Immigration issues and the regulatory consequences for financial services firms

For firms regulated by the Financial Conduct Authority (FCA), it is vital that the business – and its relevant employees – ensure that its conduct is without reproach in order to avoid supervisory or regulatory difficulties. This extends to issues of governance and administrative matters, as well as more obvious issues of conduct (such as, for example, financial misconduct) which often receive more press.

An issue which does not receive much attention, but which may have unexpectedly significant consequences for a regulated firm or individual, is that of compliance with immigration rules.

Situations in which a firm could find itself in difficulty from a regulatory point of view might be, for example:

• Employing an individual who does not have the right to work in the UK
• An employee’s visa expiring
• Individuals entering the UK as visitors when work permission is required

Potential Issues for Firms
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The Right to Work Check Regime

To prevent illegal working, all employers must conduct a right to work check on anyone they want to hire to work in the UK, and this must be done prior to the start of employment. Different rules about this process apply depending on when the employee was hired, and there have been times when the rules have changed frequently (for example, between January 2019 and April 2022, they underwent five different iterations). For this reason, if a firm is not certain that it has complied with the rules, it would be worthwhile seeking legal advice as to which ones are applicable.

If a business is found to be employing someone illegally and it has not carried out the prescribed checks, the business and its officers may face sanctions including:

• A civil penalty of up to £60,000 per illegal worker
• In serious cases where the employer knows or reasonable has cause to believe the employee does not have permission to work, a criminal conviction carrying a prison sentence of up to five years and an unlimited fine
• Closure of the business and a compliance order issued by the court
• Disqualification as a director
• Revocation of sponsor licence, termination of employment for all sponsored workers and inability to sponsor migrants in the future
• Seizure of earnings made as a result of illegal working
• Potential publication of non-compliant employers in Employers: illegal working penalties

Under section 15 of the Immigration, Asylum and Nationality Act 2006, an employer may be liable for a civil penalty if it employs someone who does not have the right to undertake the work in question and that person commenced employment on or after 29 February 2008. The civil penalty scheme is the sanction applied in most routine cases involving the employment of illegal workers.

 

The offence of employing an illegal worker

An individual and/or a business will commit a criminal offence under section 21 of the Immigration, Asylum and Nationality Act 2006, as amended by section 35 of the Immigration Act 2016, if they know or have reasonable cause to believe that they are employing an illegal worker. They may face up to five years’ imprisonment and/or an unlimited fine.

 

Potential Issues for Individuals

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The Offence of Illegal Working

The Immigration Act 2016 (Section 34) made it a criminal offence to work illegally in the UK. A person commits this offence if they are subject to immigration control, and they work when they are disqualified from working by reason of their immigration status. This applies to anyone, regardless of whether they are professional or regulated staff at a business, or service staff. The person must know, or have reasonable cause to believe, that they are disqualified from working.

‘Disqualified from working by reason of their immigration status’ means that they:

• Have not been granted leave to enter or remain in the UK; or
• Their leave to enter or remain in the UK:
  • is invalid,
  • has ceased to have effect (whether by reason of curtailment, revocation, cancellation, passage of time, or otherwise), or
  • is subject to a condition preventing the person from doing work of that kind.

As well as including those working illegally under a contract of employment, the offence also applies to illegal work undertaken by those who are self-employed. The offence covers both informal and formal working arrangements.

The offence carries a maximum penalty of six months’ imprisonment and/or an unlimited fine in England and Wales. In Scotland and Northern Ireland, any such fine would be limited to the statutory maximum. Wages gained from illegal working may be seized as the proceeds of crime and any assets may be confiscated.

 

Responsibility to Notify the FCA of Immigration Issues

A regulated firm has a duty to immediately notify the FCA under Rule 15.3 of the FCA’s Supervision Manual (SUP) where it becomes aware, or has information which reasonably suggests, that ‘matters having a serious regulatory impact’ have occurred, may have occurred, or may occur in the foreseeable future. These matters include the firm failing to satisfy one or more of the ‘threshold conditions’ for carrying out regulated activity. Such threshold conditions are set out under Schedule 6 of the Financial Services and Markets Act 2000, which is the legislation governing the duties and powers of the FCA and further amplified in the COND module of the FCA’s Handbook.

One threshold condition is that the person carrying on regulated activities (whether a natural or corporate person) should have appropriate non-financial resources. In assessing whether this condition is met, a relevant factor is the skills and experience of those who manage the person’s affairs.

Another condition is that the person must be fit and proper. Circumstances taken into account in the assessment of fitness and properness include (among others):

• whether the business is being, or is to be, managed in such a way as to ensure that its affairs will be conducted in a sound and prudent manner; and
• whether the person has complied and is complying with requirements imposed by the FCA in the exercise of its functions…relating to the provision of information to the FCA.

Principle 11 of the FCA’s Principles for Businesses requires a firm to deal with its regulators in an ‘open and cooperative’ way. It imposes a general obligation on them to disclose to the FCA anything ‘of which the FCA would reasonably expect notice’ and applies to both regulated and unregulated activities.

This requirement imposed on firms to make disclosures to the FCA is intentionally broadly drafted. This means that firms need to carefully consider whether any development may need to be reported to the FCA on the basis that the authority would ‘reasonably expect notice’ of it. Arguably, a failure to comply with immigration rules by a firm or one of its employees, regardless of whether that amounts to a criminal offence, is something about which the FCA would expect to be notified.

Regulatory consequences

If the FCA suspects that it has not been notified about such matters having a serious regulatory impact, it has broad investigatory and disciplinary powers which it can employ against the business. In fact, any violation of the duty of disclosure and openness under Principle 11 could in and of itself result in a penalty. The nature of that penalty will vary depending on the severity and impact of the misconduct. For instance, a business that has proactively corrected any unintentional deficiency may be treated with more leniency. Penalties generally take the form of a financial penalty or issuance of a public censure. The FCA rationalises their use as complying with its statutory duties under FSMA and deterring non-compliance with its high standards.

The FCA may take disciplinary action against both businesses and individuals. This might be in circumstances where an individual capitalised on any inherent weaknesses within the business or misrepresented their immigration status, which was not picked up by the firm. Similarly, firms have obligations under the FCA’s Principles for Businesses to act with integrity, due skill care and diligence and to maintain effective systems and controls. The FCA can enforce against any conduct which falls short of these standards, and all could be engaged in the case of a failure to comply with immigration rules. In any case, financial services firms need to be cognisant of the broad-ranging regulatory measures which could be taken against them where there has been laxity with employment checks and a lack of transparency about any deficiencies.

In addition to its enforcement toolkit, the FCA also has wide-ranging and flexible supervisory powers that can be applied in real time against firms and which it has previously used in relation to breaches of immigration rules. In 2021, it placed wide ranging restrictions on Dolfin Financial (UK) Ltd, which prevented it from doing any regulated business and froze over £1bn in assets (which ultimately resulted in it going into special administration) as a result of the firm’s involvement in a complex scheme designed to circumvent Tier 1 investor visa rules.

There is a high supervisory and enforcement risk for regulated firms which fail to pay proper regard to immigration rules and those in the sector should ensure that their compliance departments are sufficiently aware of the potential pitfalls.  

further information

If you have any questions about this or any other immigration matter please contact a member of the immigration team.

 

about the authors

Anna is an experienced criminal defence lawyer whose practice encompasses general crime, white collar crime and financial services matters. Criminal Defence and Police Investigations. Anna is an experienced general criminal law practitioner who has represented clients in respect of a wide range of allegations, from drugs possession to serious sexual offences. She has extensive experience, and particular interest, in dealing with vulnerable clients, whether by virtue of age, substance abuse issues, personal circumstances or mental health.

Emma joined the Immigration team as an Associate in September 2021 and is a member of the department’s corporate client team. Emma has broad experience of assisting clients on matters relating to:

• EEA/non-EEA nationals
• Sponsor Licence applications and compliance
• Skilled Worker and Senior or Specialist visas
• Sole Representative visas now closed to new applicants
• Business visitors’ permitted activities