The Tribunal has ruled on a case brought by Financial Services (Euro) Ltd against FCA. FCA had decided to cancel the firm’s permission because it had no PII cover. The firm contended that FCA was aware that the reason it had no PII cover was because FCA was carrying out investigations into the firm and its director, and while these were ongoing no insurer would provide the cover. While the investigations were ongoing, the firm had decided not to conduct any regulated activities. As result, it could not afford to pay FCA fees. The firm said FCA did not properly consider its powers to reduce fees and that, moreover, it was irrational for it not to decide to do so, given that the reason the firm was not trading (and the reason it could not obtain PII cover) was because of FCA’s action. The firm also said that FCA could at least have just varied its permission so that it could not carry on regulated activities until PII cover was in place.
The firm and its CEO had been under investigation following the firm’s removal from a bank’s panel, and FCA considered the individual lacked the requisite competence and capability and the firm lacked adequate financial crime prevention controls, which led to significant suspicions it was being used to commit financial crime. After the firm declined FCA’s suggestion it should seek a voluntary cancellation of permission, and FCA said it would “consider how to proceed” and would notify the firm of its decision when made, the firm tried to seek PII cover but failed.
The Tribunal was critical of FCA for filing no witness evidence – in particular it had not explained its policy on remission and reduction of fees, nor provided what would have been useful information on the stance PII insurers would take where a firm under investigation seeks to renew its cover. Moreover, FCA had not provided evidence as to the status of the ongoing investigation, and why it decided to take again for the failings in fee-paying and PII whilst not apparently having concluded the conduct investigations.
The Tribunal concluded that it had enough evidence to be satisfied the firm would not have been able to obtain PII cover. It then noted FCA had taken no steps to prevent the firm from carrying on business while it considered its position, which lead the Tribunal to the conclusion FCA was not sufficiently worried about the concerns to take further action. FCA was pressed for updates from July 2017 and eventually in October said a decision had been taken in principle to open an investigation. There was no further correspondence until February 2018. The CEO was interviewed in June, but there is no other evidence of what steps FCA took.
Turning to the reasons for the enforcement action on non-payment of fees and lack of PII, the evidence was clear that the enforcement team had had the case presented to them as one of a simple routine case of a firm failing to pay or have cover without good reason – although the firm had been in constant contact with the relevant department explaining its position.
When the Warning notice on the failure to pay was addressed by the RDC, it, among other things, expressed the view that the investigations were a separate matter and did not apparently consider whether FCA could have used its powers to remit fees.
The Tribunal concluded the firm had acted responsibly in ceasing to trade, and could not have been expected to withhold resources to pay for fees in these unforeseen circumstances. It was clear the FCA had failed to take into account relevant factors in coming to its decision. The RDC was wrong to say that the ongoing investigation was irrelevant, and the FCA’s contention that the firm should have raised earlier the prospect of fee remission was met with a statement that “the Authority is presumed to be aware of its own rulebook”. The Tribunal also criticised FCA for not progressing its investigation and either concluding the matters were not sufficiently serious to take forwards, or itself varying the firm’s permission. It remitted the matter to the FCA with directions to take into account the relevant factors and to reconsider its decision.