Toni Fox-Bryant & Anor v The Financial Conduct Authority

Disgorgement in a financial penalty must deprive a wrongdoer of the benefits of wrongdoing without imposing an additional punitive charge. Tax which permanently erodes the benefit should be taken into account where it can be calculated or reasonably estimated. Deferred pension tax may be recognised where it crystallises through payment of the penalty and can then be calculated with confidence.

The calculation should include measurable secondary benefits obtained by investing or using the proceeds. Where those benefits cannot be measured, interest should reflect the present value of the benefit, ordinarily by reference to prevailing deposit rates. Interest should be compounded where a market rate is used.

The Applicants referred Decision Notices imposing financial penalties, prohibition orders and withdrawals of approval under the Financial Services and Markets Act 2000 (FSMA). In the November Decision, the Tribunal dismissed the References concerning the prohibition orders and withdrawals of approval, but deferred final calculation of the financial penalties.

The remaining issues concerned the effect of taxation on the disgorgement element and the appropriate rate and method for calculating interest on benefits derived from the Applicants’ wrongdoing. The Tribunal also considered the treatment of investment returns on pension contributions.

1. The References concerning the prohibition orders under section 56 FSMA and withdrawals of approval under section 63 FSMA had already been dismissed. The calculation of the financial penalties under section 66 FSMA was remitted to the Authority.

2. Disgorgement seeks to deprive a wrongdoer of the financial benefit derived from wrongdoing, rather than to punish or compensate. A tax liability which permanently erodes that benefit should be deducted where it can be calculated or reasonably estimated. No deduction is appropriate where payment of the penalty reverses the tax liability and permits recovery of the tax.

3. The Applicants had failed to provide the directed, fully reasoned tax calculations. The Tribunal therefore accepted the Authority’s pro-rata tax adjustments of £43,665.20 for Ms Fox-Bryant and £42,167.66 for Mr Price.

4. Deferred tax on pension contributions should ordinarily be excluded where its future effect is too uncertain. An adjustment may be made where the Applicants withdraw pension funds to pay the corresponding penalty, provided all available reliefs, allowances and losses are taken into account and the resulting liability can be calculated accurately.

5. Disgorgement must include secondary benefits obtained by investing or using the proceeds, such as investment returns or money saved by repaying expensive debt. Where those benefits can be measured, the full economic benefit must be included. If they cannot be measured, or do not fully reflect the value of receiving the benefit earlier, interest should be charged at the prevailing deposit rate. The Bank of England Base Rate, compounded every six months, was directed as the applicable rate where interest was required.

6. The Authority was directed to recalculate step 1 of the penalties in accordance with those principles. The Applicants were required to provide details of pension investment returns within 14 days. Liberty to apply was granted if the parties could not agree the amount to be disgorged.

The Tribunal’s earlier decision, [2024] UKUT 00357 (TCC), dismissed the References concerning prohibition orders and withdrawals of approval and deferred final calculation of the financial penalties. Permission to appeal to the Court of Appeal was refused by the Tribunal, and the Applicants did not seek permission from the Court of Appeal.

The present decision remitted calculation of the financial penalties to the Authority.