4 February 2016
In the case of Abi Fol Consulting v. Financial Conduct Authority the Upper Tribunal has shone a light upon the often opaque process of applications for FCA approval or for Part 4A permissions.
The Financial Services and Markets Act 2000 (FSMA) empowers the FCA to grant authorisations and approvals only if satisfied that firms will meet the statutory threshold conditions or that individual candidates are fit and proper. Consistent with this framework, where the FCA raises concerns, in practice it is for the applicant to address and allay those concerns before authorisation or approval is granted.
In 2014, Abi Fol Consulting made an application for authorisation under Part 4A of FSMA. Its sole shareholder and director was Abiodun Ladele, who was also to hold various controlled functions. The FCA rejected Abi Fol's application on the basis that it was not satisfied Mr Ladele had acted or could be expected to act with probity and accordingly Abi Fol's compliance with the threshold conditions could not be ensured. The issue was that in 2010 Mr Ladele had been accused of committing fraud by abuse of position whilst employed by HSBC. Following an internal Bank investigation, he was dismissed and then prosecuted. However, crucially, in January 2012 Mr Ladele was acquitted. Whilst the reason is somewhat unclear, prosecuting counsel had informed the Judge that HSBC's failure to assist in providing evidence meant there was little prospect of conviction and the Judge had therefore allowed a verdict of not guilty to be entered.
In relation to his application, Mr Ladele was interviewed by the FCA and he made representations on the substance of the allegations against him. Ultimately, the application was rejected by the FCA's Regulatory Transactions Committee and then its Regulatory Decisions Committee. Taking an extremely unusual step, Mr Ladele appealed the RDC's Decision Notice to the Upper Tribunal.
Before the Upper Tribunal, Mr Ladele sought to demonstrate that he was of good character and that the allegations made against him some six years previously were false. How the FCA was to approach the position was somewhat more complex. As noted above, in practice it is for the applicant to satisfy the FCA that it should use its statutory powers to grant authorisation or approval. The FCA is not ostensibly required to prove that the candidate does not meet the threshold conditions or that he or she is not "fit and proper". However, in the circumstances of an adversarial hearing before the Upper Tribunal, the FCA plainly felt that it could not simply adopt a neutral gatekeeper type role. Instead, what it did was try to substantiate the old allegations against Mr Ladele almost as if it were the prosecuting authority.
Ultimately, the Upper Tribunal found neither compelling direct evidence nor circumstantial evidence against Mr Ladele and it was largely impressed with his testimony and character. It found on the "overwhelming balance of probabilities" that Mr Ladele had not committed the offence of which he was accused. The Upper Tribunal remitted the matter to the FCA to make the actual decision on Abi Fol's application for authorisation and to do so consistent with the findings it had made. On 4 April 2016, the FCA authorised Abi Fol.
A copy of the Upper Tribunal Decision can be found here.
The stance of the FCA towards the applicant changed as the factual assumptions underpinning its original rejection of the application were tested in adversarial proceedings. It moved from a neutral gatekeeper role to a quasi-prosecutorial role. That was always going to be a difficult role to fill because of the lapse of time and the paucity of available evidence.
It is plain that there was argument in front of the Upper Tribunal both about the burden of proof and the standard of proof. However, the Upper Tribunal felt that the evidence was so strongly in favour of the applicant that it did not need to rule on those issues (nor on any associated human rights issues). This is regrettable. Clarity would have been helpful both for the regulators and for applicants. In the meantime, we are left without judicial guidance on the position.