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

The legal approach to the concept of integrity in the financial regulatory context has most recently been set out by the Upper Tribunal in Seiler, Whitestone and Raitzin v The Financial Conduct Authority (“Seiler”) [2023] UKUT 00133 (TCC) (at [42]) as follows:

“(1)

There is no strict definition of what constitutes acting with integrity; it is a fact specific exercise;

(2)

Even though a person might not have been dishonest, if they either lack an ethical compass, or their ethical compass to a material extent points them in the wrong direction, that person will lack integrity;

(3)

Acting recklessly is another example of a lack of integrity not involving dishonesty. A person acts recklessly with respect to a result if he is aware of a risk that it will occur and it is unreasonable to take that risk having regard to the circumstances as he knows or believes them to be;

(4)

To turn a blind eye to the obvious and to fail to follow up obviously suspicious signs is a lack of integrity;

(5)

There are both subjective and objective elements to the test of what constitutes a lack of integrity. The test is essentially objective but nevertheless involves having regard to the state of mind of the actor as well as the facts which the person concerned knew.”

As indicated in Seiler reckless behaviour may be found to connote a lack of integrity. As Ms Mulcahy observed, in Batra v Financial Conduct Authority [2014] UKUT 0214 (TCC) at [15], the Tribunal gave the following example of recklessness in relation to the making of statements:

“One example of a lack of integrity not involving dishonesty is recklessness as to the truth of statements made to others who will or may rely on them or wilful disregard of information contradicting the truth of such statements.”

Accordingly, as Ms Mulcahy submitted, recklessness as to the truth of statements made to others who will or may rely on them and/or wilful disregard of information contradicting the truth of such statements can constitute lack of integrity.

In Seiler the Upper Tribunal determined that recklessness includes both subjective and objective elements, and that, in relation to the former, there is therefore a need to prove the state of knowledge of the individual as to the risk, but not that the individual appreciated that that their action was morally wrong. The Tribunal said this at [46] and [47]:

“46…. The subjective element focuses on the state of knowledge of the individual concerned as to the risks concerned. The objective element focuses on the question as to whether it was reasonable for the person concerned to have ignored the risk. Clearly, in considering a person’s state of awareness in relation to a risk, it is appropriate to have regard to what would reasonably have been appreciated or understood by persons in the same position as the individual in question, as the passage in Ford and Owen set out above clearly states. As Mr Jaffey submitted, the fact that the first element of the test of recklessness is subjective does not mean that the Tribunal cannot have regard to the inherent probabilities and, in particular, how a reasonable professional would respond in the relevant situation. By having regard to those factors, the Tribunal may conclude that the risks concerned would have been obvious to the person concerned and therefore can draw the inference that he or she was aware of the risks in question.

47.In our view, in his closing submissions Mr Strong illustrated the application of the relevant principles correctly with the following examples:

(1)

A person who recognises a risk of morally objectionable action which is unreasonable to take and ignores it lacks integrity precisely because they consciously take a risk, which is in fact unreasonable, of unethical conduct occurring. It does not matter whether the person appreciates that the action is morally wrong: if they do not appreciate the moral character of the action, their ethical compass is defective.

(2)

On the other hand, a person who does not appreciate that there is a risk of action being taken which would objectively be considered wrong is not reckless and does not lack integrity. They are not aware of a risk that the action in question may happen. Their ethical compass is not defective. That is the case whether or not someone else might have identified a risk of the relevant action occurring. That, as Ms Clarke submitted, could arise because of a lack of experience, competence or training on the part of the individual concerned…..”

Therefore, following the approach set out at [50] of Seiler, what needs to be determined in relation to the allegation of recklessness made against Mr Staley in this case is (i) what facts in relation to the matters on which the Authority relies Mr Staley was aware of and, in particular, whether he knew, when he approved the Letter, that its contents were factually inaccurate; (ii) whether in light of those facts Mr Staley was aware that if he approved the statements in the Letter then the risk that the Authority would be misled by the statements in question would occur and; (iii) whether it was unreasonable in light of the circumstances as Mr Staley knew or believed them to be to take the risk in question.

We did not take Mr Smith to disagree with that formulation. He also accepts that if Mr Staley was aware of the risk that the Authority would be misled by the statements in the Letter then it would have been unreasonable for him to take that risk.

As Ms Mulcahy submitted, in this case the Tribunal needs to make a finding as to the state of knowledge of Mr Staley as to the risk, albeit the Tribunal is entitled to have regard to inherent probabilities and how a reasonable professional would respond in the relevant situation and enabling the Tribunal to conclude, if appropriate, that the risks concerned would have been obvious to Mr Staley, such that an inference can be drawn as to such awareness.