Markos Markou v The Financial Conduct Authority

In a reference against regulatory sanctions, the Tribunal must determine the allegations, circumstances and evidence comprising the subject matter of the reference. A reference is a complete rehearing, but the Authority cannot introduce a materially different allegation which was not put to the Regulatory Decisions Committee or included in the statutory notices. Fresh evidence may be considered if it relates to an allegation within the reference.

Recklessness requires awareness of a risk and an unreasonable decision to take it, having regard to the circumstances known or believed by the person concerned. A failure may be established without amounting to recklessness or lack of integrity. Where an alternative breach of a Statement of Principle has not been pleaded or properly tried, procedural fairness may require the Tribunal to decline to determine it.

The Applicant challenged a Decision Notice imposing a £25,000 penalty, withdrawing his approval to perform controlled functions at Financial Solutions (Euro) Ltd and making a prohibition order. The Authority alleged failures concerning financial-crime systems, supervision of mortgage advisers and the conduct of mortgage business after professional indemnity insurance had lapsed.

The Applicant relied on the earlier decision concerning the company, Financial Services (Euro) Limited v FCA [2020] UKUT 0139 (TCC), and objected that some allegations in the Authority’s Statement of Case were outside the subject matter of the reference. The central issues were whether the earlier findings were binding, whether the expanded allegations were within jurisdiction, and whether the Applicant had acted recklessly or without integrity.

1. Estoppel and abuse of process. The earlier proceedings involved different parties, legal issues and key factual issues. The earlier findings that the company had ceased trading were incidental findings on an issue not necessary to the earlier decision. They did not create an issue estoppel and did not prevent the Authority from relying on fresh evidence concerning regulated business after the insurance expired. The Authority’s conduct was not abusive.
2. Subject matter of the reference. Under Financial Services and Markets Act 2000, section 133(4), the Tribunal may consider evidence relating to the subject matter of the reference, including evidence unavailable to the decision-maker. The subject matter comprises the allegations, circumstances and evidence before the Regulatory Decisions Committee, rather than merely the operative decision. The allegation that the Applicant failed to prevent regulated business without professional indemnity insurance after 11 May 2017 was sufficiently connected with, and of the same nature as, the allegation pleaded in the Decision Notice concerning the period after 10 July 2017. It was therefore within jurisdiction.
3. The allegation that the Applicant failed to deal transparently with the Authority and the Upper Tribunal concerned different facts and a different category of conduct. It was not included in the Warning Notice or Decision Notice and was outside the subject matter of the reference. The Tribunal had no jurisdiction to determine it, although it made alternative factual findings and rejected recklessness.
4. Recklessness and integrity. The applicable test was whether the Applicant was aware of the relevant risk and, if so, whether it was unreasonable to take that risk in the circumstances as he knew or believed them to be. The Applicant was responsible for preventing regulated mortgage business without insurance and failed to ensure that this did not occur. However, he reasonably believed that insurance would be renewed and had instructed advisers not to take on new business. His failures were not reckless and did not demonstrate a lack of integrity.
5. The Authority failed to establish any breach of Statement of Principle 1. The alternative possibility of breach of Statement of Principle 2 had not been pleaded, particularised or tried. Although the Tribunal assumed that it might have jurisdiction to consider a lesser alternative allegation based on the same facts, it declined to do so because the Applicant had not received fair notice or a proper opportunity to address the applicable standard and evidence.
6. The reference was allowed. No financial penalty or other disciplinary sanction was to be imposed. The decisions withdrawing approval and making a prohibition order were remitted for reconsideration in accordance with the Tribunal’s findings, including the mitigation identified and whether any other Statement of Principle or supervisory action should be considered.

First-instance reference to the Upper Tribunal from the Financial Conduct Authority’s Decision Notice dated 29 January 2021. The Tribunal allowed the reference and remitted the withdrawal of approval and prohibition decisions for reconsideration.