When personal conduct leads to a ban by the Financial Conduct Authority


13 September 2021

In this case the Upper Tribunal (Tax and Chancery Chamber) agreed with a decision of the Financial Conduct Authority (the FCA) to ban an independent financial adviser, Mr Frensham following his conviction for sexual offences. The decision is important because it demonstrates that personal misconduct outside of a financial adviser’s duties can impact fitness and propriety.

Facts

Whilst he was an approved person, Mr Frensham was convicted of attempted sexual grooming of a child aged under 16. Consequently, Mr Frensham was sentenced to 22 months’ imprisonment, suspended for 18 months with a 60 day rehabilitation requirement. He was also made the subject of an indefinite sexual harm protection order and added to the sex offenders register until 2027.

As a result, the FCA decided to withdraw Mr Frensham’s current approval and to make an order prohibiting him from performing any function in relation to any regulated activity carried out by an authorised person, or by an exempt person or professional firm. The basis for the decision notice was the FCA’s view that Mr Frensham was not a fit and proper person to perform a function in relation to any regulated activity, due to his criminal conviction. The FCA believed that the nature and circumstances of Mr Frensham’s offending showed that he lacked integrity and in order to maintain public confidence in the financial services industry, the FCA and the public were entitled to expect that approved persons and financial advisers are individuals with integrity and good reputation.

Mr Frensham, however, believed the FCA had wrongly applied the fitness and properness test to the facts of his case, and that they allowed irrelevant considerations to affect its judgment and did not have sufficient or any regard to relevant factors, such as that his conviction did not relate to his regulated activity and the conviction was not for an offence of dishonesty.

Tribunals Judgment

This is the first time that the Tribunal has had to consider a case where the FCA is seeking a prohibition order against an individual, which is based on a criminal conviction, but which does not involve dishonesty in circumstances where the behaviour concerned is related to the individual’s regulated activity.

In making its decision, the Tribunal had to consider a number of legal and regulatory provisions, including the FSMA 2000, the Fit and Proper Test for Employees and Senior Personnel and the Enforcement Guide. However, much of its judgement focused on previous case law concerning dishonesty and lack of integrity (Wingate v SRA [2018] 1 WLR 3696) and misconduct which occurs in an individual’s private life (Ryan Beckwith v SRA [2020] EWHC 3231 (Admin)).

The Tribunals overall conclusion was that whilst they were not satisfied that a decision to make a prohibition order against Mr Frensham based solely on the fact of his conviction could have been reasonably arrived at by the FCA, they were satisfied that when the offence is considered in the light of (a) the circumstances in which it came to be committed and; (b) Mr Frensham’s failure to be open and cooperative with the FCA in a number of different respects following his initial arrest, the decision is one that was reasonably open to the FCA.

The Tribunal did find some flaws in the FCA’s approach to the relevance of the conviction, but this did not justify asking the FCA to reconsider its decision.

Commentary

This judgment provides useful guidance on two areas. Firstly, it provides clarification of what it means to be dishonest and lack integrity. The Tribunal considered previous case law, and determined that a person who is dishonest will always lack integrity and reputation, but it does not follow that a person who lacks integrity must also be dishonest.

It was held in the case of Wingate v SRA [2018] 1 WLR 3696 that whilst honesty is a basic moral quality which is expected of all members of society, the term “integrity” is used to express the higher standards which society expects from professional persons and which the professions expect of their own members. The underlying rationale is, therefore, that the professions have a trusted role in society and in return they are required to live up to those standards.

Secondly, it highlighted the impact of personal misconduct which occurs outside of a financial advisers duties, and the relationship with fitness and properness in conducting ones professional obligations. This issue was recently explored in the High Court case of Ryan Beckwith v SRA [2020] EWHC 3231 (Admin).

The case of Beckwith explored whether the requirements imposed on solicitors by the Solicitors Regulation Authority touch upon their private life. It was determined that the need to act with integrity and the need to behave in a way that maintains the public trust, may reach into the private life only when conduct that is part of a person’s private life realistically touches on their practice of the profession or the standing of the profession. Therefore, any such conduct must be qualitatively relevant. Whilst Mr Frensham’s conviction did not relate to his role in a direct way, the FCA did believe that there is a risk of erosion of public confidence if individuals who committed such misconduct, and do not have the requisite reputation, are permitted to continue working in the financial services industry.

Case citation: Frensham v FCA [2021] UKUT 0222 (TCC) (UT/2020/000210)

If you have any questions on the contents of this article, please contact Olivia Toulson via [email protected] or 01223 643145.

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at September 2021.

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Olivia Toulson

Legal Director

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