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FCA non-financial misconduct Final Notice shows character is crucial

Posted on 26 January 2023

On 14 November 2022, the Financial Conduct Authority (FCA) published a Final Notice against Ashkan Zahedian following his conviction for serious violent offences. The Final Notice withdraws Zahedian's approval to perform a Senior Management Function and prohibits him from working in the financial services industry in the future.

Relevant Facts

Zahedian was the sole director of an authorised consumer credit firm, Vast Cars Limited (the Firm), and was approved by the FCA in that capacity from January 2013. In February 2020, whilst an approved person at the Firm but not in a work context, Zahedian was involved in an altercation at a bar, during which he used a machete to assault a security guard. On 4 May 2020, he pleaded guilty to wounding with intent to do grievous bodily harm and of possession of a machete in a public place, for which he was sentenced to 3 years in prison.  In sentencing, it was accepted by the Judge that Zahedian's actions were out of character, unlikely to be repeated and that he was genuinely remorseful, but that he had intended to cause really serious harm. The incident, as well as the sentencing of Zahedian, was widely publicised in the press at the time. 

Fitness and propriety and conduct outside the workplace

An individual must be assessed as "fit and proper" in order to be approved by the Regulator. This requires an ongoing evaluation of an individual's honesty, integrity, reputation, competence and capability as well as financial soundness. Whilst conduct which occurs outside of the workplace (for example, an individual's conduct in their private life and entirely unconnected to work) can impact an assessment of fitness and propriety, the FCA must still be satisfied that the conduct impacts an individual's fitness and propriety to perform their role.

In the case of Zahedian, the FCA concluded that the nature and circumstances of his offending meant that he was no longer fit and proper, and was not capable of being so, on two grounds: (1) lack of integrity; and (2) damage to reputation. In respect of (1), the FCA found that the nature and circumstances of Zahedian's violent offences demonstrated a clear and serious lack of integrity and that he demonstrated a deliberate and criminal disregard for appropriate standards of behaviour.  This conclusion was reached despite the remarks of the sentencing Judge and the fact that Zahedian's actions were out of character and were not linked to his conduct within the workplace. In respect of (2) the FCA concluded that the associated publicity following Zahedian's conviction was such that he no longer had the requisite reputation to perform a regulated role and that this would likely damage the reputation of any regulated firm at which he worked in the future. Further, that Zahedian posed a serious risk of damage to the reputation of, and public confidence in, the financial services sector (the "integrity" objective).

In contrast with Frensham

Perhaps the most interesting aspect of this Final Notice is that the FCA's findings appear to be in contrast to the approach of the Upper Tribunal (Tribunal) in Frensham. In that case (covered in Enforcement Watch Roundup – Issue 35) the FCA sought to prohibit Frensham, an independent financial advisor and approved person convicted of a sexual grooming offence, on the basis that he lacked integrity and the necessary reputation to undertake regulated activities and was therefore not fit and proper.

  • The Tribunal considered that the FCA had offered no evidence to support their contention that the nature of Frensham's offending meant that there was a risk that he would abuse his position of trust in dealing with his customers, not least because Frensham had been allowed by the FCA to continue in business for 4 years, without incident. The Tribunal found that the FCA's attempts to link the offence and the "consumer protection" objective, on the basis of the nature of the offence alone were "speculative and unconvincing" and that that the FCA had failed to "bridge [the] distance" between Frensham's conduct and his professional role.
  • The Tribunal ultimately dismissed Frensham's reference, concluding that he was not a fit and proper person, based on a link between the offence and the "integrity" objective. Whilst this depended in part on the circumstances in which the offence was committed, there was a considerable emphasis placed by the Tribunal on Frensham's lack of transparency and candour with the FCA in respect of his misconduct. 

What is clear from Frensham is that it is not, as matters stand (see below), enough to say that a criminal conviction alone (in circumstances where there is no dishonesty, and the conviction does not relate to a person's regulated role) is sufficient to warrant a finding that an individual is not fit and proper. Indeed, the Tribunal concluded that had it been required to make its decision on the basis of the conviction alone, it would have likely asked the FCA to reconsider its decision. 

Contrary to the Tribunal's repeated remarks on the subject in Frensham, the FCA's short (7 page) Final Notice in the Zahedian case did not include any "independent, analytical justification" or underlying reasoning of the link between Zahedian's conviction and the "integrity" objective. Nor did it mention the effect of the conviction on his personal reputation (a sole director of a consumer credit firm) impacted that objective. Further, the FCA did not explain how the offences committed by Zahedian were relevant to his professional role, despite the Tribunal's comments in Frensham that, "Failing to act without integrity in one’s personal life in a manner which is not relevant to how the person concerned is required to conduct himself in his professional life should not in itself engage regulatory action." Interestingly, the FCA's Press Release which accompanied the Final Notice, emphasised the importance of "character" and stated that "the FCA will continue to uphold high standards of character and conduct" for those working in financial services. It is clear that the seriousness of the violent criminal offences committed by Zahedian, and most importantly how those offences reflected on his character such that he is deemed no longer fit and proper to perform a regulated role, were the driving factors in the FCA's decision making.

Potential New FCA Policy and Guidance

In light of the differences in approach discussed above, and the complexities around the regulatory implications of non-financial misconduct more generally, readers will be relieved to hear that some much needed FCA guidance is on the horizon. The issue of non-financial misconduct, including matters such as violence and harassment outside the workplace, was discussed in the FCA's October 2022 board meeting in the context of the work of the Regulatory Decisions Committee (RDC). It was noted that the RDC sees only the minority of enforcement cases and those that are referred are often the most complex cases dealing with novel or controversial issues, the implication being that further clarity is required to assist their decision making. The minutes stated that discussions were ongoing with FCA Enforcement regarding further guidance and FCA policy in this area to ensure consistency and clarity of decision-making. It was stated that the issue for FCA policy and guidance to address was that of the character of the individual concerned and not that of the specific misconduct itself. The focus on "character" is new, although the FCA handbook does require firms to consider whether an individual has the "personal characteristics" required by general rules made by the FCA. In an article in February 2021 we suggested that further clarity from the FCA was required and we keenly await the FCA's policy and guidance on the topic.

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