensham provides important guidance. The key points are below, but for more detail be sure to read our complete note on the decision including its context and implications for financial services firms and professionals. Or, if you prefer, listen to our podcast episode in which we discuss the decision.
- First, the Upper Tribunal followed previous authority that a professional duty of integrity "does not require professional people to be paragons of virtue" and instead is in every instance "linked to the manner in which that particular profession professes to serve the public". The decision effectively confirms that the approach taken e.g. in the Wingate and Beckwith decisions should be taken also in the financial services sphere.
- Secondly, it is incumbent on the regulator to demonstrate on the evidence that the behaviour in question engaged the "specific standards laid down by the relevant regulator" (e.g. in the FCA Handbook) and was qualitatively relevant. The FCA's case failed on this point, because it led only "bare assertions" insufficient to link the individual's (distressing and serious) criminal conviction to either of the FCA's consumer protection or integrity objectives. In fact, the Upper Tribunal stridently criticised the FCA for the quality of its written and oral evidence in this case.
- Thirdly, even if an individual's misconduct does not engage those standards, the way the individual engages with the regulator after the misconduct may well do so. Here, the FCA's decision to ban the individual was upheld but instead on the grounds that he breached pre-existing bail conditions during the offence in question, failed to report his bail, arrest, remand and other matters to the FCA, and continued to attempt to justify or rationalise these actions.
In future cases the regulators will need to bear in mind that:
- The mere fact that a case of non-financial misconduct (even if serious) may impact an individual's personal reputation or integrity will not necessarily mean that it is relevant to the regulator's standards and statutory objectives. A case by case analysis is required.
- The FCA will likely need to produce much more compelling evidence to explain the link between misconduct and these standards or objectives. Bare statements will not be sufficient.
- The FCA may consider whether to take more urgent supervisory action in such case, for fear (as in this case) that delay could be interpreted as suggesting that the conduct does not present a sufficiently significant risk to the FCA's objectives.
"The key issue is whether the behaviour concerned realistically engages the question as to whether the individual poses a risk to consumers and to confidence in the financial system."