EAK Group Ltd v The Financial Conduct Authority

On a reference from a refusal of authorisation, the Tribunal’s task is supervisory. It must dismiss the reference if the regulator’s decision was reasonably open to it; it cannot substitute its own decision. An applicant seeking authorisation must demonstrate that it can provide accurate information promptly and engage openly, cooperatively and transparently with the regulator. Failure to answer reasonable and proportionate requests may justify findings that the applicant is not capable of effective supervision, lacks appropriate non-financial resources, or is not fit and proper. Criticism of the regulator, or a reasonable challenge to its interpretation of the rules, does not itself establish unsuitability. The reference was dismissed because the regulator’s conclusions under the relevant threshold conditions were reasonably open to it.

EAK Group Ltd referred to the Tribunal a decision of the Financial Conduct Authority refusing its application for limited-permission authorisation to carry on credit broking, debt adjusting, debt counselling and related regulated activities. The Authority was not satisfied that the applicant would satisfy and continue to satisfy the threshold conditions under the Financial Services and Markets Act 2000.

The Authority relied principally on the applicant’s failure to provide requested information, its lack of cooperation during the authorisation process, and its inability or unwillingness to demonstrate compliance with applicable requirements. The central issue was whether the refusal was one reasonably open to the Authority.

1. Disposition and jurisdiction. The reference was dismissed. Under sections 55B and 133 of the Financial Services and Markets Act 2000, the Tribunal’s jurisdiction was supervisory. It had to dismiss the reference unless its findings showed that the Authority’s decision was not reasonably open to it. The Tribunal could not substitute its own authorisation decision.
2. Effective supervision. The Authority was entitled to require a prospective regulated firm, particularly a small firm without regular supervisory contact, to provide full, accurate and timely information and to deal with it openly and cooperatively. The applicant had failed to disclose relevant directorship and ownership information, had not answered the Information Request, and had ultimately refused to continue cooperating. The Authority’s conclusion under Threshold Condition 2C was therefore reasonably open to it.
3. Appropriate resources. The Authority’s conclusion regarding financial resources was not reasonably open to it, because the projections supplied showed the required share capital and the Authority had not raised further financial concerns. However, the applicant had supplied no information capable of demonstrating adequate compliance, customer-suitability and related non-financial systems. The conclusion under Threshold Condition 2D was consequently reasonably open to the Authority.
4. Suitability. An applicant may challenge a regulator’s requests or interpretation of the rules in a reasonable manner. The applicant’s tone alone, and the fact that some of its legal arguments were wrong, did not make it unsuitable. The decisive matter was its failure to understand that authorisation required open, cooperative and transparent engagement with a process designed to secure good consumer outcomes. The Authority was entitled to conclude that the applicant was not fit and proper under Threshold Condition 2E.
5. The applicant’s concerns about the caseworker and the unrecorded call did not excuse its refusal to provide information or pursue a formal complaint. The Authority’s decision that the threshold conditions were not met, and that the application could not be approved, was reasonably open to it.

The judgment does not state that the present decision was an appeal from another court. It concerned a statutory reference under the Financial Services and Markets Act 2000 from the Financial Conduct Authority’s refusal of authorisation.