In Burdett v The Financial Conduct Authority [2024] UKUT 00156 (TCC)1, the Upper Tribunal considered the jurisdiction of the Tribunal to permit the Financial Conduct Authority (the "FCA") to make amendments to its statement of case to include an alternative allegation which did not form part of its earlier Warning Notices. The Tribunal applied a narrow test in relation to permitting amendments.
Two individuals, Mr Goodchild and Mr Burdett (each an "Applicant" and together the "Applicants"), referred Decision Notices (dated 19 August 2022) to the Upper Tribunal ("the Tribunal"). Each Decision Notice concluded that the Applicant lacked integrity and was therefore not a fit and proper person.
In the course of the Tribunal proceedings, the FCA made an application to amend its statement of case. While some of the amendments requested were minor, the main amendment was a proposal to add an alternative allegation of negligence in respect of each Applicant should he not be found by the Tribunal to lack integrity (the "FCA's Application"). As Mr Goodchild was an approved person, this alternative negligence allegation was pleaded as a breach of Statement of Principle 2 – an approved person must act with due skill, care and diligence in carrying out his accountable functions. The proposed allegation in respect of Mr Burdett was that he too lacked due skill, care and diligence. These alternative allegations had not formed part of the FCA's Warning Notice in relation to each Applicant, nor the applicable Decision Notice.
Under section 133 of the Financial Services and Markets Act 2010 ("FSMA") the Tribunal's jurisdiction in the case of a disciplinary reference is circumscribed by reference to "the matter"; the Tribunal can only consider evidence relating to the "subject-matter" of the reference and can only make directions/determinations in relation to "the matter" of that reference.2 As such, the Tribunal would only have the jurisdiction to make a determination on the alternative allegations if the alternative allegations formed part of "the matter" which has been referred to the Tribunal. If the alternative allegations were not part of "the matter", the FCA's Application would have to be refused.
The Tribunal noted that, as identified in Bluecrest,3 the terms "the matter" and "subject-matter of the reference" are not defined. The Tribunal therefore looked to previous authorities to decipher what falls within the subject matter of a reference.
The previous authorities contained two separate tensions. The first was between cases concerning a similarly worded provision and procedure under the Pensions Act 2004 ("PA04"),4 and cases concerning the corresponding FSMA provision (i.e., the provision under consideration in the present case). The interpretation of the "matter" in cases falling under PA04 has been broader, focusing on the wider decision of The Pensions Regulator to, for example, impose a penalty or make a prohibition. The Tribunal noted that the interpretation of the provision of PA04 did not seem to have been influenced by the cases that considered the corresponding FSMA provision (and vice-versa).
The second tension exists between different cases considering the same FSMA provision. Here, the Tribunal noted that there have been two different approaches in the determination of whether the FCA may amend its case to make allegations which did not form part of the Warning Notice.
The first approach (as seen in, for example, Jabre5, Carrimjee6) is the broader of the two (although still not as broad as the approach to PA04 cases). Taking that approach, the FCA is permitted to make new allegations so long as they are based on the same facts and circumstances referred to in the Warning Notice, or other evidence which can properly be produced in the Tribunal (i.e., they arise out of the same factual matrix), and the regulatory outcome sought is no more severe (from the point of view of the target) than that in the Warning Notice.
There is a second group of cases (for example, Seiler7, Bluecrest) which seem to suggest that for the new allegations to be part of the "matter referred", those allegations must arise from the same factual matrix as the allegations and be of the same "nature". In terms of what amounts to allegations of the same "nature", the Tribunal was clear in Bluecrest that an allegation relating to a different regulatory provision cannot be of the same nature.
The Tribunal noted that following the broader approach would lead to the conclusion that the FCA could amend its case, given that the alternative allegations in the present case were no more than a different analysis of the facts contained in the Warning Notice and would not lead to a more stringent sanction. On the other hand, following the narrower authorities (such as Bluecrest) would lead to the conclusion that the allegations were not part of the "matter referred" as they were not of the same "nature", given they alleged a breach of a different Principle.
The Tribunal considered that the PA04 cases were not binding authorities when considering the FSMA provision. Although it may be proper for decisions under the PA04 provisions to be taken into account when construing similarly worded provisions in FSMA, the Tribunal did not feel it could determine the extent to which this should be the case in the current application. The Tribunal noted that the case of Bluecrest is currently being appealed on the basis that the Tribunal failed to consider similar provisions under the PA04. The Court of Appeal will therefore have the opportunity to consider these matters in detail over the course of a three-day hearing.
Turning to the decisions in cases considering the FSMA provision, whilst none of these are binding, the Tribunal considered it should follow them unless it believed any of them to be wrongly decided (which it did not). If these decisions conflict with each other, the Tribunal concluded that it should follow the later decision if that decision was reached after full and careful consideration of the earlier decisions. The Tribunal therefore concluded that it should follow Bluecrest since that case was "clearly reached after full and careful consideration of the earlier decisions of [the] Tribunal on the relevant FSMA provisions".
Following that decision in Bluecrest, the Tribunal concluded that the alternative allegations were of a different nature, given they alleged a breach of a different regulatory provision. The alternative allegations were not therefore part of "the matter" referred and so the Tribunal did not have the jurisdiction to entertain them. Permission for the FCA to amend its case was therefore refused.
The Tribunal noted it would grant the FCA permission to appeal if the decision in Bluecrest is overturned by the Court of Appeal.
While the case follows the judgment in Bluecrest and therefore does not establish any "new" law, it highlights the competing interests in the determination of an important issue.
The scope for the FCA to amend its case to make new allegations in the Tribunal involves balancing the importance of getting to the "right" regulatory outcome (in particular to ensure that those who are not fit and proper to perform functions in relation to a regulated activity are not permitted to do so) with the entitlement of those facing regulatory proceedings to know the full nature of the allegations against them from the outset so they can make an informed decision of whether to contest the Warning/Decision Notice and can effectively prepare their defence in the time available.
The Court of Appeal is likely to grapple with these issues in Bluecrest. The judgment in that case will be keenly awaited.
2 See for example, section 133(4) ("The Tribunal may consider any evidence relating to the subject-matter of the reference or appeal…") and section 133(5) ("In the case of a disciplinary reference… the Tribunal (a) must determine what (if any) is the appropriate action for the decision-maker to take in relation to the matter…") (emphasis added)
3 Bluecrest Capital Management (UK) LLP v The Financial Conduct Authority [2023] UKUT 00140 (TCC)
4 Under PA04, The Pensions Regulator (the "TPR") can take regulatory action to protect the benefits of members of occupational pension funds, including by requiring additional funds from employers and associates where there are grounds to do so. The Tribunal noted in that the procedure for doing this is very similar to the FCA's regulatory procedure under consideration in the current case; in particular, the procedure involves a 'warning notice' followed by a 'determination notice', the latter of which can be appealed to the Upper Tribunal.
Under s.103 PA04 regarding an appeal of the determination notice, the Tribunal may consider evidence relating to the "subject matter" (see section 103(3)) and must determine the appropriate action for the TPR to take in relation to the "matter referred" to it (see section 103(4)).
5 Philippe Jabre v Financial Services Authority: FIN/2006/0006 jurisdiction.
6 Tariq Carrimjee v Financial Conduct Authority: [2015] UKUT 0079 (TCC).
7 Seiler and others v FCA, [2023] UKUT 0033 (TCC).
