Individual Conduct Rule 3 (“You must be open and cooperative with the FCA, the PRA and other regulators”)
Individual conduct rule 3 (“You must be open and cooperative with the FCA, the PRA and other regulators”) is similar to individual conduct rule 2 (“You must act with due skill, care and diligence”) in the sense that breach of individual conduct rule 3 is NOT restricted to circumstances where an individual has been dishonest or exhibited a lack of integrity. Rather, a breach of individual conduct rule 3 can also occur where an individual has been negligent.
In terms of being “open and cooperative” with the FCA, it is important to note that there is no duty on a person to REPORT information DIRECTLY to the FCA unless they are one of the persons responsible within the firm for reporting matters to the regulator (although, if a person takes steps to influence a decision NOT to report to a regulator or acts in a way that is intended to obstruct the reporting of information to a regulator, then that person will be viewed as being one of those within the firm who has taken on responsibility for deciding whether to report that matter to the regulator concerned).[1] Rather, the obligation to be “open and cooperative” is more akin to an obligation to ‘do the right thing’ in terms of providing timely and accurate information to the regulator (both in response to request, but also on an own-initiative basis). To this end, specific examples of conduct that might constitute a breach of individual conduct rule 3 include:
- failing to promptly provide information in response to a regulator’s questions, and
- failing without good reason to (a) inform a regulator of information of which the individual was aware in response to questions from that regulator, (b) attend an interview or answer questions put by a regulator, and (c) supply a regulator with appropriate documents or information when requested or required to do so and within the time limits attaching to that request or requirement.[2]
‘Lack of openness and cooperation’ in action
A recent (and high profile) example of a ‘lack of openness and cooperation relates to Jes Staley – former Chief Executive Officer (SMF 1) of Barclays Bank PLC.
In a decision notice dated 30 May 2023,[3] Mr Staley was found to have breached individual conduct rule 3 (as well as other conduct rules).
In August 2019, following a number of press reports, the FCA asked Barclays to explain in writing what it had done to satisfy itself that there was no impropriety with respect to the relationship between Mr Staley and Jeffrey Epstein (the disgraced financier who had been convicted of sex trafficking minors). In response, on 8 October 2019, Barclays sent a letter to the FCA. The letter contained two statements (which were central to the FCA’s ultimate findings) to the effect that:
- Mr Staley “did not have a close relationship with Mr Epstein”, and
- Mr Staley’s “last contact with Mr Epstein was well before he joined Barclays in 2015”.
Subsequently, it became apparent that Mr Staley did have a relationship with Mr Epstein that many would – objectively – regard as “close”. Mr Staley had confided in, and sought advice from, Mr Epstein with regards to his career. In addition, the nature, volume and tone of his email exchanges with Mr Epstein suggested a close, personal, relationship (the pair exchanged over 1,700 emails between July 2008 and October 2015 and Mr Staley expressly stated that he regarded Mr Epstein as one of his “deepest” and “most cherished” friends on more than one occasion). Mr Staley also visited Mr Epstein on a number of occasions – even when the latter was in jail.
It also became apparent that Mr Staley and Mr Epstein had been in email contact until at least 25 October 2015 – just THREE DAYS before Mr Staley’s appointment as the new CEO of Barclays was announced – bringing into question the claim that his “last contact” with Mr Epstein had occurred “well before” he joined the bank.
The FCA noted that Mr Staley had been given the opportunity to input into the final version of the letter from Barclays before it was sent to the FCA. They considered that Mr Stalely was aware of the risk which his association with Mr Epstein posed to his reputation and his career, would have known that the FCA would rely on the contents of the letter sent by Barclays, and would have been aware of the risk that the letter would mislead the FCA. The FCA acknowledged that Mr Staley provided some information regarding his relationship with Mr Epstein and that he did not have access to emails from his previous employers. However, they remained of the opinion that Mr Stalely:
- did not inform Barclays of material facts and matters,
- must have known that his relationship with Mr Epstein could not fairly or accurately be described as not having been “close”,
- must have known that he could not reasonably argue that his last contact with Mr Epstein had been “well before” his appointment as CEO of Barclays, and
- must have realised that, although the letter to the FCA was from Barclays, that did not obviate his responsibility to ensure that the information contained in the letter regarding his relationship with Mr Epstein was accurate.
Therefore, by failing to correct the misleading statements, and by approving the letter containing the two misleading statements, Mr Staley had failed to be open and cooperative with the FCA. The net result was that Mr Staley was fined £1,812,800 and prohibited from performing any senior management function in the future.
The FCA consistently hammers home the message that a necessary feature of the effective supervision of firms in the UK is for their senior managers to be open and frank in their dealings with regulators, particularly where those interactions relate to sensitive or important matters. Both the statement that Mr Staley did not have a “close relationship” with Mr Epstein and that his last contact with Mr Epstein was “well before” his appointment as Barclays CEO are subjective and open to interpretation. We’ll never know whether Mr Stalely was being downright dishonest in making these statements. But herein lies the main take-away. Individual conduct rule 3 (just like individual conduct rule 1) isn’t really about DISHONESTY. It’s about ‘doing the right thing’. It’s about not telling half-truths or seeking to exploit deliberately constructed vagueness. The FCA signalled that it will have no truck with that approach. And why should they? At its most basic level, the SM&CR is about PERSONAL accountability. Mr Stalely seemed to be lacking in this regard.
[1] COCON 4.1.10G
[2] COCON 4.1.11G
[3] https://www.fca.org.uk/publication/decision-notices/james-edward-staley-2023.pdf
