After the Upper Tribunal’s ruling in Frensham v FCA, Hickman & Rose’s head of professional regulation Andrew Katzen examines how FCA regulation of non-financial misconduct is evolving.
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The recent decision in Frensham v FCA[1] is an important evolution of professional regulatory law in financial services as it adapts to the modern working environment.
The Upper Tribunal’s decision to uphold the ban on financial advisor Jon Frensham following his conviction for the attempted sexual grooming of a teenage girl is the first time a court has considered an FCA decision to prohibit an individual for an offence not involving dishonesty which was committed outside the office.
By rejecting the FCA’s apparent assumption that a conviction of this sort should automatically lead to professional suspension, the court has put down a clear limitation on the regulator’s jurisdiction.
In doing so it helps define what has, over recent years, become a rather indistinct boundary between a regulated person’s ‘personal’ and ‘professional’ lives.
The Upper Tribunal’s decision in this matter is likely to have a significant impact both on the way the FCA (and potentially other regulators) approach misconduct matters.
What was the decision in the Frensham case?
In March 2017, Jon Frensham, an Independent Financial Advisor (IFA) subject to FCA regulation, was convicted of attempting to meet a child following sexual grooming – a crime for which he received a 22 month jail sentence, suspended for 18 months.
In October 2020 the FCA decided the conviction meant Mr Frensham was not a ‘fit and proper person’ and banned him from ‘performing any functions in relation to regulated activity’.[2]
Mr Frensham referred this decision to the Upper Tribunal, which earlier this month upheld the original FCA decision.
But the Tribunal did not uphold the ban on the basis of the criminal conviction.
It ruled that, contrary to the position of the FCA, Mr Frensham’s sexual offending in itself did not constitute a straightforward case of misconduct. The Tribunal upheld the ban for other reasons principally due to Mr Frensham’s failure to be frank with the regulator about his circumstances.
What is non-financial misconduct?
Anyone regulated and working in financial services must, under FCA rules and guidance, be a ‘fit and proper person’.
Being ‘fit and proper’ includes an assessment of whether an individual has ‘integrity’ which, in this context, is defined as “moral soundness, rectitude and steady adherence to an ethical code”.[3]
Historically, the analysis on whether someone is ‘fit and proper’ considered how a person concerned did their job. However, in recent years the FCA has emphasised other factors in considering this including good or bad practice both inside and outside the office environment.
These new factors have included sexism and racism, harassment, and bullying.
In November 2020, the FCA announced that it had banned three people from working in financial services on the basis of a lack of integrity due to criminal convictions for sexual offences.[4] In two of these three cases, the convictions in question appeared to have no direct connection with their jobs.
These decisions went unchallenged at the time – something which may have fostered a view inside the FCA that anyone convicted of these sorts of crimes should be banned automatically.
However, the decision notice against Mr Frensham on similar grounds was disputed by him in his reference to the Upper Tribunal.
Why is the Frensham decision important?
One analysis of the Upper Tribunal’s decision is that the FCA banned Mr Frensham because this was justified his criminal conviction alone.
Indeed, the Tribunal characterised the FCA’s submission to it as “saying that the offence must be regarded as being so awful and would be regarded as such by fair-minded members of the public with knowledge of the facts, that the only answer to the question posed must be that the person concerned must be prohibited from working in the industry”.
The Tribunal took issue with this. It affirmed the position that to prove non-financial misconduct there needs to be a clear link to breach of FCA rules and principles.
To quote from the ruling: “the basis on which the Authority seeks to link Mr Frensham’s lack of personal integrity to his professional role on the basis of the nature of the offence alone is speculative and unconvincing” and that “popular outcry is not proof that a particular set of events gives rise to any matter falling within a regulator’s remit.”
In addition to this the Tribunal also expressed a concern that the FCA had showed “a lack of candour about its position” in relation to what seemed to be internal policy discussions about how to deal with non-financial misconduct.
What will be the decision’s impact?
There was a time, not so long ago, when a regulated professional might easily define which areas of their lives their regulator was entitled to police, and which areas it couldn’t.
Generally speaking, misbehaviour committed in the office was regulated; misbehaviour in the pub, at home or on the golf course wasn’t.
This simple distinction has changed in recent years as social mores have evolved.
It is now much more common for professional regulators (including the FCA, but by no means limited to them) to seek to sanction behaviour that may previously have been considered ‘private’.
The Upper Tribunal’s decision picks up on the principles set out by the High Court in the case of Beckwith v SRA in which consensual sexual activity with a colleague out of hours was held not to constitute breach of the professional regulatory law for solicitors. [5]
It shows that just because an individual has committed a criminal offence (even one which some might find disturbing or even outrageous), this does not mean they should necessarily be prohibited from working ever again in financial services.
It will depend on the precise circumstances of each case rather than a blanket approach based on a criminal conviction.
There must be a proper factual and legal basis for saying that breaching the criminal law amounts to a lack of fitness and propriety relevant to execution of his/her duties as a professional.
[1] https://assets.publishing.service.gov.uk/media/612e14dfe90e07054107585e/Frensham_v_FCA.pdf
[3] Hoodless v Financial Services Authority [2003] UKFTT FSM007
[5] [2020] EWHC 3231 (Admin)
