The relationship between the FCA and the Upper Tribunal

Will the Financial Conduct Authority (FCA) always follow the Upper Tribunal’s ruling and, if not, what are the implications? Marcus Bonnell, counsel, and Rebecca Dulieu, associate in the regulatory group at RPC, comment on a recent ruling and highlight the lessons for individuals.

Original news

Roberts and another v Financial Conduct Authority [2015] Lexis Citation 225

What is the background to the case?

On 11 August 2015, the Upper Tribunal released its judgment in relation to Timothy Roberts and Andrew Wilkins of Catalyst Investment Group Limited (Catalyst). The tribunal released additional reasons for its determination on 18 September 2015. The conclusion of the proceedings before the tribunal has brought to a conclusion a long running investigation arising from the distribution of ‘traded life policy investments’ products by Catalyst.

Mr Roberts had been a director and the chief executive of Catalyst, which had been the primary UK distributor of bonds issued by ARM Asset Backed Securities SA (ARM). Mr Roberts had also been a director of ARM. Mr Wilkins was a director of Catalyst until 23 March 2010, and like Mr Roberts, was involved in compliance issues, especially in relation to financial promotions.

ARM was a securitisation vehicle based in Luxembourg. Its bond programme was registered with the Irish Stock Exchange and traded on its regulated market. ARM needed a licence to issue bonds from the Luxembourg regulator but did not have one. In November 2009, the Luxembourg regulator requested ARM to stop issuing bonds. Trading in the bonds on the Irish Stock Exchange was suspended in November 2010.

In August 2013, the FCA decided to fine Mr Roberts £450,000 and impose a full prohibition on him, and to fine Mr Wilkins £100,000 and prohibit him from undertaking significant influence functions. The FCA had taken this action primarily because of failings in relation to communications with current and prospective customers. In particular, the FCA found that notwithstanding the absence of a licence, Mr Roberts, had continued to promote the bonds while he had also approved a letter to investors containing misleading information about ARM’s licensing status. Mr Roberts and Mr Wilkins were also criticised for allowing Catalyst to provide misleading information about ARM’s licence in a letter to IFAs. Both Mr Roberts and Mr Wilkins referred the FCA’s decisions to the tribunal.

What were the tribunal’s findings?

The tribunal found that Mr Roberts demonstrated a reckless disregard for investors’ interests and that this constituted a lack of integrity. It also considered that he had acted without due care, skill and diligence in relation to ARM’s financial promotions. Consequently the tribunal agreed with the FCA’s decision to prohibit him. The tribunal upheld the fine previously imposed by the FCA.

While the tribunal agreed with the FCA’s decision that Mr Wilkins had, like Mr Roberts, acted without due care, skill and diligence it did not agree with the regulator’s view that he had acted recklessly and without integrity. The tribunal also rejected the FCA’s argument that Mr Wilkins lacked competence and noted that a number of steps taken by Mr Wilkins demonstrated his concern for investors and their funds. The tribunal further noted that in the relevant period, Mr Wilkins had relied on Catalyst’s compliance function; legal advice; and Mr Roberts. The tribunal referred the FCA’s decision to prohibit him from holding significant influence functions back to the FCA to reconsider whether a prohibition should be imposed. Given the tribunal’s findings (which were elaborated upon in the additional reasons), the FCA had little choice but to agree that it should not prohibit Mr Wilkins. Additionally Mr Wilkins had success in relation to the fine imposed on him—the tribunal reduced the original fine of £100,000 to £50,000.

Mr Roberts may still appeal the tribunal’s judgment.

Why is this case particularly newsworthy?

This case serves as a reminder to firms of the regulator’s dislike of traded life policy investments and other complex, high risk products which it considers to be unsuitable for most consumers. It also serves to highlight the importance of ensuring that communications are not misleading. Clearly, there have been serious consequences for both Mr Roberts and Mr Wilkins from pressing on with the distribution of misleading communications.

This case has also thrown up a legal curiosity that now arises in some cases before the tribunal. Due to the amendments made to section 133(6) of the Financial Services and Markets Act 2000 on 1 April 2013, if the tribunal disagrees with the FCA’s decision in respect of a prohibition order, it must now remit a challenge back to the FCA, with a direction to reconsider its previous decision. Consequently the position has arisen that the tribunal has disagreed with the FCA concerning a prohibition order and has remitted the matter back (albeit with some clear indications as to the tribunal’s view). In this case, the FCA followed the tribunal’s view and did not prohibit Mr Wilkins. However, there is a theoretical possibility that the FCA will not follow the tribunal at some point. If the FCA does decide to ignore the indication of the tribunal then we will be entering uncharted territory in the relationship between the regulators and the judicial body supervising their activities.

What are the lessons for individuals subject to FCA enforcement action?

While many in the market would never consider engaging in conduct similar to Mr Roberts, it is the case of Mr Wilkins that provides the more salutary lesson. Notwithstanding his success before the tribunal he now has a significant regulatory black mark against his name. On any reading of the judgment Mr Wilkins’ conduct was not particularly aberrant. Indeed it is noted at points that he not only deferred to Mr Roberts in relation to many of the critical issues, but that he sought views from external consultants. However, he was aware of the risk that at some stage of the communications being distributed to customers, they would become inaccurate—and he did little to address this.

Interviewed by Nicola Laver.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.