Darren Antony Reynolds v The Financial Conduct Authority

For limitation under section 66 FSMA, the relevant question is when the Authority knew, or had information from which it could reasonably infer, the particular misconduct alleged against the particular person. The misconduct includes any required mental element, such as dishonesty or recklessness. Mere suspicion, general concern, or information sufficient only to justify further investigation does not start the limitation period. Conversely, the Authority need not possess the complete case needed for a Warning Notice. For disgorgement under DEPP, the calculation must reflect the actual financial benefit and may be adjusted where a benefit is permanently eroded by tax or another liability. Unresolved competing claims should not ordinarily delay the penalty. A later adjustment may be made once a liability is finally determined and discharged, subject to safeguards preventing double recovery or indirect subsidisation of unrelated liabilities.

Mr Reynolds referred an FCA Decision Notice imposing a prohibition order and a financial penalty of £2,212,316 for dishonest and reckless misconduct in connection with pension advice, P6 investments, prohibited commissions and related matters. He withdrew challenges to the factual findings, the conclusion that he lacked honesty and integrity, the prohibition’s scope and financial hardship. The remaining issues were whether parts of the misconduct were time-barred under section 66(4)–(5ZA) FSMA, and whether competing claims by HMRC and the Official Receiver required reduction of the disgorgement element.

The Tribunal considered the information available to the FCA before 10 August 2016 and the proper treatment of uncertain liabilities in the five-step DEPP penalty framework.

1. Limitation. The Limitation Ground failed. Section 66 FSMA requires the particular misconduct alleged in the Warning Notice to be identified first. The Authority must then be assessed as having actual knowledge, or information from which that misconduct could reasonably be inferred. The inquiry is objective for constructive knowledge, but the information must address every required feature of the misconduct, including dishonesty or recklessness where alleged. Mere suspicion, a general impression, or information sufficient only to justify enquiries is insufficient. The Authority need not have the full evidential picture needed to issue a Warning Notice.
2. By 27 May 2016 the Authority could reasonably infer that Mr Reynolds was giving bad or negligent advice concerning P6. It could not reasonably infer the alleged dishonest advice, because it lacked information about his knowledge or belief. Nor could it reasonably infer that he received prohibited commissions. The limitation clock therefore had not begun before 17 August 2016 at the earliest, and the limitation challenge was dismissed.
3. Disgorgement. The Tribunal was not required to await the outcome of Mr Reynolds’s disputes with HMRC and the Official Receiver. DEPP had to be applied flexibly. The Step 1 figure is directed to depriving the person of benefit, rather than penalising him. The immediate adjustment was therefore limited to recalculating interest by reference to measurable economic benefits or, where appropriate, Bank of England Base Rate compounded every six months.
4. If Mr Reynolds later incurs a finally determined and fully discharged liability to HMRC or the Official Receiver in respect of amounts included in Step 1, he may apply for a corresponding reduction. Any adjustment must account for other liabilities, available losses and reliefs, overlapping claims, and interest, and must prevent double recovery or subsidising unrelated liabilities.
5. Disposition. The prohibition reference was dismissed. The Authority was directed to impose the financial penalty in the Decision Notice subject to the specified immediate and possible subsequent adjustments. The reference was remitted to the Authority, with liberty to apply if the detailed calculation could not be agreed. The decision was unanimous.

The judgment does not state an earlier merits decision from another court. It concerned a reference from the FCA Decision Notice dated 2 May 2023, following a Warning Notice dated 10 August 2022.

• Upper Tribunal (Tax and Chancery Chamber): the prohibition reference was dismissed. The penalty was remitted to the FCA for imposition subject to the specified immediate and possible subsequent adjustments.