16 August 2013

(1) Discontinuance of an FCA action – when is it valid? and (2) the Public Interest Obligations of the Upper Tribunal

When the FCA lost its s57 FSMA action against Mr David Hobbs in the Upper Tribunal for conduct constituting market abuse, it published a statement on its website that it would take no further action against him. However, the website statement was communicated in error, no internal authorisation process had been followed. The statement was removed after five days and the FCA appealed the Tribunal’s decision.

The Tribunal opposed the FCA’s application for permission to appeal on the grounds that the action against Mr Hobbs had already been discontinued by the FCA’s website statement.

The FCA’s right to appeal relied on the failure of the Tribunal to consider Mr Hobbs’ conduct as evidence that he was not a 'fit and proper person'. The Tribunal found that Mr Hobbs had given false evidence and emerged from the proceedings with ‘very little credit’. However, as the FCA’s case relied on Mr Hobbs’ engagement in market abuse and lying about that, the Tribunal held that the FCA had failed to make out its case as the Tribunal had not found Mr Hobbs guilty of market abuse.

The Court of Appeal allowed the FCA’s appeal to be heard. It held that the website statement did not validly discontinue the action, as communication of the decision was an intrinsic part of the process and the statement failed in any way to address the person to whom the decision notice was addressed. Further it found that the FCA's internal authorisation process had not been followed. Authorisation needs to be given by the Project Sponsor and be approved by the Director of the Enforcement & Financial Crime Division, before a decision to discontinue an action is communicated.

Having allowed the appeal, the Court went on to agree with the FCA. The Tribunal should have taken into account Mr Hobbs’ conduct in determining whether or not he was a fit and proper person. The Upper Tribunal is obliged to consider all the facts and evidence before it, as it is in the public interest to ensure that persons who are not fit and proper to perform regulated functions are precluded from doing so.

This decision demonstrates that an FCA action will only be validly discontinued where the proper processes are followed, communication being paramount. It also provides useful guidance regarding the remit of the Upper Tribunal and the necessary consideration of public interest when reaching a decision.

Matthew Walker, Tim Pope and Hannah Miller are lawyers in Burges Salmon’s Banking, Financial Services and Insurance team.

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Matthew Walker

Matthew Kaltsas-Walker Partner

  • Dispute Resolution
  • Financial Services
  • Insurance

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