Kingsley Napley Spotlight Series

Beckwith v SRA – are there implications for the regulation of professional accountants who face sexual misconduct allegations?

21 January 2021

In our fourth blog in our series on Beckwith v Solicitors Regulation Authority [2020] EWHC 3231 (Admin), we turn our attention to consider what impact, if any, this landmark decision might have on the regulation of professional accountants. While the case turned on some very specific features relating to the regulation of solicitors as contained in the Solicitors Regulation Authority’s (SRA) Principles and Code of conduct, some parts of the judgment may have more general application.

After providing a brief overview of the decision, we look at three challenges it presents to the accountancy profession. Over recent years, accountancy regulators such as the Institute of Chartered Accountants in England and Wales (ICAEW) have increased their focus in respect of sexual misconduct allegations. Notably, the ICAEW’s revised guidance on the duty to report misconduct, effective from 1 October 2020, now includes “sexual misconduct / harassment of work colleagues or other persons outside of the workplace” in Appendix 2 as an example of matters that are likely to constitute misconduct relating to a member’s personal activities. Clearly the ICAEW is following in the footsteps of other financial regulators, for example the Financial Conduct Authority (FCA), in becoming interested in this type of behaviour, more so than ever before; however, as we discuss below, the decision in Beckwith might present it with some challenges when bringing proceedings in certain types of cases.

Beckwith v SRA: a brief overview
This case concerned an appeal against a decision of the Solicitors Disciplinary Tribunal (the Tribunal) for breaches of the SRA Principles relating to a “sexual encounter” between a Partner and an Associate Solicitor of the same firm, Person A, during Person A’s leaving drinks after work. The Tribunal found that as a result of this encounter, the Partner, Beckwith, had breached two of the SRA Principles under the SRA Code of Conduct 2011 (being the relevant rules in force at the time of the allegations), namely Principle 2 (to act with integrity) and Principle 6 (to behave in a way that maintains public trust in you and in the provision of legal services). Beckwith appealed to the High Court (“the Court”) and was successful.

The Court found no evidence of a lack of integrity because, in its view, such a finding had to be anchored specifically in the context of the relevant statutory framework, in this case the particular rules of the SRA Code of Conduct 2011. It ruled that it was not enough to make a decision of lack of integrity based purely on the high-level breach of Principle 2 (as the Tribunal had done) without finding a breach of a specific underpinning rule.   As the Tribunal ruled that there was no abuse of position by Beckwith in this case, the relevant rule that one should “not take unfair advantage of others” was not engaged. The evidence suggested both he and Person A were drunk at the time of the encounter, but there was no suggestion that he had used his authority over Person A to manipulate, convince, or induce her to engage in sexual activity with him, nor was there any suggestion that he had taken unfair advantage by reason of his professional status, as a partner. It was therefore wrong, the Court said, for the Tribunal to conclude a lack of integrity where no abuse of position had been found.

The Court further explained there could not be a finding of professional misconduct if there was no breach of the rules. There was no evidence that Beckwith had abused his position and so it followed that he could not be considered to have behaved in a way that harmed public trust in the profession. The Court distinguished between conduct that undermines public trust and confidence in the person as a provider of legal services and of the profession, against conduct that would generally be regarded as wrong, inappropriate, or disgraceful (at paragraph 43), regarding the latter to be too far removed from the regulator’s reach.

How then might the Beckwith decision affect the way in which the ICAEW deals with cases of alleged sexual misconduct?

Challenge #1: A breach of a Principle alone cannot amount to misconduct

Core to the Court’s decision in Beckwith is its rejection of principles-based regulation as the correct approach in determining misconduct. Where a regulatory framework comprises both principles and rules, such as is the case for solicitors, the Court determined that an allegation of misconduct must involve a clear and evidenced breach of the rules; a breach of a principle alone will not suffice.

We have written previously on the difficulties this analysis presents in relation to solicitors (see Beckwith v SRA – an analysis of the Court’s landmark decision). Among these difficulties is the irreconcilability of the Court’s analysis in Beckwith with previous cases in which a principles-based approach to misconduct has been upheld by the High Court (see for example, R (on the application of the British Bankers Association) v Financial Services Authority [2011] EWHC 999 (Admin)).

Principles-based regulation is adopted by many other regulators beyond the legal services arena, including the ICAEW, whose Code of Ethics is structured around Fundamental Principles and Requirements under the Code. Indeed, the Code of Ethics specifically states “a professional accountant shall comply with each of the fundamental principles” (R110.2).

Applying the Court’s decision in Beckwith, a breach of a Fundamental Principle alone would not suffice in order for an allegation of sexual misconduct to succeed.  However, this is one area where a  distinction can be drawn between the regulation of accountants and the Court’s interpretation of the SRA’s Code and Rules and Regulations.   Under the heading “How to Use the Code” in the ICAEW Code of Ethics, it is stated at paragraph 6:

The Code requires professional accountants to comply with the fundamental principles of ethics.  The Code also requires them to apply the conceptual framework to identify, evaluate and address threats to compliance with the fundamental principles.  Applying the conceptual framework requires exercising professional judgement, remaining alert for new information and to changes in facts and circumstances, and using the reasonable and informed third party test”.

Importantly, Section 1, “Scope and Authority”, sets out the following (R1.3):

“Professional accountants shall be guided not merely by the terms but also by the spirit of the Code and the fact that particular conduct does not appear among a list of examples does not prevent it amounting to misconduct”.

On this analysis alone, applying the same facts in Beckwith to the ICAEW’s Code means that, hypothetically, a finding of misconduct against a Partner in the same position as Mr Beckwith might not have been easily challengeable in ICAEW proceedings on the ‘principles and rules combined’ argument. It is clear that Tribunals can consider the “spirit of the Code” when determining misconduct.  Although there is no reference within the ICAEW’s Code to sexual misconduct (indeed, the Code focuses on professional accountancy activities), the principle of “Professional Behaviour” is arguably sufficiently wide to encapsulate sexual misconduct, as it includes “conduct that a reasonable and informed third party would be likely to conclude adversely affects the good reputation of the profession”.    When considering the “spirit of the Code”, objectively speaking, some types of sexual misconduct may fall foul of this principle. Let’s look, however, at whether the Beckwith facts could, under the Court’s decision, breach that general principle in ICAEW proceedings.

 

Challenge #2: Inappropriate behaviour is not always unprofessional behaviour

The SRA brought its proceedings in Beckwith under the ‘integrity’ and ‘acting in a way that maintains public trust in you and in the provision of legal services’ Principles.  The ICAEW’s principle of integrity is focussed on professional behaviour, in that it reads: “A professional accountant shall comply with the principle of integrity, which requires an accountant to be straightforward and honest in all professional and business relationships”.  This does not, however, prevent an ICAEW tribunal panel considering integrity in light of the much wider description of professional integrity handed down in another case involving solicitors, Wingate v Solicitors Regulation Authority [2018] EWCA Civ 366, in which Lord Justice Jackson referred to integrity as being the higher standards expected from professionals. 

If proceedings were to be instigated in relation to a Beckwith scenario, it is more likely that they would be brought as allegations of a breach of the fundamental principle of professional behaviour, given that they relate to more personal than professional conduct.   

Professional behaviour in the Ethical Codes requires accountants “to comply with relevant laws and regulations and avoid any conduct that the professional accountant knows or should know might discredit the profession.” Would sexual misconduct by a professional accountant discredit the profession such that it falls within the remit of regulatory investigation?

Applying the Court’s approach in Beckwith, the deciding factor hinges on the “qualitative distinction” of whether the behaviour in question impacts the profession and the individual as a provider of professional services, or whether it simply impacts the professional’s individual reputation, with only the former being capable of amounting to misconduct. This distinction therefore limits how far regulators can look into the private lives of those they regulate, and raises the evidential burden on regulators.

In bringing proceedings relating to sexual misconduct, accountancy regulators will need to show that behaviour goes beyond what would otherwise be regarded as simply morally wrong or inappropriate behaviour. One way this might be evidenced is by showing an abuse of position or authority. What remains unclear, however, is what this might look like. In Beckwith, the sexual encounter between the Partner and Associate Solicitor who had recently resigned was not considered to be an abuse of position. Had the encounter involved a more junior lawyer where the Partner was in a position of greater authority, or had the event been more closely tied to a work event, matters might have been very different.

 

Challenge #3: Authorities from different regulatory schemes cannot be relied on

In practice, the Court of Appeal authority in Wingate v SRA is often cited in cases concerning the integrity of professional accountants, despite integrity being specifically defined in the Ethical Codes. The High Court in Beckwith, however, appeared to disagree with this approach, apparently suggesting it to be inappropriate for authorities concerning one regulatory scheme to be applied in disciplinary proceedings relating to another profession. This again is difficult to reconcile with the plethora of case law that is cited routinely across regulatory regimes, for example, authorities relating to dishonesty, abuse of court process, and proceeding in absence etc.

If followed, the implications of the Court’s approach on accountancy regulation would be two-fold. First, it suggests where a regulatory framework explicitly defines a concept, such as integrity, as is defined in the Ethical Codes for accountants, it would be inappropriate to extend this express expectation to encompass wider definitions and applicable tests drawn from cases concerning other regulators. The second issue is more difficult. Where definitions on complex concepts do not exist, for example, for professional behaviour, non-statutory regulators such as the ICAEW, ACCA, and CIMA, would be unable to rely on case law across regulatory schemes, yet unable to test complex concepts for themselves without the right of statutory appeal to the High Court.  It is for this reason that we believe that the Court’s comments on this topic in Beckwith should be read as being specific to the facts in that case, and the principle expounded is unlikely to be followed, given its excessively restrictive implications beyond the case in point.

 

Conclusion
As accountancy regulators look more closely at sexual misconduct concerning their members, the judgment in Beckwith v SRA presents a great deal of contemplation. Some challenges are more significant than others. The Court’s rejection of a principles-based approach to regulation which underpins the regulatory frameworks governing professional accountants, and indeed many other financial services professionals, is an anomaly to previous decisions of the Court. Likewise, the limitation on relying on case law across regulatory schemes sits in stark contrast to the surplus of earlier cases that have drawn benefit from this approach. The more likely implication of Beckwith v SRA lies in the Court’s approach to determining what type of behaviour is capable of amounting to misconduct. In bringing allegations, accountancy regulators will need to be careful that the conduct in question goes beyond that which “would be generally regarded as wrong, inappropriate, or even for the person concerned, disgraceful”.

FURTHER INFORMATION 

If you have any questions or concerns about the content covered in this blog, please contact Julie Matheson or a member of the Regulatory team.

 

ABOUT THE AUTHORS 

Julie Matheson is a partner in the Regulatory Team. Her expertise lies in advising professionals and professional services firms, particularly in the accountancy and built environment sector, on regulatory compliance, investigations and enforcement proceedings.Julie assists clients with a range of regulatory issues, ranging from non-contentious advice on compliance with a regulator’s rules and procedures, to defending clients subject to regulatory investigations and prosecutions.

Lucinda is a professional support lawyer in the Regulatory team, and is responsible for knowledge management and practice development. She has previously advised individuals and professional bodies in the legal and accountancy sectors, on authorisations, compliance, ethics, and regulatory policy.

 

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