Non-financial misconduct back in the headlines

In Frensham v The Financial Conduct Authority, the Upper Tribunal upheld the FCA's decision to withdraw an individual financial advisor's approval and impose a prohibition order on him performing any regulated activities on the basis that he was not a fit and proper person, having been criminally convicted of a child sex offence. 

Importantly, this was the first time the Tribunal had considered a case in which the FCA's decision to sanction an individual was based on a criminal conviction that did not involve dishonesty and was unrelated to the individual's regulated activity. 

The Arguments

In support of its decision, the FCA argued that:

• the nature and circumstances of the applicant's offending showed that he lacked integrity;
• even though the applicant's offence was not committed at work and did not involve financial dishonesty, it involved him deviating from legal and ethical standards by seeking to exploit those more vulnerable than himself. The FCA considered this to be incompatible with his position as a financial advisor;
• public confidence in the financial services industry would be eroded if individuals who commit non-financial misconduct and do not have the requisite reputation were permitted to continue working in the industry; and
• the applicant did not act openly and transparently with the FCA by failing to disclose a number of matters relating to his conviction to the FCA.

The applicant challenged the decision by arguing that the FCA wrongly applied the relevant fitness and propriety tests to the facts. In particular, it was argued that:

• the applicant's conviction did not relate to his regulated activity;
• the conviction was not for an offence of dishonesty; and
• there were no indirect connections between the criminal offence and the applicant's regulated activity.

The Tribunal's Decision

Integrity and Consumer Protection

The Tribunal commented that the FCA's attempt to link the applicant's lack of integrity to his professional role on the basis of the nature of the offence alone was "speculative and unconvincing."  The Tribunal also found no evidence that the applicant was more likely to exploit others in his financial dealings as a result of his conviction.

Significantly, the Tribunal remarked that had it been asked to decide the case on the basis of the conviction alone, it is likely that it would have asked the FCA to reconsider its decision.  

Openness and Transparency

In contrast, however, the Tribunal found the applicant's failure to disclose matters relating to his conviction to the FCA and breach of his bail conditions to be suggestive of a pattern of behaviour in which he disregarded his regulatory and other obligations in favour of his own interests.

Conclusion

This judgment exemplifies a shift in the FCA's attitude towards intervening in cases of non-financial misconduct occurring outside the workplace.

Whilst the Tribunal pointed out that criminal conviction will not automatically mean that a person should be found not to be fit and proper, the FCA's decision is suggestive of a move in financial services towards more of a zero-tolerance approach that we see in certain other professions. 

This is a complex case and may pose challenges for firms when carrying out their own fitness and propriety assessments.  

Authors: Lynn Dunne, Partner, Paul Ryan-Brown, Associate and Joanna Middlemass, Trainee Solicitor

Case Reference: Jon Frensham v The Financial Conduct Authority [2021] UKUT 222 (TCC)