On 16 August 2019, the Upper Tribunal published its decision about a Chief Operating Officer of the Wealth Division at a major bank (the COO). The Tribunal found that the COO had failed to act with integrity (in breach of Statement of Principle 1), but that the prohibition order imposed by the FCA was not merited.

In 2012, the COO received a document containing criticisms about the culture within a branch of the bank’s Wealth Division in the US (the Branch), which had been prepared by a third party consultancy firm following a number of employee interviews (the Document). The Document was sent to the COO in hard copy by a firm of consultants that had been engaged to review the culture within the Branch.

The FCA maintained that the COO deliberately or recklessly made false or misleading statements and omitted material information about the Document, including: (a) in drafting a note for the CEO of the Wealth Division to send to the bank’s senior management in response to anonymous allegations that a ‘wealth cultural audit report’ had been suppressed (the Note); and (b) in connection with a response to a request made by the Federal Reserve Bank of New York (the Federal Reserve) for a copy of a document relating to a cultural audit.

During the Upper Tribunal hearing in January 2018, a number of submissions were made on behalf of the COO around the cogency, reliability and credibility of the evidence relied on by the FCA.  For example, the FCA sought to rely on emails and notes written by the Global General Counsel of Wealth at the relevant time (the GCC), together with covert tape recordings made by him and the GCC’s answers to questions in interviews conducted by Simmons & Simmons in circumstances where he did not provide a witness statement and was not available for cross examination. It is interesting to note that the Upper Tribunal concluded that it could not accept this evidence unless it was corroborated or accepted by the COO.

(a) The Note

The COO assisted in preparing various drafts of the Note. The second draft stated that the consultants provided verbal input at a workshop, and that a “wealth cultural audit report” had “never” been produced “at any time”. The third draft of the Note did not contain this statement, but did state that the consultants provided “verbal input by reference to their interview notes and working papers”.   During the Tribunal proceedings, the COO maintained that he had explicitly rejected the consultants’ proposal to conduct a more wide ranging cultural audit and that he had never requested that they prepare the Document.  The Upper Tribunal found, however, that the COO had engaged the consultants to conduct a culture audit on the basis that this term had been used in emails sent by the COO at the time.  It found that the COO must have appreciated that there was a risk that a person with no previous knowledge of the events could have understood his drafting to mean that no document had been produced by the consultants.

The Tribunal found that a lack of integrity does not necessarily equate to dishonesty. It noted that while a person who acts dishonestly is obviously also acting without integrity, a person may lack integrity without being dishonest. It highlighted that one example of a lack of integrity not involving dishonesty is recklessness as to the truth of statements made to others who will or may rely on them, or wilful disregard of information contradicting the truth of such statements.  The Tribunal did not consider the FCA had established, on the balance of probabilities, that the COO had deliberately intended to give a misleading impression that the third party consultancy firm had never issued a report.  It did, however, find that the COO had been reckless in preparing the second and third drafts of the Note as to whether it gave accurate information and in particular, that it might give the impression that the Document never existed. It noted that the COO was prepared to take the risk that the recipients of the Note would never know about the existence of the Document.  Given this, the Tribunal upheld the FCA’s decision that the COO had acted without integrity (but not that he had acted dishonestly).

(b) Response to the Federal Reserve

The FCA also alleged that the COO made false or misleading statements about the Document to his colleagues (in three emails and during a subsequent telephone conversation and a meeting) following a request by the Federal Reserve for a copy of a document relating to the culture audit. The Tribunal, however, was not satisfied that this was the case.  For example, it accepted the COO’s evidence that he had had a fully informed discussion with his colleagues about the Document during the relevant meeting, and it was agreed that a new document should be produced.

Consequently, the Tribunal did not uphold the FCA’s submission that the COO had made false or misleading statements in the emails or during the subsequent conversations.

ICAEW investigation

An aggravating factor on which the FCA sought to rely was that the COO had allowed inaccurate statements to be made to the ICAEW (the COO’s professional body) during its investigation into the culture audit and whether the Document had been supressed.  In response to the investigation, the COO had submitted a letter and a note that had been drafted by his solicitors.  The note contained a statement that it was the COO’s understanding of the legal advice he had received that the Document should not be saved into the bank’s computer system due to the litigation risk it posed.  When questioned by the FCA and before the Tribunal, the COO had accepted that he had never specifically been advised not to store the Document on the computer system. The Tribunal found that this was an important statement as it provided an explanation for the COO’s conduct, which was the subject of the ICAEW’s investigation, and that on balance the statement was so clear and prominent that the COO had deliberately allowed the inaccuracy to go uncorrected. The Tribunal considered this was something that should be taken into account when deciding on the appropriate sanction.

FCA Interviews

The FCA also argued that the COO made false statements during two compelled interviews, relating to the events that led to the Document and his dealings with the third party consultancy firm.  Having considered the evidence, the Tribunal preferred the COO’s version of events in each case and so did not uphold the allegation that the COO had misled the FCA.

Appropriate sanction

When the COO’s case was considered by the Regulatory Decisions Committee (RDC) in 2016, the RDC had concluded that the COO had failed to act with integrity and that the appropriate sanction was to: (i) publish a statement of misconduct by the COO (rather than impose a fine); and (ii) impose a partial prohibition order, prohibiting the COO from performing any senior management function and any significant influence function.

Despite the RDC’s decision not to fine the COO, the FCA nevertheless invited the Tribunal to impose a financial penalty.  However, having considered the relevant authorities, the Tribunal considered that it should not impose a penalty where the RDC had decided not to do so unless it was satisfied that the RDC’s decision was clearly wrong.

The Tribunal found that:

  1. there were no grounds on which the RDC’s decision to issue a statement of public censure rather than impose a financial penalty could be said to be clearly wrong; and
  2. the case should be remitted back to the FCA with a direction to reconsider its decision to impose a partial prohibition in light of the RDC’s and the Tribunal’s findings.  Specifically, the Tribunal drew the FCA’s attention to: its finding that there was no misconduct by the COO in relation to Federal Reserve’s request; the length of time since the events of September and October 2012; and the COO’s otherwise spotless disciplinary record.

The FCA subsequently published a statement of the COO’s misconduct, which confirmed that it had decided not to pursue a prohibition order against the COO, available here.