Arian Financial LLP v The Financial Conduct Authority

On a disciplinary reference concerning a financial penalty, the Tribunal conducts a complete rehearing and may determine the appropriate penalty itself. It is not bound by the FCA’s penalty policy, but should give it due regard and depart from it only for good reason. Disgorgement must remove the financial benefit derived directly from the breach, not impose an additional punishment. Expenses directly referable to generating relevant revenue may be deducted, including commissions contractually payable to self-employed brokers. A deterrence multiplier may be used where necessary, but must remain proportionate and consistent with comparable cases.

The FCA imposed a financial penalty of £744,745 on Arian Financial LLP after finding breaches of Principles 2 and 3 arising from inadequate systems and controls concerning money-laundering and financial-crime risks in business introduced by the Solo Group. Arian accepted liability but challenged the penalty’s calculation.

The Tribunal considered the statutory framework governing a disciplinary reference, the FCA’s five-step penalty framework in DEPP 6.5A, and the treatment of commissions paid to a broker’s company. The central issues were disgorgement, seriousness, mitigation, aggravation and deterrence.

1. Outcome. The Tribunal determined that the appropriate financial penalty was £288,962.53, comprising disgorgement of £140,912.53 and a penal element of £148,050. The reference was remitted to the FCA with directions to give effect to the determination. The decision was unanimous.
2. Under sections 133(4)–(7) of the Financial Services and Markets Act 2000, the Tribunal conducts a complete rehearing and may determine the appropriate action, including whether a penalty should be imposed and its amount. It is not bound by the FCA’s policy, but gives it due regard.
3. At Step 1, disgorgement is confined to removing the financial benefit derived directly from the misconduct. It must be assessed flexibly and case by case. The 80 per cent commissions paid to Hopa were directly referable to the Solo trading and payable under a pre-existing arrangement. They were therefore deductible.
4. At Step 2, the breaches were properly assessed at Level 4. Serious or systemic weaknesses and the significant risk of facilitated financial crime outweighed the fact that the breaches were negligent. At Step 3, failure to follow JMLSG guidance was aggravating, while engaging external consultants was not sufficient mitigation.
5. At Step 4, credible deterrence required an adjustment, but a multiplier of 4 was disproportionate. A multiplier of 2 was appropriate. No further Step 5 adjustment was justified.

Arian referred the FCA’s decision notice of 5 August 2022 to the Tribunal on 1 September 2022. The Tribunal determined the disciplinary reference and remitted it to the FCA with directions.