In Focus Risk
Partly contested cases, the pipeline, AML investigations
Senior management need to appropriately ‘scan the horizon’ to understand the threats facing them
Mark Steward Director of enforcement and market oversight, Financial Conduct Authority
The partly contested case process was introduced in 2017 to permit anyone who is the subject of FCA disciplinary action to choose to have part of the dispute determined by the Regulatory Decisions Committee (RDC), without losing the opportunity to obtain some or all of the credit for agreement. Before this path was created, parties either
had to agree everything or have the whole dispute referred to the RDC and most chose the former. The consequence was the FCA’s specialist decision-making committee which was designed to be independent of case teams was often excluded from the very cases it was set up to decide. It also made the resolution process look transactional. The new pathway, which is optional, avoids a ‘deal-making’ approach to the imposition of penalties and sanctions, provides a mechanism for the RDC, an independent FCA Board committee, to be consulted and engaged more frequently and gives subjects an opportunity to test and challenge the FCA’s penalty discretion without losing all of the credit for agreement. After a slow start, we have now had three
completed cases that have used this process. In each of the three cases that have used this process, all relevant facts and matters, other than the sanction, were agreed. The partly-contested-case route does not
exclude the Upper Tribunal from exercising its review function if the subject of the proceedings is unhappy with the RDC decision. However, the agreed statement of facts
includes an agreement from the relevant party that they will not reopen any agreed issue unless the Upper Tribunal, of its own motion, decides to reopen an issue.
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After a slow start, we have now had three completed cases that have used this process. In each of the three cases that have used this process, all relevant facts and matters, other than the sanction, were agreed
The very first case, involving Linear
Investments Ltd, was referred to the Upper Tribunal and the hearing was held in February. The decision is reserved. At the hearing, the Upper Tribunal did not seek to re-open any of the agreed issues and submissions on the penalty were made using the agreed statement of facts. The case involves systems and controls around post- trade surveillance and we published the Decision Notice last September ahead of the Upper Tribunal hearing. We eagerly await the Upper Tribunal decision. The next two cases have resulted in final
outcomes and did not involve the Upper Tribunal. The first concerned Carphone Warehouse which was fined just over £29m for mis-selling mobilephone insurance and the Final Notice was published last month. The second decision is currently scheduled to be announced very shortly. A few early observations on the process:
l Firstly, the agreed statement of facts needs to be very carefully particularised, perhaps with a tighter narrative than statutory notices
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may have been over the years, keeping in mind: the Warning Notice, in these cases, is effectively the agreed statement of facts, also setting out the scope of what is in dispute; and the Warning Notice is not issued by the RDC, as occurs in other contested cases where the RDC is engaged. l Secondly, the need for precise particularisation applies equally to the way in which submissions on penalty and sanction should be prepared and evidenced in the agreed facts with an evidential basis for relevant aggravating or mitigating factors. l Thirdly, the process seems to have worked well, providing the three parties with genuine opportunities to test and challenge the FCA’s sanctioning discretion without losing the credit normally applied for cooperation in agreeing the relevant facts and matters. We hope and look forward to more parties choosing this process.
Recent cases In September 2018, we fined Tesco Personal Finance plc £16.4m for failing to exercise due skill, care, and diligence in protecting its personal current-account holders against a cyber-attack that took place in November 2016. Following the attack, Tesco Bank immediately put in place a comprehensive redress programme and devoted significant resources to improving its systems and controls as well as the skills of the individuals who operate them. They received full credit for this. The case highlighted an important issue. The attack was foreseeable as there had been a specific warning 12 months earlier, which meant what happened, including the harm to customers, was avoidable.
June 2019
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