UT-2023-000053/54 - [2025] UKUT 00087 (TCC)

We have seen that the Authority’s policy is to charge interest when calculating the amount to be disgorged and the rate typically applied is 8% (which was the rate used here).

In FCA v Da Vinci Invest Ltd, [2015] EWHC 2401 (Ch), Snowden J commented on the charging of interest in the disgorgement element of the penalty calculation as follows (at [224]):

“DEPP 6.5A.1 indicated that the FSA would ordinarily have charged interest upon any benefits payable at step 1. That would seem correct as a general proposition in order that a wrongdoer should be deprived of all benefits, including those derived from investment or use of money. I did not, however, receive any submissions as to an appropriate rate of interest that might be applied. Accordingly, and given that interest rates have generally been very low over the last few years, I do not propose to add any specific sum for interest. I shall, however, give some effect to this principle by rounding the final amount of the penalty to be imposed on DVI up rather than down.”

In our November Decision we suggested (in the final sentence of [233]) that charging a rate of interest which is higher than prevailing commercial rates might go further than depriving the person of the benefit “derived directly from the breach” and risk taking into account amounts an individual could have derived indirectly by investing the benefit. However, in the light of Snowden J’s comment (that benefits from wrongdoing include those derived from investing or using money) and the comment of Popplewell LJ in FCA v Bluecrest Capital Management (UK) LLP, [2024] EWCA Civ 1125, (that “It is plainly in the public interest for a firm to be required to disgorge profit made as a result of wrongdoing irrespective of loss to consumers” (our emphasis)), we acknowledge that we were wrong to be beguiled by the word “directly” into suggesting that the amount to be disgorged is limited to the amounts directly derived by subjects in the position of the Applicants together with interest at a deposit rate on those amounts.

We agree with Mr Temple’s submission that the amount to be disgorged should reflect the secondary benefits derived by the wrongdoer from the way they invested or used the benefits they obtained directly because of their wrongdoing. This would include investment returns obtained or (the example we gave in our November Decision) money saved by paying off an expensive debt.

Where there are no investment or other measurable economic benefits derived by the subject or these do not fully reflect the value to the subject of having received benefits some time previously, interest should be charged on the amounts directly derived by the subject, in order (if nothing else) that what is disgorged is the present value of a benefit derived some time ago. “Disgorgement” is looking to deprive a wrongdoer of any benefit from their wrongdoing, not to compensate a person they have wronged or to penalise the wrongdoer, and so the rate of interest used in such a case should reflect prevailing deposit interest rates over the relevant period. This may mean, as it did in Da Vinci Invest, that in a time of ultra-low interest rates no interest should be charged.

Mr Temple submitted that, where monies have been invested, using a simple rate of interest cuts through the complexities of calculating the investment return from monies derived by the subjects from their wrongdoing. In such a case, he says, the Authority remains of the view that 8% is appropriate.

Unusually, we are not with Mr Temple on this point. The aim must, as Snowden J observed, be to require the subject to disgorge “all benefits, including those derived from investment or use of money”. This means that the starting point must be to identify (so far as possible) the full amount of the investment or other economic benefits derived by the subject and make sure that those amounts are disgorged in full.

If an interest rate were to be used, the rate chosen for that purpose would need to be a realistic proxy for the subject’s investment return (high enough to force complete disgorgement of benefits but not so high as to risk producing a figure which performs a penal function). It seems to us that, by the time we have identified and validated an interest rate which meets these criteria, we would not be far short of calculating the subject’s actual investment return. For that reason, and because forcing disgorgement of the full economic benefits but no more is conceptually the correct approach, we consider that the investment return derived by the Applicants from the monies paid into their pension schemes should be calculated and the full amount of that return should be included in the amount to be disgorged. On the assumption that there were already some funds in these pension schemes, some pro rating of overall returns may be required, but this does not strike us as a particularly difficult calculation.

If an investment loss is made or the return is lower than would have been obtained by depositing the money at interest, then (consistent with the point we made at [31]) interest should be charged at a deposit rate.

We agree with the Authority that, where a market interest rate is used, interest should be compounded.

So far as the prohibition orders under section 56 FSMA and the withdrawal of approvals to perform senior management functions at CFP under section 63 FSMA are concerned, the References have already been dismissed.

So far as the financial penalties under section 66 FSMA are concerned, we remit the calculation of those penalties to the Authority with a direction that the Authority should calculate the amount to be disgorged (step 1 in the calculation of the penalties) as follows:

The Applicants are to provide the Authority with full details of the investment returns earned in their pension schemes with fourteen days of the release of this decision and any other information requested by the Authority for the purposes of calculating the amount to be disgorged with fourteen days of request.

If the Authority and the Applicants cannot agree on the amount to be disgorged, there is liberty to apply to the Tribunal.