Ashkan Zahedian was the director of Vast Cars Limited which had been approved by the FCA in January 2013. However, in a completely non-work-related context, Zahedian was involved in an altercation at a bar in February 2020. During this altercation, he assaulted a security guard with a machete and subsequently pleaded guilty to wounding with intent to do grievous bodily harm as well as the possession of a machete in a public place. This occurred on the 4th of May 2020.
Zahedian was sentenced to three years in prison with the Judge classing his actions as ‘out of character, unlikely to be repeated and genuinely remorseful’ although he still had intended to cause serious harm. On the 14th of November, the FCA published a notice against Zahedian which withdrew his approval to perform a Senior Management Function as well as prohibiting him from being able to work in the financial services industry again.
Fitness and propriety and conduct outside the workplace:
To be approved by the FCA, Senior Managers must be assessed as ‘fit and proper’. This requires an ongoing evaluation of an individual’s honesty, integrity and reputation; competence and capability; and financial soundness. Conduct that occurs outside of the workplace (often known as “non-financial misconduct”) can impact the assessment of fitness and propriety. However, the FCA must be satisfied that this actually has an effect on the individual’s capability to perform their role.
The FCA announced that due to Zahedian’s offence, he was no longer fit and proper due to:
- His lack of integrity by demonstrating a deliberate and criminal disregard for appropriate standards of behaviour.
- The damage to his reputation because of the associated publicity surrounding his conviction which subsequently makes it impossible to perform a regulated role at a regulated firm.
- The serious risk of damage to reputation and public confidence in the financial sector if he were to be kept in a position of trust (the integrity objective).
Comparing, Contrasting and Reconciling with Frensham:
The FCA’s decision to effectively ban Ashkan Zahedian appears difficult to reconcile with the earlier decision of the Upper Tribunal in the Frensham case. Jon Frensham was an independent financial advisor (“IFA”) and sole trader. In September 2016 he travelled to meet someone whom he thought to be a 15-year-old girl and with whom he had been corresponding online. Despite Mr Frensham’s denial, both the FCA and the Upper Tribunal were satisfied that this was with the intention of engaging in sexual activity. Either way, Mr Frensham was caught in a ‘sting’ operation. He was arrested, subsequently convicted, and sentenced to 22 months’ imprisonment in March 2017 (suspended for 18 months). He was also made the subject of an indefinite Sexual Harm Protection Order (“SHPO”) and added to the sex offenders register until 2027. At the time of the offence, Mr Frensham was in breach of bail conditions.
As a result, the FCA revoked Mr Frensham’s authorisation to act as SMF3 (Executive Director), SMF16 (Compliance Oversight) and SMF17 (Money Laundering Reporting Officer) by way of a decision notice dated 1 October 2020. The FCA considered that Mr Frensham was not fit and proper to perform any of these senior management functions because he lacked “the necessary integrity and reputation” as required by FSMA Sections 56 and 63 and FIT (the chapter of the FCA’s Handbook dedicated to ‘fit and proper’ requirements). In its view, Mr Frensham’s offending involved attempted exploitation of a minor, abuse of a position of trust and a deliberate and criminal disregard for appropriate standards of behaviour. It concluded that he posed “a risk to consumers and to confidence in the financial system”.
Mr Frensham appealed to the Upper Tribunal. He contended that the FCA had wrongly applied the fitness and propriety test to the facts. He argued that the FCA did not have sufficient regard for the fact that:
- His conviction did not relate to his role as an IFA,
- The conviction was not for an offence of dishonesty,
- The criminal offence was not committed at his place of work, and
- His work was not likely to bring him into contact with a minor or put him at risk of breaching the conditions of his SHPO.
The matter was heard in the Upper Tribunal Tax and Chancery Chamber on the 14th and 15th of June 2021 and Mr Frensham’s appeal was unanimously dismissed. It was held that the FCA was ‘fully entitled to take into account non-financial misconduct which occurs outside the work setting’. Nevertheless, the Upper Tribunal was not satisfied that a prohibition order was justifiable solely on the basis of Mr Frensham’s conviction. It was only when the offence was considered in light of the breach by Mr Frensham of his bail conditions coupled with his failure to be open and cooperative with the FCA, that the decision become one reasonably open to the FCA.
This interesting conclusion forces us to look behind the fact of the prohibition order and at the rationale behind the decision, as well as the factors which the Upper Tribunal considered along the way. Ultimately, these elements are far more instructive than the decision itself. The decision also included useful observations on the concepts of ‘integrity’ and ‘honesty’.
In reaching its decision, the Upper Tribunal concluded that it was entitled to consider the circumstances of Mr Frensham’s arrest and imprisonment and his communication with the FCA. It considered the following issues:
- The relevance of Mr Frensham’s conviction to the performance of his functions as an IFA.
- Whether the question of the relevance of Mr Frensham’s conviction was affected by the fact that in committing the offence he acted in breach of his bail conditions.
- The extent to which the FCA was entitled to place weight on Mr Frensham’s openness with the regulator, specifically:
- The fact that Mr Frensham did not inform the FCA of the fact that he had been arrested on two occasions (or that he had been remanded in custody),
- The fact that Mr Frensham continued to carry on his business for five weeks whilst on remand (and before a locum was appointed) without reporting the matter to the FCA, and
- Mr Frensham failed to inform the FCA of the decision of the Chartered Insurance Institute (“CII”) to refuse to renew his Statement of Professional Standing and its decision to expel him from membership.
- The extent to which the FCA had given appropriate weight to the length of time since the offence had occurred and the evidence of Mr Frensham’s rehabilitation.
- Whether a prohibition order was, in all the circumstances, disproportionate taking into account Mr Frensham’s right to a private life under Article 8 of the European Convention on Human Rights (“ECHR”).
Put simply, Mr Frensham WAS NOT banned from acting as an IFA because he had attempted to groom a 15-year-old girl. At this point, his lack of personal integrity had not crossed over into his professional life. Rather he was banned because he knowingly breached his bail conditions and because he deliberately withheld information from the regulator. Effectively, he put his own interests above those of the regulator and, by extension, of consumers – demonstrating a lack of professional integrity in the process. In doing so, his behaviour bled into a professional context. As the Upper Tribunal neatly summarised: “it is often the case that it is not the fact that a criminal offence has been committed that is fatal to an applicant’s case but the manner in which he deals with the consequences that follow”.
The Frensham case also highlighted a number of principles of more general application, being:
- “Integrity” means adherence to ethical standards of the profession concerned (in this case acting as an IFA).
- In matters regarding their professional standing there is an expectation that professionals may be held to a higher standard than those that would apply to individuals outside of the profession.
- Nevertheless, a regulatory obligation to act with integrity does not require professional people to be “paragons of virtue”.
- The need for public trust in the provision of professional services means that some scrutiny of a person’s private affairs is permitted.
- Requirements that professional persons act with integrity or be of sufficient repute may reach into private life only when conduct that is part of a person’s private life realistically touches on their practice of the profession concerned. The conduct must be qualitatively relevant because it “engages” the standard of behaviour set out in the regulatory code concerned. It is not simply a question of assessing whether the behaviour concerned demonstrates a lack of integrity at large.
- In considering the question of whether conduct in a person’s private life touches on the practice of their profession, it is necessary to consider whether public confidence in the
- whether public confidence in the profession would be harmed if the public, assumed to have knowledge of the facts, found that a person who behaved in a manner under scrutiny was able to continue to practice his profession.
As noted above there is a clear difference between the approach in Ashkan Zahedian’s and Jon Frensham’s cases which provides regulatory complications as well as clear uncertainty in decisions. Jon Frensham was ruled not fit and proper to conduct his role because he breached his bail conditions and deliberately withheld information from the regulator rather than grooming a fifteen-year-old girl. The decision in Frensham creates the uncertainty that if there is no dishonesty and relation to that person’s regulated role a criminal conviction alone is not enough to classify an individual as not fit and proper. The Tribunal viewed that if they had made the decision on just the conviction, they would have asked the FCA to rethink their position on the matter. However, in Zahedian’s case, there was no ‘independent analytical justification’ to review his conviction alongside the ‘integrity’ objective as well no acknowledgement of the effect the conviction had on his personal reputation. Additionally, despite the FCA’s comments in Frensham that ‘failing to act without integrity in one’s personal life in a manner which is not relevant to how the person concerned is required to conduct himself in his professional life should not itself engage regulatory action’ the FCA did not set out how Zahedian’s offences were connected to his professional role.
Despite attempts by the FCA to clarify matters through various board meetings and noting ongoing enforcement regarding further guidance and policy, there is still clear uncertainty surrounding its decision-making procedures. It will be intriguing to watch its development and whether clarity will be achieved.