The Financial Conduct Authority v Hobbs

A regulatory authority does not irrevocably discontinue enforcement proceedings merely by making an internal decision or publishing an unauthorised website statement. Communication to the affected person, in the manner prescribed by Financial Services and Markets Act 2000, section 389, is intrinsic to effective discontinuance.

On a reference concerning a prohibition order, “the matter” includes the facts and evidence identified in the decision notice as supporting the conclusion that the person is not fit and proper. The tribunal must determine every material basis of the authority’s case. Deliberate lies intended to mislead may independently demonstrate a lack of fitness and propriety, even where the alleged market abuse is not proved.

The Financial Conduct Authority decided to impose a financial penalty and prohibition order upon a proprietary trader for alleged market abuse and lack of fitness and propriety. The Upper Tribunal allowed his reference in [2012] UKUT B25 (TCC). It found no market abuse and directed the Authority to take no action, although it found that the trader had given false explanations.

The Authority initially published a website statement saying that it was discontinuing its action, but later removed that statement and sought permission to appeal. The Tribunal refused permission because it considered the proceedings discontinued. Permission was subsequently granted by the Court of Appeal.

The issues were whether the Authority had validly discontinued the proceedings; whether the Tribunal had addressed the effect of the trader’s lies upon his fitness and propriety; whether any omission was an error of law; and what order should follow.

1. The appeal was allowed and the matter remitted to the Upper Tribunal. An internal decision to discontinue, uncommunicated outside the Authority, does not become immediately and irrevocably effective. Communication is intrinsic to discontinuance. Parliament prescribed the recipient and manner of notice in section 389 of the Financial Services and Markets Act 2000 and the applicable service regulations. A general website statement not addressed to the affected person was insufficient (paras [15], [28]).

2. The evidence established that nobody with the requisite authority had decided to discontinue or not to appeal. The website statement resulted from a mistaken assumption by a case-team lawyer. Failures in the Authority’s internal procedures and its response to emails were properly criticised, but they did not constitute an authorised discontinuance decision. No case based on ostensible authority had been advanced (paras [16]–[28]).

3. For a reference under section 57 of the Financial Services and Markets Act 2000, “the matter” bears a wide meaning. It includes the facts and evidence identified in the decision notice as the basis for concluding that the individual was not fit and proper and that a prohibition order was appropriate. The decision notice and the Authority’s case before the Tribunal relied both on alleged market abuse and on false and misleading explanations (paras [31]–[37]).

4. The Tribunal had not adequately determined whether the trader’s lies independently demonstrated a lack of fitness and propriety. Deliberate lying intended to mislead may itself establish that a person is not fit and proper to perform regulated functions. If the Tribunal meant to reject that consequence, it gave no reasons for doing so (para [29]).

5. A section 57 reference is not ordinary civil litigation. The public interest requires the Tribunal to consider all relevant facts and evidence, provided the applicant has a fair opportunity to answer the Authority’s case. An unduly narrowed determination may also impede later reliance upon excluded allegations, potentially on Henderson v Henderson grounds. The failure to determine the independent significance of the lies was therefore an error of law (paras [38]–[39]).

6. The Court declined to determine for itself that a prohibition order must be made. The trader had not performed a regulated function since his dismissal in 2007, and the Tribunal should decide whether such an order remained appropriate. Ryder and Rimer LJJ agreed with Sir Stanley Burnton (paras [40]–[42]).

1. Court of Appeal (Civil Division): In [2013] EWCA Civ 918, unanimously allowed the Authority’s appeal and remitted the matter for the Upper Tribunal to decide what order should be made.

2. Upper Tribunal (Tax and Chancery Chamber): In [2012] UKUT B25 (TCC), allowed the trader’s reference, found that market abuse and lack of fitness and propriety had not been established, and directed the Authority to take no action. It subsequently refused permission to appeal because it considered that the Authority had discontinued the proceedings.

3. Permission to appeal: Lewison LJ granted the Authority permission to appeal and later refused an application to set that permission aside.