The All-Party Parliamentary Group on Fair Banking Group, R (on the application of) v The Financial Conduct Authority

A public authority may rationally disagree with an independent expert review without proving that the review was irrational or identifying a special, good or cogent reason for departure, unless it has agreed to be bound by the review. The court scrutinises the authority’s decision, not the review’s correctness.

Regulatory discretion remains subject to ordinary public-law controls. The decision-maker must act in good faith, direct itself correctly, consider relevant material, exercise objective judgment and avoid arbitrary or partial treatment. Differential treatment within a broad regulatory class may be lawful where objectively rational in the circumstances, including where urgent action, limited evidence and scarce resources justify prioritising a more vulnerable group.

Absent a statutory duty or legitimate expectation, consultation is required at common law only where failure to consult would be conspicuously unfair.

The claimant, an association of parliamentarians, sought judicial review of the Financial Conduct Authority’s December 2021 decision not to take further steps to secure redress for customers excluded from an earlier voluntary interest-rate hedging product redress scheme.

An independent review had criticised the Financial Services Authority’s use of a Sophistication Test, which excluded a substantial group of Private Customers/Retail Clients. The claimant argued that the FCA irrationally rejected the review’s findings and recommendations, and acted unfairly by publishing its response without consulting affected stakeholders.

The central issues were whether a reasonable merits-based disagreement could justify departure from the review, whether the FCA could consider contractual, legitimate-expectation, limitation and delay arguments, and whether consultation was required before the 2021 decision.

1. Ground 1 dismissed. The challenge concerned the FCA’s 2021 decision, not a direct challenge to the FSA’s 2012–2013 agreement. The lawfulness of the earlier agreement was nevertheless a relevant consideration. The claim was not an abuse of process and was not time-barred.
2. The applicable test was ordinary rationality and common-law reasonableness. The FCA was not presumed to accept the independent review and did not need to show a good, very good or cogent reason for disagreeing with it. The question was whether the FCA’s own decision was rational. A reasonable merits-based disagreement could suffice.
3. The court nevertheless scrutinised the decision carefully because the reviewer was independent and expert, the review was extensive, and the FCA risked unconsciously defending its predecessor’s conduct. The FCA’s discretion was not unfettered: it had to act in good faith, consider relevant material, exercise objective judgment and avoid arbitrary or partial treatment.
4. The FCA had a rational basis for disagreement. It could consider the urgency of obtaining redress, the limited evidence available in 2012, the banks’ insistence on differentiation, the risk of losing the voluntary scheme, the use of size-based criteria as a proxy for sophistication, the substantial redress achieved, and the uncertain and resource-intensive alternatives. The absence of detailed stress testing, research or consultation did not make the decision irrational in the circumstances.
5. Delay and evidential deterioration were powerful reasons against reopening historic sales. The contractual-bar and legitimate-expectation arguments were weaker than the Board Paper suggested, particularly because the agreement contained no clear express bar to further regulatory action. That did not invalidate the decision, given the force of delay and the other reasons relied on.
6. Ground 2 dismissed. In the absence of a statutory duty or legitimate expectation, common-law consultation was required only if non-consultation was conspicuously unfair. The FCA already knew the relevant criticisms, losses and arguments through the review and its own materials. Simultaneous publication of the review and response was therefore not conspicuously unfair, irrational or unreasonable.
7. The application for judicial review was dismissed. It was unnecessary to decide the alternative relief issue under section 31(2A) of the Senior Courts Act 1981.