UT (Tax & Chancery) UT/2022/000100 and UT/2022/000107 - [2024] UKUT 00156 (TCC)

Section 67 FSMA provides that, if a regulator proposes to take action against a person under section 66, it must give him a warning notice, if it decides to take action against a person under section 66 it must give that person a decision notice, and that person “may refer the matter to the Tribunal”.

Similarly, section 57 FSMA provides that if a regulator proposes to make a prohibition order it must give the individual concerned a warning notice, if it decides to make a prohibition order it must give the individual concerned a decision notice, and “[a] person against whom a decision to make a prohibition order [under section 56] is made may refer the matter to the Tribunal”.

Finally, section 63 FSMA provides that if a regulator proposes to withdraw an approval, it must give each of the parties a warning notice, if it decides to withdraw an approval it must give each of the interested parties a decision notice and if it “decides to withdraw an approval each of the interested parties may refer the matter to the Tribunal”.

Section 387 FSMA provides that a warning notice must state the action the Authority proposes to take and give reasons for the proposed action. The warning notice must give the person to whom it is given a reasonable period in which to make representations to the Authority (essentially, the RDC procedure outlined below). The Authority must then decide whether to give the person concerned a decision notice. Section 388(1) FSMA provides that a decision notice must “give the reasons of [the Authority] for the decision to take the action to which the notice relates”.

A warning notice will in most cases be followed by engagement with the Authority’s Regulatory Decisions Committee (“RDC”), which is a committee of the FCA Board which takes contested regulatory decisions on behalf of the Authority. A person who may be subject to regulatory sanction can make representations to the RDC, which could extend to a hearing at which the party is represented. However, there is an expedited reference procedure under which a person can decline to engage with the RDC and instead refer the matter directly to the Tribunal. Mr Goodchild exercised his right to expedite his reference to the Tribunal.

The operative provision for the Tribunal’s jurisdiction is section 133 FSMA (“Proceedings before Tribunal: general provision”). It provides, so far as relevant for us:

So, in the case of a disciplinary reference (which these references are so far as the financial penalties are concerned), the Tribunal “must determine what (if any) is the appropriate action for the decision-maker to take in relation to the matter”. In other cases (which would include the Authority’s other proposed actions) the Tribunal may remit “the matter to the decision-maker”. The Tribunal’s jurisdiction is, therefore, circumscribed by “the matter”; it can only make directions/determinations in relation to “the matter”. As this Tribunal observed in Bluecrest (considered in more detail below) at [48], the words “subject-matter of the reference” (in section 133(4)) and “matter” (in section 133(5) and (6)(b)) in respect of which the Tribunal must determine the appropriate action are not defined. In its broadest terms, reading sections 67(7), 63(5) and 67(5) (as the case may be) and section 133(4) together, the subject matter of the references might be thought to be the decisions of the Authority to impose a financial penalty, to make a prohibition order or to withdraw Mr Goodchild’s approval. However, as we shall see, the authorities give this expression a narrower interpretation.

The question of what is within the subject matter of a reference to the Tribunal has been considered in a number of authorities, and I turn to these now. Before embarking on this tour, I should explain that the Authority has published certain principles as to how a regulated firm should conduct its business. These include Principles 1 (that a firm should conduct its business with integrity) and 2 (that a firm should conduct its business with due skill, care and diligence). Where an approved person (such as Mr Goodchild) is concerned, these are referred to as Statements of Principle as to how an approved person should act in carrying out their FCA controlled functions. Mr Burdett was not an approved person (which, of course, is one of the Authority’s criticisms of him), but the Authority’s view is that the same factors should be considered in deciding whether he is a fit and proper person. The relevance of this is that the same issues arise when considering whether an allegation of lack of due skill and care or breach of Statement of Principle 2 can be raised when only lack of integrity or breach of Statement of Principle 1 was initially articulated, as arise when only a breach of Principle 1 was alleged, and the Authority then seek to allege a breach of Principle 2. At intervals below I may refer only to a Principle or Statement of Principle or allegation, but the issue is the same whichever expression I use.

Our journey starts with Jabre v Financial Services Authority, [2002] UKFSM FSM035, a decision of the Financial Services and Markets Tribunal (the “FSMT”). In that case the Authority imposed a financial penalty on Mr Jabre for market abuse and breach of Principles 2 (Due Skill, Care and Diligence) and 3 (Market Conduct) of the Authority’s Statements of Principle for Approved Persons. The Authority made no findings in relation to Principle 1 (Integrity). The Authority did not withdraw Mr Jabre’s approval, but before the FSMT it sought to contend that Mr Jabre’s approvals should be withdrawn. Mr Jabre submitted that the Tribunal had no jurisdiction to entertain the Authority s contentions either that his approval should be withdrawn on the grounds that he was not a fit and proper person to perform the regulated functions or that he should be subject to a prohibition order.

The FSMT held that it did have jurisdiction to entertain the matters raised in the Authority’s statement of case, observing as follows:

The point here is that the warning notice had sought a withdrawal of Mr Jabre’s approvals on the grounds that Mr Jabre had committed breaches of Principles 1 and 3 and had engaged in behaviour constituting a deliberately conceived plan to abuse the market and was therefore not fit and proper. The warning notice expressly sought a withdrawal of approvals on the grounds that Mr Jabre was not fit and proper. Everything the Authority was seeking to argue before the Tribunal (both in terms of allegations of wrongdoing, the conclusions to be drawn from that behaviour (that Mr Jabre was not a fit and proper person) and the Authority’s proposed response) was addressed in the warning notice and “in play” (my expression) before the RDC.

In FCA v Hobbs, [2013] EWCA Civ 918, the Authority proposed to make a prohibition order on Mr Hobbs on the basis that he had engaged in market abuse. The Authority had also contended, in the warning notice issued to Mr Hobbs, that he had lied to his employer and the Authority during the investigation into his conduct and these allegations also formed part of the basis of the RDC’s decision to prohibit Mr Hobbs. Mr Hobbs referred the matter to the Tribunal, which allowed his reference as it decided that Mr Hobbs’ trading did not amount to market abuse. The Tribunal found that Mr Hobbs had lied to the Tribunal about why he had undertaken the trades in question, but decided that, since the Authority’s case had rested on a consideration of Mr Hobbs’ alleged conduct in committing market abuse and then lying about it, it was not satisfied that the Authority had made its case that Mr Hobbs was not a fit and proper person.

The Court of Appeal gave two reasons why the Tribunal should have considered the issue of Mr Hobbs’ lies and whether that justified a prohibition order. The first reason centred on a question of statutory construction. In paragraph 32 of his judgment Sir Stanley Burnton stated:

Consequently, as Mr Hobbs’ lying was part of the case before the RDC and Mr Hobbs’ lying was one of the bases for the Authority’s conclusion that Mr Hobbs was not fit and proper, it was incumbent on the Upper Tribunal to address the issue.

The second reason was a broader point of principle as to the nature of the proceedings before the Tribunal. This was expressed in paragraph 38 of Sir Stanley Burnton’s judgment as follows:

The point for us is that the Court of Appeal recognised that there is a wider public interest in regulatory proceedings than is the case with ordinary civil litigation, and so the Tribunal should avoid any narrowing of the inquiry and any potential prejudice to the applicant could be addressed by giving him a fair opportunity to address the case.

In Seiler (discussed further below - at [982]) this Tribunal thought it important to note that in Hobbs the Authority sought to rely on facts and circumstances which arose after the regulatory process had been completed and therefore were not capable of being included in the original warning notice. It considered that Khan v Financial Conduct Authority, [2014] UKUT 186 (TCC), suggested that, where the facts and matters concerned could have been contained in the warning notice but were not, the Tribunal should have regard to the overall purpose of the statutory scheme and the place of the Tribunal in the regulatory process and consider whether it should exercise its case management powers to prevent the Authority relying on a matter which was not relied on in the warning notice.

Next, we have Carrimjee v FCA, [2015] UKUT 0079 (TCC). Mr Carrimjee referred to the Tribunal a decision of the Authority to withdraw his individual approvals, make a section 56 prohibition order and impose a financial penalty. The Authority decided to take these actions because “Mr Carrimjee failed to act with integrity in breach of Statement of Principle 1 when he recklessly assisted his client, Mr Rameshkumar Goenka, in Mr Goenka’s plan to manipulate the closing price of Gazprom GDRs in April 2010”. The Tribunal went on to consider what might happen if it were to decide that there was a degree of culpability on Mr Carrimjee’s falling short of failing to act with integrity, but which constituted a failure to act with due skill, care and diligence. In relation to that question, the Tribunal commented:

In Seiler and others v FCA, [2023] UKUT 0033 (TCC), this Tribunal considered prohibition orders issued by the FCA to three executives of Bank Julius Baer & Co. Ltd. Of relevance to us is the Tribunal’s consideration of whether the Tribunal had jurisdiction to take certain matters (defined as the Third FX Transaction and the Third Commission Payment) into account. These were said to be different in the Authority’s statement of case from the matters referred to as such in the warning notices. The Tribunal concluded (at [995]) that the FCA should “put its cards on the table at the Warning Notice stage rather than seek to introduce further allegations as the proceedings developed” and went on to comment as follows:

The point Mr Temple directs us to here is not the importance of warning notices in the statutory procedure but the Tribunal’s reference to the “facts and circumstances” relied on by the Authority, in contrast to the decision it reached after considering those facts and circumstances.

Finally, we come to the most recent (and, in the Authority’s submission, most controversial) decision, that of this Tribunal in Bluecrest Capital Management (UK) LLP v FCA, [2023] UKUT 00140 (TCC). This was a decision on two case management applications, one of which was an application by the Authority to amend its statement of case. The Authority had imposed a financial penalty on Bluecrest for breaches of Principle 8 (“A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.”) and later sought to amend its statement of case to include a breach of Principle 7 (“A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading”) and the requirement in the Conduct of Business Rules (“COBS”) that “A firm must ensure that a communication or a financial promotion is fair, clear and not misleading”. Bluecrest submitted that, as a matter of law, the Tribunal did not have jurisdiction to entertain the amendment, which raised a new case in fact and in law to that relied on in the statutory warning and decision notices. It was not the subject of the original case that Bluecrest failed to communicate relevant information to investors in a way that was clear, fair and not misleading and (Bluecrest submitted) a substantial purpose of the amendments was to add two entirely new cases to the effect that Bluecrest breached obligations under Principle 7 and COBS. The Tribunal held that the allegations the Authority sought to include were not part of the “matter” referred to the Tribunal and so it did not have jurisdiction to determine the Principle 7/COBS case and the Authority could not amend its statement of case to include it.

In reaching its conclusion the Tribunal noted (at [192]) that:

An important reason why the allegations of regulatory breach must have been properly before the RDC to form part of the “matter referred” is that this ensures satisfaction (or substantial satisfaction) of the objective of the statutory notice requirements. The Tribunal cited the following passage from Markou v FCA, UKUT 2023 101 (TCC):

In relation to this passage, the Tribunal commented (at [194]) that:

The Tribunal considered that this feature of the process had been emphasised in Seiler, citing paragraphs [1001]-[1012] of that decision, and went on to conclude that:

In relation to Jabre and earlier cases, the Tribunal commented:

At [199] the Tribunal then considered Carrimjee. In Bluecrest the Authority suggested that the Principle 7 allegation regarding Bluecrest failing to make sufficient disclosure was subsumed as a matter of law within the existing Principle 8 allegations. The Authority relied by analogy on Carrimjee, where the Tribunal, with the consent of both parties, went on to consider an allegation of a breach of Statement of Principle 2 (acting without due skill, care and diligence) as an alternative to Statement of Principle 1 (a lack of integrity) despite it not being pleaded or pursued before the RDC. The Tribunal in Bluecrest noted that the question of jurisdiction was not argued in Carrimjee and the alternative case proceeded on an agreed basis. Secondly, the Tribunal did not accept that allegations of failures to communicate or disclose for the purposes of Principle 7 automatically form a subset of the non-disclosure of conflicts for the purposes of Principle 8. As the Tribunal put it, “There is no sense in which a Principle 7 allegation can be automatically deemed to be subsumed within a Principle 8 allegation as an alternative or lesser allegation” (my emphasis). Third, the nature of the factual allegation upon which the Principle 7 amendment relied was to some extent different from that contained within the original Principle 8 allegation.

Mr Temple told us that the Authority has appealed the decision in Bluecrest, and the appeal is due to be heard by the Court of Appeal over three days in July. The basis of the appeal, he explained, is that the Tribunal failed in Bluecrest to consider cases on similar provisions in the Pensions Act 2004 (“PA04”) which suggest that, subject to a possible proviso that the Authority cannot seek more onerous sanctions than those sought in the warning notice, the Tribunal is free to consider evidence and allegations beyond those considered by the regulatory authority and reach its own conclusion on the regulatory decision referred to it. In other words, Bluecrest (and potentially several of the earlier authorities) wrongly limits the wide jurisdiction given to this Tribunal by Parliament.