UT (Tax & Chancery) UT-2023-000064 - [2025] UKUT 00203 (TCC)

We have found that Mr Staley knew, when he approved the Letter, that its contents were factually inaccurate. We have also found that Mr Staley was aware that if he approved the Statements in the Letter the Authority would rely on them and that the risk that the Authority would be misled by the statements in question would occur. Mr Staley accepts that in those circumstances it was unreasonable for him to take the risk in question.

Accordingly, we conclude that Mr Staley acted recklessly in approving the Letter, containing as it did the Statements.

The Authority contends that Mr Staley acted in breach of the following conduct rules:

In this case it follows inevitably from our finding that Mr Staley acted recklessly in approving the Statements in the Letter that in doing so he acted without integrity in breach of ICR 1.

That is because, as the authorities which are summarised at [37] to [40] demonstrate, acting recklessly is an example of a lack of integrity, albeit that it does not involve dishonesty. As was observed at [15] of Batra, as set out at [482] above, recklessness as to the truth of statements made to others who will or may rely on them is an example of a lack of integrity. That is exactly the position in this case: as we have found, Mr Staley was reckless as regards his approval of the Statements and was aware that the Authority would rely on them.

At [58] we refer to Mr Smith’s submission that the allegations of breach of the three rules will stand or fall together. As we observed in that paragraph, we do not accept that submission. In our view, it would have been open to us to find that there had been a breach of either or both of ICR 3 and SMCR 4 had we not found that ICR 1 had been breached.

However, it is clear that in this case the findings that we have made also amount to a breach of ICR 3 and SMCR 4.

Clearly in this case on the basis of our findings Mr Staley failed to disclose appropriately information of which the Authority would reasonably expect notice. The Authority was expecting the Letter to have been written on the basis of an accurate description of the nature of the relationship between Mr Epstein and Mr Staley and an accurate description of the recency of contact between the two men. Mr Staley failed to ensure that the Letter contained an accurate description of the nature of the relationship and the recency of contact and as a result failed to disclose appropriately the true position in relation to those two matters. Accordingly, Mr Staley acted in breach of ICR 3. On the basis of the same facts, compliance with SMCR 4 required Mr Staley to ensure that the Letter disclosed appropriately information that the Authority would reasonably expect notice, namely a true account of whether there was a close relationship between Mr Epstein and Mr Staley and the recency of contact between the two men. Accordingly, Mr Staley also acted in breach of SMCR 4.

In relation to the power to make prohibition orders in respect of individuals under s.56 FSMA, such an order may relate to a specified regulated activity, any regulated activity falling within a specified description, or all regulated activities. The Authority may make a prohibition order “if it appears to it that an individual is not a fit and proper person to perform functions in relation to a regulated activity”: see s.56(1). As the Authority submitted, a key issue is whether a prohibition order is compatible with the Authority’s statutory objectives, as referred to in EG 9.1, as set out at [33] above.

It is well established that prohibition orders are a protective measure, intended to protect the public in pursuit of the Authority’s statutory objectives. The primary purpose of a prohibition is not to punish the individual.

Relevant factors include the risk to consumers or the market, the length of time that has elapsed between the events in question and the decision to impose a prohibition, whether the individual has reflected on his or her conduct in that time and whether he or she has shown genuine remorse, and the individual’s disciplinary record.

As the Authority submitted, integrity, being open and cooperative with the Authority at all times, and demonstrating good judgement are fundamental requirements of senior managers. In that regard, Mr Staley had a particularly important position of responsibility, as the Chief Executive of one of the UK’s most significant financial institutions. As the Authority correctly observed, for the proper functioning of the regime of oversight of the financial services sector and the market, the Authority relies upon, and must be able to rely upon, the veracity and completeness of the representations made to it and openness in disclosing matters of which it would reasonably expect to be given notice.

As we observed at [28] above, this Tribunal has also recognised in a number of cases that the Authority cannot carry out its responsibilities effectively without having an open and cooperative relationship with firms and approved individuals. It must be able to rely on regulated bodies and individuals bringing matters relating to their ability to comply with relevant rules and requirements to its attention.

We agree with the Authority that Mr Staley’s breaches of the Authority’s rules represented a serious failure of judgement by Mr Staley. Bearing in mind the importance of Barclays as a financial institution, this was conduct that could have resulted in confidence in the financial system being adversely affected. The conduct clearly engages the Authority’s objective of enhancing and protecting the integrity of the UK financial system in section 1D FSMA and the imposition of a prohibition order against Mr Staley in the form sought by the Authority will further that objective.

Mr Staley was subject to regulatory action by the Authority and the PRA in 2018, albeit relating to unconnected matters and not involving allegations of a lack of integrity. As a consequence of this experience of the enforcement process, in common with the Authority we would have expected Mr Staley to have been particularly careful to ensure that the Letter was factually accurate. The conduct in this case occurred only a year after that earlier regulatory action. He has shown no remorse for his conduct which has led to the Authority’s investigation.

In those circumstances, it is clear that the imposition of a prohibition order on the grounds that Mr Staley is not a fit and proper person to perform any senior management or significant influence function in relation to any regulated activity carried out by an authorised person, exempt person or exempt professional firm is a course of action reasonably open to the Authority on the basis of the findings that we have made. We therefore see no basis on which we should interfere with the Authority’s decision in that regard.

We should point out that we have come to this conclusion without it being necessary for us to engage with the Authority’s submissions that Mr Staley was less than candid in his interviews with the Authority. The Authority had sought to rely on these allegations as additional grounds on which the Tribunal could conclude that Mr Staley lacked integrity and as additional reasons why a prohibition order was appropriate.

We recognise that in an appropriate case a finding that an individual is not fit and proper and that a prohibition order should follow as a result could be founded on findings that the individual concerned had misled the Authority during the interview process. However, in the circumstances of this case, we do not consider that the Authority’s allegations add materially to its case. In our view, that case is sufficiently strong to justify the sanctions that the Authority is seeking purely on the basis of Mr Staley having acted without integrity in approving the Statements in the Letter.

The Authority decided to impose a financial penalty on Mr Staley on the basis that he has committed misconduct while holding a Senior Management Function, in the sum of £1,812,800.

Chapter 6 of the Decision Procedural and Penalties Manual (“DEPP”)provides that the principal purpose of imposing a financial penalty is to promote high standards of regulatory and/or market conduct by deterring persons who have committed breaches from committing further breaches, helping to deter other persons from committing similar breaches and generally demonstrating the benefits of compliant behaviour. DEPP 6.2.1 provides a non-exhaustive list of factors the Authority will consider when looking at the full circumstances of the case, in order to determine whether or not to impose a financial penalty.

In calculating the financial penalty in this case, the Authority has applied the five-step framework set out in DEPP 6.5B and which we have set out at [48] above.

Mr Staley challenges two features of the Authority’s penalty calculation as follows:

At Step 2, the Authority determines a figure that reflects the seriousness of the breach. That figure is based on a percentage of the individual’s relevant income. The reason for this is explained in DEPP 6.5B.2G(3) as follows:

“This approach reflects the FCA's view that an individual receives remuneration commensurate with his responsibilities, and so it is reasonable to base the amount of penalty for failure to discharge his duties properly on his remuneration. The FCA also believes that the extent of the financial benefit earned by an individual is relevant in terms of the size of the financial penalty necessary to act as a credible deterrent. The FCA recognises that in some cases an individual may be approved for only a small part of the work he carries out on a day-to-day basis. However, in these circumstances the FCA still considers it appropriate to base the relevant income figure on all of the benefit that an individual gains from the relevant employment, even if their employment is not totally related to a controlled function.”

The individual’s relevant income is the gross amount of “all benefits” received by the individual from the employment in connection with which the breach occurred, and for the period of the breach.

In determining an individual’s relevant income, DEPP 6.5B.2G provides that “benefits” includes but is not limited to “salary, bonus, pension contributions, share options and share schemes.”

Mr Staley received benefits in the form of salary, bonus, pension contributions, benefits and share incentive schemes. In his case, the share incentive scheme included deferred shares which represented a significant proportion of that scheme. In relation to deferred shares, he was awarded:

In January 2022, Barclays exercised its discretion to suspend the vesting of all of Mr Staley’s unvested shares. This followed the Authority sending Mr Staley the updated Annotated Warning Notice and was pending further developments in the proceedings. In June 2023, following the receipt of the Decision Notice, the Remuneration Committee of Barclays exercised its discretion not to treat Mr Staley as a “good leaver” in respect of his unvested LTIP awards and therefore those awards lapsed. Nevertheless, in its penalty calculation, the Authority has continued to treat the unvested shares, which will not now be awarded, as a benefit received by Mr Staley and therefore part of Mr Staley’s “relevant income” for the relevant period for the purposes of the penalty calculation.

Mr Staley’s position on Issue 1 can be summarised as follows:

The Authority’s position on Issue 1 is as follows:

We have concluded that in the circumstances of this case, the amount of the financial penalty should be calculated on the basis that the value of the unvested shares is not to be included in Mr Staley’s relevant income for the following reasons.

The provisions of DEPP must be applied flexibly according to the circumstances of the case. This is apparent from the Tribunal’s decision in Arian Financial LLP v FCA [2024] UKUT 00352 (TCC). The Tribunal said this when considering the interpretation of the phrase “financial benefit” as used in Step 1 of the five step process set out in DEPP:

“The phrase “financial benefit” should not be construed in an overly legalistic fashion. The policy should not be construed in the same way as a statutory provision and should be capable of being applied flexibly, depending on the facts. Therefore, for instance, in a case where the firm is legally entitled to receive the full amount of the income it derives from the misconduct in question in circumstances where it is obliged to meet certain expenses out of the amount received, the fact that it had a legal entitlement to the whole amount should not be decisive as to the amount of the financial benefit. Whether the “financial benefit” is the gross amount, or a lesser amount to take account of expenses, needs to be considered on a case-by-case basis.”

Although the Tribunal in that case was considering the interpretation of a different provision in DEPP, in our view the same principle applies in relation to the interpretation of “received” in the context of the calculation of an individual’s relevant income.

We do not accept the Authority’s submission to the effect that the use of the term “earned” in DEPP 6.5B.2G(3) shows that the term “received” always includes sums to which an individual may become entitled subject to the satisfaction of any contingencies. It is important to note that DEPP 6.5B.2G(3) is merely guidance and as we have said, should not be construed in an overly legalistic fashion. In any event, there is nothing in this provision which clearly indicates that the use of the term “earned” was intended to be a wider scope than “received”, bearing in mind that the opening line of the provision refers to an individual who “receives remuneration”.

We understand that there may be occasions when it is appropriate to calculate relevant income on the basis of an estimate of what is likely to be received in respect of benefits where their receipt is dependent upon the satisfaction of conditions. We do not criticise the Authority for having taken that approach at the Decision Notice stage on the basis of the information available to the Authority at the time or its approach of applying a contingency adjustment to the value of the deferred shares based on the average percentage of LTIPs awarded to Mr Staley in previous years.

However, if, as in this case, the matter is referred to the Tribunal, in our view it is clear that the Tribunal must look at all the circumstances that exist at the time it comes to determine the reference. If circumstances change, as in this case, and benefits which the Authority considered were likely to be received will not in fact be received, then the Tribunal must take that into account. As the authorities demonstrate, whilst the Tribunal should pay due regard to the provisions of DEPP and its application in the circumstances of the case by the Authority, it is able to depart from the Authority’s calculation where it is in the interests of justice to do so.

In our view this is such a case. We do not accept that taking this flexible approach in this particular case undermines the certainty of the penalty figure. In any event, that figure was calculated by the Authority on the basis of some uncertainty at the time as to whether the benefit would be received, so in our view it is necessary for the Tribunal to consider whether it is appropriate to adjust the penalty if the benefit in question is in fact not received.

The Authority refers to possible perverse results if the strict position for which it argues is not followed. By way of example:

As we have said, the policy in DEPP should be applied flexibly depending on the circumstances of the case. Anomalies such as those which the Authority has identified can easily be addressed. In particular, Step 4 of the five step process allows the penalty to be adjusted in order to ensure credible deterrence. Sub-paragraph (e) of that provision gives an example of when an adjustment for credible deterrence may be necessary. The example given is where a penalty based on an individual’s income may not act as a deterrent, for example if an individual has a small or zero income but own assets of a high value. The examples that the Authority gives can easily be accommodated by making an adjustment at Step 4, particularly in circumstances where a firm and an individual may connive to manipulate the reality of the situation, as described in the Authority’s second example. As we have said, DEPP is guidance and there is ample scope for it to be applied flexibly to meet the circumstances of the case.

The Authority has not submitted that reducing the penalty in this case to take account of the fact that the deferred shares have not vested would result in a penalty which is insufficient to ensure that the penalty acts as a credible deterrent to others who may commit some of the breaches in the future. We do not consider that a reduction of the penalty will diminish the deterrent effect of the penalty in this particular case. By our calculations, if Mr Staley’s income is adjusted to remove the value of the deferred shares which will not now vest, then the calculation at Step 2 will give rise to a figure of £1,006,642.65.

We now turn to Issue 2.

Pursuant to DEPP 6.5B.3G, at Step 3 the Authority may increase or decrease the amount of the financial penalty arrived at after Step 2, but not including any amount disgorged at Step 1, to take into account factors which aggravate or mitigate the breach.

Having regard to the factors set out in DEPP 6.5B.3G, the Decision Notice at paragraph 6.16(1) identified one relevant aggravating feature namely, the previous disciplinary record and general compliance history of the individual. Mr Staley was the subject of regulatory action by the Authority and the PRA in 2018 for breaching ICR2 in the way he acted in response to an anonymous letter that Barclays received raising concerns about its hiring process.

At paragraph 6.17 of the Decision Notice, the Authority stated that it considered that there were no factors that mitigate Mr Staley’s breach.

The Authority increased the penalty at Step 3, by increasing the Step 2 figure by 10% as a result of the aggravating feature above and the absence of mitigating features.

Mr Staley contends in his Amended Reply that an uplift of 10% at Step 3 was not appropriate in light of Mr Staley’s previous disciplinary finding because that was a finding of a breach of ICR2 (acting with due skill, care and diligence) and not a finding of lack of integrity and because the circumstances were wholly unrelated to the issues at hand.

However, the Authority considers that the factor identified as aggravating the breach under DEPP 6.5B.3G is properly applicable in this case as Mr Staley should have been particularly careful to ensure representations made to the Authority were accurate in light of the previous disciplinary finding.

Mr Staley’s position as set out in his Amended Reply, is that the following features, which it is contended amount to mitigation, should be applied:

We are in full agreement with the Authority on these points.

As far as the aggravating feature identified by the Authority is concerned, we do not consider that the fact that the previous action taken against Mr Staley did not call into question his integrity makes any difference. He had only recently been through the enforcement process when the event which is subject to these proceedings occurred and he should therefore have learned lessons from that process and been particularly careful to avoid any further breach of the Authority’s regulatory requirements. The expectation is that the CEO should set an example for other employees to follow.

As far as the alleged mitigating features are concerned:

Accordingly, we accept that the penalty should be adjusted at Step 3 for the aggravating feature identified by the Authority and should not be mitigated. Accordingly, having taken account of the reduction for benefits which will not be received in respect of relevant income as determined above, we shall direct that the Authority impose a financial penalty of £1,107,306.92 on Mr Staley.

The reference is dismissed, except insofar as we have determined a lower level of financial penalty to that sought by the Authority. Our decision is unanimous.

In relation to Mr Staley’s disciplinary reference we determine that the appropriate action for the Authority to take is to impose on him a financial penalty of £1,107,306.92 pursuant to s 66 (3)(a) FSMA for failure to comply with the requirements of ICR 1, ICR 3 and SMCR 4 in carrying out his functions as Chief Executive of Barclays as regards his approval of the Letter.

In accordance with s 133 (6) FSMA we have dismissed the non-disciplinary reference. It is therefore open to the Authority to make a prohibition order against Mr Staley prohibiting him from performing senior management and significant influence functions.

We remit the references to the Authority with a direction that effect be given to our determinations.