On 6 May, the FCA responded to the Upper Tribunal's recommendations set out in its decision in the case of Stuart Malcolm Forsyth v The Financial Conduct Authority and The Prudential Regulation Authority.
The Tribunal's decision, dated 6 July 2021, attracted significant attention from financial services enforcement practitioners due to the litany of criticisms levelled against both the FCA and the PRA in respect of, amongst other things, their failures to comply with their disclosure obligations throughout the proceedings.
Our Enforcement Watch article on the Upper Tribunal's decision sets out the details of the case. In summary, the Tribunal overturned the findings in the FCA/PRA Decision Notices that Forsyth lacked integrity in respect of the way in which he allocated salary and bonus payments to his wife and involved himself in an internal investigation into those payments.
The Tribunal said that the Regulators' conduct – in respect of records management, disclosure and the ensuing impact on limitation under s.66 FSMA – had fallen well below the standards that Forsyth, the regulated community and the public at large were entitled to expect. The Tribunal was so concerned by these failings that it exercised its powers under s.133A(5) FSMA by making various recommendations to the Regulators. The FCA's response to those recommendations is summarised below and can be found in full here.
|Upper Tribunal Recommendation
|The FCA should consider whether its staff are adequately trained and have an adequate understanding of the importance of proper records management in the context of potential enforcement proceedings and the consequences that could follow if those procedures are not followed.
||The FCA says that it is taking steps to ensure its staff are adequately trained and understand the importance of proper record keeping.
|The FCA should review its procedures for dealing with requests for disclosure of documents made after the usual disclosure process has been completed.
||The FCA has updated its training and guidance in respect of dealing with requests for disclosure of documents made after the usual disclosure process has been completed.
|The FCA should review the adequacy of its Disclosure Memorandum in its current form and whether it is fit for purpose as it is currently being used. Legally privileged material should be kept separate to other material.
The FCA has reviewed the Disclosure Memorandum and has concluded that it is adequate and fit for purpose.
|The FCA should make an assessment as to when the relevant limitation period begins which should be regularly reviewed as new information comes to its attention.
||The FCA says that it has updated its guidance and training to emphasise the importance of reviewing the original limitation assessment after new information comes to light.
|The recommendations set out above are equally applicable to the PRA, as appropriate. In addition, the PRA should undertake a full review of its processes for the recording of supervisory and other information that may be relevant to possible enforcement actions.
||This recommendation is not applicable to the FCA.
|The approach to joint investigations should be reviewed. Where the conduct concerned falls equally within the scope of both Regulators, consideration should be given as to whether there should be a single investigation by one of the Regulators and a single regulatory decision.
||The FCA says that Enforcement in consultation with the PRA will, on a case-by-case basis, continue to consider whether it is appropriate for there to be a joint or single investigation.
Perhaps the most interesting aspect for Enforcement Watchers relates to the Tribunal's recommendation about whether investigations which fall under the remit of both the FCA and PRA should be conducted by a single Regulator. Although the investigation into Forsyth's conduct was described as a joint investigation, which led to two separate decision making processes and two separate Decision Notices, in reality there was a single investigation which was essentially outsourced to the FCA. Whilst conducting joint investigations is common practice for the Regulators, it can lead to various risks, including inconsistencies in decision making or that potentially relevant and/or disclosable material falls between the cracks of the two investigations. To mitigate the risks, the Tribunal recommended that in future the Regulators consider whether there should be a single investigation by either the FCA or PRA and a single regulatory decision. In its response, the FCA said that, on a case-by-case basis and in consultation with the PRA, it will consider that approach.
However, as with all the recommendations, it is difficult to tell from the FCA's responses how much will change in future. Most responses effectively state that the FCA has taken on board the Tribunal criticisms and updated its approach. We shall have to continue to monitor the FCA's (and PRA's) approach in our cases and see the degree to which it changes.