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Fit and Proper Assessments – SRA vs FCA

In response to the 2008 banking crisis and the 2012 LIBOR scandal (London Inter-Bank Offered Rate), the Parliamentary Commission for Banking Standards was set up to consider the ‘standards and culture of the UK banking sector’ and to make recommendations for legislative and other regulatory action. The commission published five reports, the final one, ‘Changing Banking for Good’ (June 2013) made over 100 recommendations. One of the principle themes established from these recommendations was ‘making individual responsibility in banking a reality, especially at the most senior levels’. As a result, the FCA (Financial Conduct Authority) introduced the Senior Managers & Certification Regime (“SM&CR”) for banks in 2016. The SM&CR Rules were later extended to include insurance companies (2018) and FCA solo regulated firms in December 2019. For all SM&CR firms, Conduct Rules were created that must be adhered to.

There are two tiers of Conduct Rules; Individual Conduct Rules and Senior Manager Conduct Rules (see below). The Individual Conduct Rules are comparable to the long-established Solicitor’s Regulation Authority (“SRA”) ‘Principles’.

 The SRA ‘Principles’ ‘define the fundamental ethical and professional standards that [are expected] of all firms and individuals when providing legal services.’ (SRA Code of Conduct 2011) The ‘Principles’ are mandatory and solicitors ‘must strive to uphold the intention of the Code as well as its letter.’ (SRA Code of Conduct 2011). 

A comparison of the FCA Individual Conduct Rules versus the SRA ‘Principles’ is set out below:

FCA ‘Individual Conduct Rules’SRA ‘Principles’
You must act with integrityUphold the rule of law and the proper administration of justice
You must be open and cooperative with the FCA, the PRA and other regulatorsAct with integrity
You must act with due skill, care and diligenceNot allow your independence to be compromised
You must pay due regard to the interests of customers and treat them fairlyAct in the best interests of each client
You must observe proper standards of market conductProvide a proper standard of service to your clients
Behave in a way that maintains the trust the public places in you and in the provision of legal services
Comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and co-operative manner
Run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles
Run your business or carry out your role in the business in a way that encourages equality of opportunity and respect for diversity
Protect client money and assets

Despite many similarities between the SRA ‘Principles’ and the FCA SM&CR ‘Code of Conduct’, the outcomes of cases regarding individuals who have been involved in proceedings due to behaviour outside of the workplace vary somewhat between the two regulators, despite often being based on ostensibly similar facts. One of the most obvious similarities between the FCA ‘Conduct Rules’ and the SRA ‘Principles’ is the requirement to ‘act with integrity’.  Despite practically identical wording, the application of the ‘integrity’ principle/rule is not always consistent between the FCA and SRA. 

The SRA seems to be more willing to investigate the private lives of individuals that are regulated under their ‘Principles’.  In contrast, the FCA appears to apply a higher threshold before concluding that non-financial conduct (i.e. conduct which takes place outside of the workplace) can result in a finding that an individual is no longer fit and proper to perform his or her role. One reason for this could be the requirement by the SRA to ‘uphold the rule of law and the proper administration of justice’ (Rule 1 within the SRA Principles). This ultimately makes sense, as solicitors who deal daily with the law should be the example when it comes to upholding it. 

A number of cases exist which demonstrate the potentially differing approaches.

Cases brought by the SRA for breach of the SRA ‘Principles’

In the case of SRA v Beckwith, Beckwith (a partner) was brought before the SRA after a sexual encounter with an associate following the associate’s leaving party. It was generally accepted that the sexual encounter had been consensual.  However, there were concerns of an abuse of power by Beckwith – which would constitute a breach of Principle 2. As the associate was leaving the firm – and therefore no longer exercised influence over the associate’s career – Beckwith was found not to be in breach.  Nonetheless, this case demonstrates the willingness of the SRA to take into consideration the private lives of solicitors. 

Similarly, in SRA v Alistair Main, Main committed two offences against a woman during a Christmas Party at a London Rowing Club. The party was not work-related. Main was charged and convicted of sexual assault (lifting the victim’s skirt and slapping her bottom) and racially aggravated assault (pouring a beer on the victim and calling her an ‘Australian slut’). He was brought before the SRA on the basis that he failed to uphold the rule of law (Principle 1), failed to act with integrity (Principle 2) and failed to conduct himself in a way that maintains the public trust in him and the legal profession (Principle 6). He was found guilty and suspended. Paragraph 5 of the SRA Handbook states that Principles 1, 2 and 6 apply to all solicitors, even where the activities in question take place in a ‘private capacity’. This reinforces the view that solicitors are seen as upholders of the law, and therefore are held to a higher standard, even within their private lives.

Cases brought by the FCA for breach of the Individual Conduct Rules 

The case of Renshaw v FCA provides a contrast to both Beckwith and Main.  In Renshaw, Mr Frensham was convicted of attempting to sexually groom a 15-year old girl. Ultimately, Mr Frensham was banned by the FCA.  Interestingly, however, this was NOT due to the mere fact that his offence meant that he lacked the necessary integrity.  Put simply, Mr Frensham was banned by the FCA because of the way in which he handled the consequences of his offence, rather than the offence itself.  More specifically, he failed to inform the FCA about his arrest, being remanded in custody, of the decision by the Chartered Insurance Institute (CII) not to renew his Statement of Professional Standing or its decision to expel him from membership.  As a result, the Upper Tribunal of the FCA concluded that he had failed in his obligation to be open and cooperative with the FCA, the PRA and other regulators (Rule 3).

On the facts, it is difficult to distinguish Main from Frensham.  Both cases are concerned with conduct which took place outside of the workplace. If anything, Mr Frensham’s conduct was more reprehensible that Mr Main’s.  Despite this, Mr Frensham’s conduct, when viewed in isolation, was held NOT to be sufficient to support a conclusion that he was not fit and proper to perform his role as an independent financial advisor.  In contrast, Mr Main’s conduct DID support the conclusion that he was not fit and proper to perform his role as a solicitor.  The Upper Tribunal of the FCA recognises the precedent value of the long line of cases emanating from the SRA.  So how can these two cases be reconciled?

Perhaps the answer lies in a greater requirement on the part of the FCA (when compared to the SRA) that conduct outside of the office must, in some way, adversely ‘bleed into’ the individual’s professional life. Had Frensham been a solicitor and the case been brought by the SRA, it is quite possible that he would have been in breach of Principles 1, 2, 6 and 7. 

Support for this contention can be found in the case of Horsey v FCA.  Mr Horsey was convicted of voyeurism. He set up a video camera in a bathroom of a flat of which he was the landlord. On numerous occasions, he observed and recorded his female tenant showering without her knowledge or consent. The court drew attention to the fact that Mr Horsey was in breach of trust and his position as a landlord.  This, coupled up with the severity of the offence, served to justify the conclusion that Mr Horsey was not fit and proper to work as a financial advisor on account of the fact that he lacked the necessary integrity (Rule 1).  The court stated that ‘financial advisors who demonstrate a propensity to abuse their position of power pose an inherent significant risk to the consumers they advise.’

It appears that it was the abuse of power, rather than the criminal act itself, that led to Mr Horsey’s disqualification.  This begs the question of whether he would have been disqualified had he not been a landlord (and therefore in a position of power). 

Ultimately, despite the similarities between the FCA’s ‘Conduct Rules’ and the SRA’s ‘Principles’, it appears that the FCA are more strict in asserting that non-financial misconduct will only be considered as a breach of the ‘Conduct Rules’ if it crosses over into an individual’s professional life. If it does not, it is unlikely the non-financial misconduct will, of itself, be considered as a breach.  The SRA, on the other hand, appear more willing take into account simply the existence and nature of misconduct outside of an individual’s professional life when considering whether its ‘Principles’ have been breached.