Markos Markou v The Financial Conduct Authority

The Court of Appeal considered an FCA appeal against an Upper Tribunal decision that had allowed Mr Markou's reference against a Decision Notice withdrawing his approved person status, imposing a prohibition and a financial penalty. Key legal principles applied were the two‑stage test for recklessness (subjective appreciation of risk and objective unreasonableness) derived from R v G and applied in Potter, and the standard of appellate intervention in fact‑finding derived from Edwards v Bairstow. The court held that the UT had erred in its approach to (i) its jurisdiction under section 133 FSMA (applying the test endorsed in Bluecrest), (ii) whether Mr Markou knew that FSE had no professional indemnity insurance (PII) and unreasonably ran the risk that regulated mortgage business would be carried on without cover, and (iii) whether he was reckless in giving and maintaining inaccurate evidence to the regulator and tribunals. The court also found some errors in the UT's approach to non‑adherence to FSE's own systems and controls but upheld most of the UT's findings on supervision and training. As a result the Court allowed the appeal in part, remade the decision, dismissed the Reference in respect of the withdrawal of approval and the prohibition, and remitted the financial penalty to the FCA to impose a reduced fine of £10,000.

Background and parties

Mr Markos Markou was the sole director and chief executive of Financial Solutions (Euro) Limited (FSE), a mortgage broker authorised since 2004. The Financial Conduct Authority issued a Decision Notice on 29 January 2021 withdrawing his approvals under section 59 FSMA, imposing a prohibition under section 56 FSMA and levying a penalty of £25,000. The Decision concerned conduct in the period 24 November 2015 to 14 October 2017, principally alleged failures to implement anti‑fraud systems, supervise two mortgage advisers, and to prevent regulated activity when FSE had no professional indemnity insurance (PII).

Procedural posture and relief sought

• Mr Markou referred the Decision to the Upper Tribunal, which allowed the reference and remitted some matters to the FCA, imposing no penalty or sanction in light of its findings [2023] UKUT 00101 (TCC).
• The FCA obtained permission to appeal to this Court and challenged five grounds of the UT's decision; it sought to reinstate its Decision Notice in whole or in part.

Issues framed by the court

• Whether the UT had jurisdiction under section 133 FSMA to consider allegations said to be outside the scope of the RDC’s Warning and Decision Notices (Ground 1).
• Whether the UT was wrong to find that Mr Markou was not reckless as to FSE carrying on regulated activities without PII, including the state of his knowledge after the PII expiry (Ground 2).
• Whether the UT was wrong to find that he was not reckless in giving or maintaining inaccurate evidence to the FSE Tribunal, the regulator and the UT itself (Ground 3).
• Whether the UT erred in law or fact about non‑adherence to FSE’s own systems and controls and whether any failures demonstrated a lack of integrity (Ground 4).
• Whether the UT was wrong to reject the FCA’s complaints about supervision, training and monitoring of the mortgage advisers (Ground 5).

Court’s reasoning and disposition

• Jurisdiction (Ground 1): applying the test in Bluecrest, the Court held that the UT did have jurisdiction because the additional allegations had a real and sufficient connection to the subject matter of the Decision Notice.
• Knowledge of PII lapse and recklessness (Ground 2): the Court found the UT’s core factual findings that Mr Markou only became aware of the absence of PII on 10 July 2017 to be unsustainable in light of contemporaneous documents and the evidence. The judge concluded that Mr Markou knew from 12 May 2017 that FSE had no PII, yet took only a single informal verbal instruction limited to "no new business" and expressly encouraged processing of ongoing cases. That conduct amounted to running an unreasonable risk that FSE would carry on regulated business uninsured and therefore was reckless; recklessness in a senior manager was capable of demonstrating lack of integrity.
• Misleading evidence (Ground 3): the Court concluded that Mr Markou unreasonably risked giving inaccurate evidence to the FSE Tribunal and the UT by failing to check contemporaneous records and persisting in explanations that were shown to be incorrect; that attitude demonstrated recklessness as to the risk of misleading the regulator and tribunal and indicated lack of integrity.
• Systems and controls (Ground 4): the Court accepted aspects of the UT’s findings (for example on interpretation of "inconsistencies" and certain sample evidence) but concluded that, on the UT’s own fact findings, FSE’s policies were not adhered to in material respects (failure to obtain the specified documentation and failure to review each file). The UT had applied the wrong test when effectively permitting partial adherence; those failures were, on the facts, capable of being reckless in a senior manager.
• Supervision and training (Ground 5): the Court affirmed the UT’s findings that training, reporting lines and accessibility were adequate, and did not disturb those conclusions.

Remedy

The Court remade the Decision: it dismissed the Reference in respect of the FCA’s withdrawal of approvals and prohibition decisions (finding that the FCA had established recklessness and lack of integrity) but reduced the appropriate financial penalty and remitted the matter to the FCA with a direction to impose a reduced fine of £10,000.

This was an appellate allowed‑in‑part result. The Court allowed the FCA’s appeal on Grounds 1, 2, 3 and in part on Ground 4, but dismissed the appeal on the remaining aspects of Ground 4 and on Ground 5. The court remade the Decision: it concluded that Mr Markou was reckless and that his recklessness demonstrated a lack of integrity, thereby upholding the FCA’s decision to withdraw approvals and to prohibit him from performing functions in relation to regulated activity; but, because not all allegations were proved, the court directed the FCA to impose a reduced financial penalty of £10,000.

The matter was referred to the Upper Tribunal (Tax and Chancery Chamber) and the UT allowed the reference in a Decision dated 27 April 2023 [2023] UKUT 00101 (TCC). The FCA appealed to the Court of Appeal with permission, resulting in this judgment [2024] EWCA Civ 1575.