The question for any firm will be whether the relevant behaviour/incident is tantamount to ‘serious misconduct’ and/or dishonesty tantamount to fraud. What test does a firm therefore need to employ to decide whether the obligations are triggered – is it sufficient to simply consider the firm's internal guidelines on employee conduct and form an assessment accordingly? What if the firm is satisfied that the conduct was just a blip despite how seriously the FCA or any prosecuting body may view it?
The solution can feel uncomfortable for a firm as it involves assuming a quasi-prosecutorial stance in order to assess internal wrongdoing. This is entirely necessary as without a realistic and objective internal investigation, any decision regarding reporting will be inherently flawed by bias. In order to mitigate against this difficulty, it is prudent to instruct specialist financial crime lawyers who can undertake the internal investigation on behalf of the firm, utilising their experience in FCA brought enforcements and prosecutions. This allows the firm to assume a more passive role away from any internal politics - it is far easier to blame the lawyers for any investigative process who in any event, should have Teflon like skin.
Lawyers conducting the internal investigations will weigh up the firm’s internal procedures for the transaction in question, the firm’s employee responsibilities and expectations vis a vis FCA precedent concerning self-reporting, as well as the criminal definitions of fraud and the inherent dishonesty requirement. A recommendation may then be given to the board of directors and it is then a matter for the firm as to whether it will report. The latter is a vital final step in the self-reporting process in order that it may be stated to the FCA that at the investigation’s conclusion, the firm made an unfettered decision. The FCA will prefer voluntary reporting not brought about my lawyers twisting arms and/or by a report issued by a third party.
Should a firm decide that the incident does not qualify as fraudulent and/or serious misconduct having undertaken an investigation, it will at least have an audit trail of its decision making process, protected by lawyer-client privilege. In the event a firm chooses to self-report, an initial submission of the incident can be carefully drafted by the lawyer, after which the FCA will commence its enquiry into the incident and whether any type of intervention and enforcement is warranted.
It can be tempting for any firm with implicated clients and distributors to bury their heads in the sand so as not to disrupt commercial operations, particularly in agricultural concerns where commercial relationships can be decades long. In reality, it is often the case that information concerning the incident is already in the open and so if it is not you who will be controlling how and whether a report to the FCA is made, do you trust another party with something so serious?
The content of this article is for general information only. If you would like to discuss any of the issues raised in it further, please contact Simon Caltagirone. Law covered as at August 2018.
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