How Universities should investigate a complaint under the disciplinary procedure
The FCA has recently withdrawn a prohibition order following a successful challenge at the Upper Tribunal.
In August 2013, the FCA issued a decision notice stating their intention to make a prohibition order and impose a £100,000 fine against Andrew Wilkins, a former director of Catalyst Investment Group Limited. Catalyst was the primary UK distributor of bonds offered by ARM Asset Back Securities SA. In November 2009, the Luxembourg financial regulator, CSSF, requested that ARM cease to issue bonds pending a licence decision. ARM’s licence application was subsequently rejected in 2011. The FCA found that Mr Wilkins, despite being aware of the CSSF’s request in November 2009, had allowed Catalyst to continue promoting bonds offered by ARM and had approved misleading communications to investors.
Mr Wilkins challenged the FCA’s decision at the Upper Tribunal. At the Tribunal, the FCA sought to widen the prohibition order, from a prohibition on performing a significant influence function to an allegation that Mr Wilkins was not fit and proper in relation to any regulatory activities. The FCA alleged that Mr Wilkins had failed to act with integrity by demonstrating a disregard for the interests of investors.
In a useful ruling in relation to the definition of ‘integrity, the Upper Tribunal confirmed that reckless behaviour can demonstrate a lack of integrity, and in considering integrity, the FCA will consider whether the person has been candid and truthful in all of his dealings with any regulatory body and whether they demonstrate a readiness to comply with the relevant regulatory requirements.
While the Upper Tribunal found that Mr Wilkins had failed to act with due skill, care and diligence, they determined that his failures did not demonstrate a lack of integrity or a reckless disregard to investor’s interests. It was also further emphasised that the Upper Tribunal was not required to make a finding that Mr Wilkins was in fact fit and proper; the burden of proof was on the FCA to prove that he was not fit and proper.
The Upper Tribunal highlighted the serious nature of a prohibition order, emphasising that such a sanction should not be imposed lightly and is more appropriate where there is a lack of integrity rather than a failure of competence or skill. The Tribunal consequently remitted the matter to the FCA to reconsider its decision and directed the FCA to impose a financial penalty of £50,000; half the fine the FCA had originally intended.
The final notice, which was issued on 22 October 2015, confirmed that a fine of £50,000 would be imposed and a prohibition order was not necessary.
This case emphasises the importance the FCA will place on the integrity of its approved persons, and its often wide interpretation of a breach of its principle of integrity. Where there are concerns that call in to question the integrity of an individual, a prohibition order is likely to be considered. It is therefore vital that any challenges to your integrity by a regulator are properly defended.
In addition, the Upper Tribunal emphasised that it was not required to make a finding that Mr Wilkins was in fact fit and proper; the burden of proof remains on the FCA to prove that an approved person is not fit and proper.
The determination also shows a growing willingness of the part of the Upper Tribunal to reject the decisions of the FCA where they are not well founded. While the decision to refer a case to the Upper Tribunal may be daunting, where the FCA’s response is unwarranted and excessively punitive, a well-targeted challenge to the FCA’s findings may find favour with the Tribunal.
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