The FCA – Transformation to Assertive Supervision
Under section 67(7) of the Financial Service and Markets Act 2000 (“FSMA”), anyone subject to an adverse decision notice issued by the FSA Regulatory Decision Committee (“RDC”) can refer the matter to a tribunal (currently the Upper Tribunal (Tax and Chancery Chamber) (“Upper Tribunal”) and formerly the Financial Services and Markets Tribunal). This is not an appeal but instead a new hearing. Although FSMA does not expressly exclude judicial review as an alternative to a section 67 reference, the FSA has consistently argued that such challenges should not be permitted – the FSA’s concern is that if judicial review is also available, this “could result in serious disruption and extensive delay in the enforcement process”. That concern was expressed in the recent proceedings R oao C v Financial Services Authority  EWHC 1417 (Admin) – but the court nevertheless decided that in the particular circumstances judicial review could be used to challenge the RDC.
The claimant in C was employed by a bank and was approved by the FSA to perform (in the inimitable jargon) “a significant influence function”. He was investigated by the FSA’s Enforcement Division which believed that he had failed to ensure that effective risk management was in place at his bank. In due course the Enforcement Division referred his case to the RDC, recommending that he should be censured and also fined £150,000. The RDC, following its process which included receipt of substantial written representations from the claimant and an oral hearing, determined that the claimant should indeed be censured and fined, albeit that the financial penalty was lowered to £100,000. The claimant issued judicial review proceedings challenging the RDC decision on the ground that it had failed to give adequate reasons, in breach of a statutory obligation to do so.
Mr Justice Silber accepted that the reasons given by the RDC were inadequate – his view was that the reasons “basically” were only saying that the RDC accepted the Enforcement Division’s case and should have – but did not – explain why the detailed case put forward by the claimant was rejected. The judge also accepted that this failure caused substantial prejudice to the claimant because it meant that he could not take a fully informed decision on whether to refer the matter to the Upper Tribunal – and what was particularly significant in this context is that a referral to the Upper Tribunal carries with it the risk that the Upper Tribunal will increase the penalty imposed by the RDC: because it is a de novo hearing and not an appeal, the Upper Tribunal has power to impose an increase, as well as a decrease in penalty.
On the issue of whether the challenge to the RDC’s reasons should have been made in the Upper Tribunal, the starting point was the truism that judicial review is a remedy of last resort and that if there is suitable alternative remedy, that alternative remedy should be used. In relation to the FSA and referrals to the Upper Tribunal, this had been recognised by the Court of Appeal in an FSA case in 2003 in which it was said that only “the most exceptional” cases should be dealt with by judicial review. The key point to consider, nevertheless, was whether in fact the alternative remedy – the referral to the Upper Tribunal – was suitable. The judge accepted that this could be approached by asking 3 questions: (i) what is the nature of the wrong that is alleged to have been done by the public authority; (ii) is the alternative remedy capable of remedying that wrong (i.e. is it capable of resolving the issue at all?); and (iii) if so is the alternative statutory remedy suitable for remedying that wrong? The judge concluded that in light of the nature of the complaint (lack of reasons), the nature of the Upper Tribunal’s jurisdiction (a new hearing on the merits and not a review the RDC’s decision making) and the nature of the prejudice (the need to know whether to take the risk of a referral) meant that the alternative remedy was not capable of remedying the wrong.
The decision in C is an important illustration of the flexibility of the Administrative Court in determining its own suitability to hear a case. That said, Mr Justice Silber was at pains to say that his decision was not a signal that many more FSA cases would be heard other than by the Upper Tribunal – in his closing remarks in the judgement he suggested that it will still only be “very few challenges to decisions of the FSA” that can be the subject of successful judicial review applications.
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