We consider here the decision of the Upper Tribunal (Tax and Chancery Chamber) in Bayliss & Co (Financial Services) Limited and Clive John Rosier v the Financial Conduct Authority [2015] UKUT 0265 (TCC) in which the tribunal criticised the FCA's approach to publicising decision notices. The tribunal also set out a series of recommendations as to how the FCA should strengthen its internal processes relating to publicising decision notices in the future.

Publication of FCA decision notices

The FCA has the power to publish decision notices under section 391 of the Financial Services and Markets Act 2000 (FSMA). Decision notices are issued by the FCA if the FCA still proposes to take enforcement action against a firm or an individual after considering any representations made by the subject of an investigation before the FCA's Regulatory Decisions Committee (RDC).

The FCA's Enforcement Guide (EG) states that the FCA will consider on a case-by-case basis whether to publish a decision notice, but that it normally expects to publish a decision notice where its subject decides to refer the FCA's proposed findings against them to the tribunal. The FCA may also publish a decision notice before the subject has decided whether to refer the matter to the tribunal if the FCA considers there is a "compelling reason to do so" (paragraph 6.8, EG). However, the FCA may not publish a decision notice if this would, in the opinion of the FCA, be unfair to the subject of the decision notice, be prejudicial to the interests of consumers or otherwise be detrimental to the stability of the UK financial system (section 391, FSMA and paragraph 6.9, EG).

Several subjects of FSA and FCA enforcement investigations have attempted to challenge the regulator's decision to publish decision notices before the tribunal. In cases where the tribunal has declined to stop the FSA and FCA from publishing decision notices, its decisions have been conditional upon the FSA or FCA making it clear that the decision notice is provisional and has been referred to the tribunal which will determine the appropriate action for the FCA to take (for example, see Arch Financial Products LLP and others v the Financial Services Authority [2012] FS/2012/20, at paragraph 63).

Background

Bayliss & Co (Financial Services) Limited (firm), a small independent financial advisory firm and its sole director, Mr Rosier, were investigated by the FCA in connection with records relating to the sale of certain financial products to retail customers. In November 2013, the FCA issued a decision notice to the firm and a decision notice to Mr Bayliss. The decision notices set out the FCA's proposed findings that Mr Rosier had breached the FCA's Statements of Principle and Code of Practice for Approved Persons and that the firm no longer met the FCA's Threshold Conditions (TC). The FCA proposed to fine Mr Rosier £10,000 and impose a prohibition order on him. The FCA also proposed to cancel the firm's permission under Part 4A FSMA.

The firm and Mr Rosier referred the FCA's findings against them to the tribunal.

Prior to the publication of the decision notices, the firm and Mr Rosier applied to the tribunal for a direction suspending the publication of the decision notices until the tribunal had considered the merits of the FCA's case. The tribunal declined to make an order suspending the publication of the decision notices on the basis that it was not satisfied that there "was cogent and compelling evidence of disproportionate harm" to the firm and Mr Rosier if the decision notices were published.

Publication of the decision notices

On 4 November 2013, the FCA published the decision notices on its website. The decision notices prominently featured the following wording: "This decision notice has been referred to the Upper Tribunal in order to determine the appropriate action for the FCA to take".

In addition, the FCA decided to publicise the decision notices by sending an email to certain media outlets (FCA press email). The wording of the FCA press email indicated that the FCA had fined and banned Mr Rosier and did not clearly explain that the decision notices reflected action that the FCA was proposing to take against the firm and Mr Rosier, pending the determination of the matter by the tribunal. The FCA press email also included a link to the decision notices which were erroneously described as "final" notices. Some of the media outlets that received the FCA press email published articles in relation to the decision notices which largely replicated the contents of the FCA press email, thereby giving the incorrect impression that the FCA's proposed action set out in the decision notices was final.

Mr Rosier heard about the FCA press email from one of the media outlets that received it from the FCA. Mr Rosier complained to the FCA about the contents of the FCA press email, claiming that its contents gave media outlets a misleading impression of the status of the FCA's proceedings against him and the firm.

The FCA initially denied that the FCA press email was inaccurate or defamatory to the firm or Mr Rosier. At this point Mr Rosier drew the FCA press email to the attention of the tribunal. The FCA then wrote to the tribunal and apologised for the FCA press email referring to Mr Rosier being "banned" by the FCA. However, the FCA still offered no explanation or apology to Mr Rosier in relation to this matter.

Several weeks later, the FCA wrote to Mr Rosier, acknowledging that the FCA press email contained "omissions and inaccuracies". The FCA apologised to Mr Rosier and offered to send a further email to the media outlets that received the FCA press email to correct these "omissions and inaccuracies".  

The tribunal's findings regarding the FCA's publicity of the decision notices

The tribunal required the FCA to explain the process that had been followed in relation to the drafting and circulation of the FCA press email. It transpired that: 

• The FCA's Press Office had prepared the first draft of the FCA press email, which was drafted on the mistaken basis that final notices in respect of the firm and Mr Rosier (as opposed to decision notices) were to be publicised.
• The FCA Enforcement team leading the investigation into the firm and Mr Rosier produced a revised draft of the FCA press email. The tribunal found that this draft of the FCA press email was "factually accurate in all material respects" and also made it clear from the outset that the decision notices were provisional in light of the fact that the firm and Mr Rosier had referred them to the tribunal.
• The FCA's Press Office was not content with the revised draft of the FCA press email. On the basis of contemporaneous emails involving the FCA's Press Office that were disclosed to the tribunal, a member of the FCA's Press Office advised that "the fine and the ban" should feature "up front" in the email sent to media outlets and that references to the decision notices being referred to the tribunal should be kept "short, undetailed and right at the bottom" of the email. The FCA Press Office's rationale for this re-structuring of the FCA press email was that it was more likely to "grab the journalists' attention".
• The FCA press email was circulated in largely the same form as had been proposed by the FCA's Press Office.

Contrary to the FCA's internal processes, the FCA press email was not circulated to or approved by the relevant FCA Enforcement Head of Department or the RDC. In addition, no one from the FCA's Enforcement Legal Team was consulted about the FCA press email prior to it being circulated to media outlets.

The FCA's response to the tribunal's findings regarding publicity of the decision notices

In the light of the tribunal's findings, the FCA accepted that:

• It had not adhered to the guidance set out by the tribunal in previous cases regarding how the FCA should publicise decision notices. Nor had it followed internal processes regarding publicising decision notices.
• The FCA press email failed to make clear from the outset that the decision notices were provisional and did not contain the usual wording used by the FCA about matters having been referred to the tribunal.
• The reference in the FCA press email to Mr Rosier having been "banned" was inaccurate given that Mr Rosier had referred the FCA's findings against him to the tribunal and that any prohibition order imposed on Mr Rosier would only take effect if and when a final notice was issued.
• The characterisation of the FCA's findings in relation to the firm and Mr Rosier in the FCA press email did not accurately reflect the contents of the decision notices.
• Mr Rosier's initial complaint about the FCA press email was not escalated appropriately within FCA Enforcement. In addition, the FCA's initial response to Mr Rosier's complaint about the FCA press email was "inappropriate". Those handling Mr Rosier's complaint should have realised that there were errors and inaccuracies in the FCA press email for which they should have apologised promptly.

The tribunal described the FCA's failings in relation to the FCA press email as "deeply disappointing and troubling". The tribunal commented that the FCA's preparation and approval of the FCA press email and handling of Mr Rosier's complaint about it fell well below the standards that the FCA would expect of the firms it regulates in relation to public communications and complaint handling.

Recommendations regarding publicity of FCA decision notices in the future

Section 133A(5) of FSMA allows the tribunal to "make recommendations as to the [FCA's]… procedures" when it considers a decision taken by the FCA. In light of the shortcomings that were identified by the tribunal in relation to the preparation, approval and circulation of the FCA press email, the tribunal made the following recommendations as to how the FCA should strengthen its procedures relating to publicity regarding decision notices:

• The FCA should implement detailed but clear written guidance as to the tone and content of material publicising decision notices. This guidance should adequately explain the difference between decision and final notices and set out the prescribed material that must be included in publicity materials relating to decision notices, as well as the prominence that should be given to this material.
• All publicity materials relating to decision notices (regardless of whether it is full press release or communications to certain media outlets) should be prepared to the same rigorous standard.
• All draft publicity materials relating to decision notices should be approved by the FCA's Enforcement Legal Team. Following this approval, draft publicity materials should be approved by the RDC and the relevant FCA Enforcement Head of Department or the Director of FCA Enforcement.
• Any complaint received from an interested party after publication should be escalated immediately to the relevant FCA Enforcement Head of Department and the tribunal (if appropriate).

In addition, the tribunal described the FCA's practice of referring to the subjects of decision notices by their surname (for example, "Rosier" instead of "Mr Rosier") in publicity materials as "inappropriate", "prejudicial" and "disrespectful", given that this is a practice often adopted by the police and is therefore associated with the criminal justice system. Accordingly, the tribunal recommended that the FCA's practice of referring to subjects of decision notices in publicity materials by their surname only should cease.

Comment

Once implemented by the FCA, the recommendations made by the tribunal in this case will provide subjects of FCA enforcement investigations with some degree of comfort that the FCA has appropriate systems, controls and safeguards in place to help prevent the dissemination of incomplete or inaccurate information to the press in relation to decision notices.

In settled enforcement cases, the subjects of FCA enforcement investigations and their advisers spend a considerable amount of time negotiating the content and format of statutory enforcement notices and associated press releases. firms' corporate communications strategies then tend to be based on the contents of these carefully documents. The events considered in this decision provide an insight into the types of other non-public communications that the FCA may have with the press to portray enforcement matters on its own terms. Subjects of enforcement investigations are unlikely ever to have sight or even knowledge of these other communications with the press. As a result, firms and individuals are left in the unsatisfactory position that the FCA may disseminate information to the press about enforcement action taken against them without their knowledge, which does not correspond with the content of negotiated statutory notices and press releases.

In the light of the FCA's conduct highlighted in this case, it is possible that the subjects of enforcement action will request that the FCA provides them with copies of any and all supplementary materials that the FCA proposes to provide to the press in connection with settled enforcement cases. Whether the FCA will accede to such requests in practice remains to be seen, although it is likely to be resistant.

Decision

Bayliss and Co (Financial Services) Ltd and Clive John Rosier v FCA [2015] UKUT 0265 (TCC) (21 May 2015).

This article fist appeared on Practical Law and is published with the permission of the publishers.