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| 4 minutes read

No you can't have FCA-Qatar communications: Upper Tribunal

The Banque Havilland saga continues.  After important decisions on privilege and third party references, we now have an Upper Tribunal decision on various case management skirmishes with important implications for future Upper Tribunal referrals.  It's a mixed bag, though on balance make things somewhat harder for the FCA by raising the bar for Principle 3 (management/control) cases and closing a potential avenue for the FCA to cast doubt on witnesses' credit. 

The background

The FCA found that Banque Havilland and three of its former London branch employees (CEO Edmund Rowland, senior manager David Weller, and employee Vladimir Bolelyy) allegedly acted without integrity by creating a document that the FCA says describes a potential (and unimplemented) market manipulation strategy to harm Qatar.

Weller settled.  The Bank, Edmund and Bolelyy made Upper Tribunal references.  The firm's honorary president David Rowland made third party references of all four notices.

Don't go behind the FCA's decision

The Upper Tribunal confirmed that FCA Enforcement decision-making processes are (outside e.g. a costs application) irrelevant to an Upper Tribunal reference.  Here, the Upper Tribunal refused disclosure relating to Qatar potentially influencing FCA decision-making.  (It gave limited disclosure relevant to how the document entered the public domain.)

But the Upper Tribunal gave disclosure of communications between the FCA and the CSSF (Luxembourg's main financial regulatory authority).  In essence the Upper Tribunal couldn't definitively say that the CSSF's views on the underlying issues would be irrelevant, and the CSSF communications might reveal new information to the applicants.  Unfortunately, its reasons here are brief - further clarity would have been helpful. 

A contradictory approach to FCA witnesses?

The Upper Tribunal refused to require an FCA Enforcement witness be made available for cross-examination (apparently the FCA did not intend to call one, perhaps feeling the sting of FCA witnesses' experience before the Upper Tribunal in the Julius Baer case).

Here again the Upper Tribunal said that FCA Enforcement decision-making was irrelevant (contrast evidence about the FCA's conduct in the Upper Tribunal proceedings, which remains relevant).  In previous cases the Upper Tribunal has made incidental observations and recommendations in this area, but here it stopped short of compelling FCA witness evidence on it.

Puzzlingly, the Upper Tribunal decided that FCA witness cross-examination was unnecessary in relation to the FCA's allegations and their basis and the FCA's approach to penalty (the Statement of Case was enough). In previous cases FCA witnesses have given relevant evidence on such matters.

Principle 3 strike-out

It's a common pattern: the FCA takes enforcement action (i) for underlying misconduct but also (ii) for associated controls failings.

The Upper Tribunal just insisted that the FCA take a rigorous approach to (ii).

The FCA sought to plead that Edmund was knowingly concerned in the firm's controls breaches i.e. of Principle 3 (organisation and control) and/or SYSC 6.1.1R (implementation of adequate policies and procedures).  The basis for this was (all allegedly) that the breach happened and Edmund was involved, therefore Edmund deliberately failed to implement effective controls.

Surely that doesn't logically follow.  So why would the FCA plead it?  Perhaps it was constrained to the facts and matters to which the underlying decision notice relates.

Well, the Upper Tribunal didn't buy it either.  It struck out this pleading.  For the FCA's case to be good in law, it would have needed to identify the relevant controls (etc.), then show how they were inadequate and why their failure demonstrated a failure to take reasonable care.  And it's not enough simply to demonstrate that Edmund's actions caused the controls to fail the Bank.  The FCA would also need to show that Edmund had personal responsibility to ensure the Bank implemented the controls. 

All adding up to more systems and controls homework for the FCA in future.  And giving another illustration of the importance to the FCA of making a complete case by the end of the RDC procedure to maximise the scope of allegations that can be put in any Upper Tribunal reference.  A slower but steadier approach.

Keep him out of it

In relation to Weller, the Upper Tribunal stymied what it characterised as an attempt by the FCA to circumvent the "non-impeachment principle".  If the FCA called Weller as a witness then it would be unable to impeach his credit by general evidence of bad character (but could still lead evidence contradicting Weller's evidence, of course).  The FCA said it has doubts about his integrity (and honesty) given the action against Weller was for lack of integrity.  It applied for the Upper Tribunal to summons Weller as a "neutral" witness.

Well had already settled the case to "draw a line under a painful and protracted episode for the sake of his health and his family".  But the case keeps threatening to drag him back in.  First, the FCA withdrew its final notice to Weller, because the Upper Tribunal expressed the (non-binding) view that the FCA should have waited to issue Weller's final notice until David Rowland's third party reference of Weller's decision notice was determined.  And now this summons, with all the parties saying they would cross-examine him if he was called.

Presumably to Weller's relief, the Upper Tribunal was sympathetic to Weller and refused the application.  Despite his evidence likely being highly relevant to the case. Citing the need to preserve the "non-impeachment principle", the Upper Tribunal said also that its power to summons witnesses - thereby adopting a more inquisitorial approach - is best reserved largely for cases where parties are not legally represented (not this case), where the Upper Tribunal is truly acting on its own initiative (not this case), accordingly where the substantial burden it places on the Upper Tribunal is justified, and where it wouldn't be unfair (not this case - if Weller had not settled and had made an Upper Tribunal reference then he could not have been called by the FCA or the Upper Tribunal).

The implications for future referrals?  If one individual settles, then they're likely to avoid cross-examination by all the parties to an Upper Tribunal reference.  Though of course, one party might still ask to summons the individual, opening them to cross-examination by another.

Watch this space

Finally, the Upper Tribunal noted that the applicants dispute whether certain allegations fall within the subject matter of the reference at all, given they were not necessarily present in the underlying notices.  The Upper Tribunal postponed the hearing until the Court of Appeal decides Bluecrest, providing more clarity on the issue.  Stay tuned.

The Authority’s case is in reality not a case about a failure to implement systems and controls but one that seeks to identify responsibility for the contents of the Presentation. That is rightly characterised as a misconduct case falling within the scope of Principle 1 and cannot be characterised as a Principle 3 or SYSC 6.1.1R case


fca, upper tribunal, uk, enforcement, financial crime and market abuse