Frensham was an independent financial advisor and the sole director of a financial advisory firm. In 2017, while he was approved by the FCA to perform various controlled functions under the Approved Persons Regime (the predecessor to SMCR), Frensham was convicted of attempting to meet a child following sexual grooming. He was sentenced to 22 months’ imprisonment, suspended for 18 months, and was placed on the Sex Offenders Register until 2027.
The FCA’s Decision Notice, dated 1 October 2020 but only recently published on 29 March 2021, sets out the FCA’s decision to withdraw Frensham’s approval to perform certain senior management functions (SMF3 (Executive Director), SMF16 (Compliance Oversight) and SMF17 (Money Laundering Reporting Officer)) and to make an order prohibiting him from performing any function in relation to any regulated activity carried on by an authorised or exempt person, or exempt professional firm. The Notice sets out that it considers that Frensham is not a fit and proper person and that he poses a risk to consumers and to the confidence in the financial system.
Shortly after this decision, the FCA went on to announce on 5 November 2020 its decision to impose various prohibitions on three other individuals, each of whom had been convicted of sexual offences while working in the financial services industry. The respective Decision Notices in all four of these cases confirm that the Regulatory Decisions Committee (the RDC) considered the following five factors when assessing the impact of the individual's criminal conviction and conduct:
- the seriousness of the offence and the surrounding circumstances;
- the relevance of the offence to the individual’s role;
- the individual’s explanation and the passage of time;
- any evidence of rehabilitation; and
- the severity of the risk posed by the individual to consumers and to confidence in the financial system.
The Decision Notice in Frensham's case provides an interesting insight into the arguments put forward at the RDC hearing:
- Frensham argued that by focusing solely on his criminal convictions, the FCA had wrongly applied the FIT test. He stated that his integrity “must be considered in the round, having regard to the totality of the evidence”. In support of his case, he presented a number of character references and testimonials from clients and family members. Overall, the RDC rejected the arguments that it had wrongly applied the test for fitness and propriety. The RDC was in no doubt as to the seriousness of Frensham’s offence, which was not mitigated by any of his arguments.
- Frensham also made arguments that his criminal conviction had no impact on his fitness and propriety to perform the role of a financial advisor. These were rejected by the RDC, which judged that Frensham's deviation from legal and ethical standards compromised his suitability to provide advice in a position of trust in relation to customers. Frensham has referred the decision to the Upper Tribunal.
Comment
Frensham made privacy applications to prevent the publication by the FCA of the Decision Notice. As is clear from the above analysis, the privacy applications submitted on behalf of Frensham were unsuccessful. As discussed in a previous issue (Publicity and Decision Notices: Foley v. FCA), the reputational "hit" brought about by a Decision Notice can be equivalent to that caused by a Final Notice. Frensham was not the first and will not be the last to request that the FCA keep a Decision Notice under embargo pending appeal. However, in Frensham's case, the Upper Tribunal determined that the likely financial consequences of the publication of the Decision Notice were not sufficiently severe to justify a departure from the principle of open justice. The Upper Tribunal added that applicants face a very high hurdle to successfully establish that it would be unfair to permit publication of a Decision Notice.
The relevance of personal misconduct outside of work to an individual's role was recently explored in the well-publicised High Court case of Beckwith v Solicitors Regulation Authority (SRA). The case involved allegations against a solicitor of sexual misconduct, not based on criminal conviction. The Court in that case found that regulatory cases for sexual misconduct brought by the SRA should be confined to those which relate to breaches of specific rules of the SRA Code of Conduct and considered that there were limits as to how far the regulator should take action in respect of matters of private life.
The Upper Tribunal’s decision on Frensham's substantive reference is still awaited. If the case runs all the way to the Upper Tribunal, it is likely that the decision will provide useful guidance on the impact of non-financial misconduct outside the workplace and its relationship to fitness and propriety.