The Upper Tribunal has upheld the FCA's decision that Rangecourt SA (formerly Banque Havilland), Edmund Rowland, the former London CEO and Vladimir Bolelyy, a former Bank employee, acted without integrity.
The Tribunal agreed with the FCA that significant fines should be imposed, deciding that fines of £4 million (the FCA had proposed £10 million), £352,000 and £14,200 were appropriate for Rangecourt SA, Mr Rowland and Mr Bolelyy respectively. The Tribunal also upheld the FCA's decision to ban Mr Rowland and Mr Bolelyy from working in financial services.
Banque Havilland created a plan (initially titled 'Setting fire to the neighbour's house fund') to harm the Qatari Riyal through manipulative trading strategies. The aim was to devalue the Qatari currency and break its peg to the US Dollar, harming the economy of Qatar. Banque Havilland intended to present this manipulative trading strategy to a sovereign wealth fund, Mubadala Investment Company. Mr Rowland and Mr Bolelyy were instrumental in this deliberate misconduct. Mr Rowland was trying to impress Mubadala in the hope of securing future financial benefit for Banque Havilland and his family. In making its findings, the Tribunal held that Mr Rowland lied to both the FCA and in court. He also persuaded Mr Bolelyy to lie.
Key takeaways
From a detailed Upper Tribunal judgment of 110 pages, we highlight a few key points of general interest.
When will a personal assistant be within scope of the FCA's conduct rules?
For SMCR firms, the conduct rules in essence apply to senior managers, certified persons and all other staff who are not expressly excluded. COCON 1.1.2R(6)(A) sets out the list of excluded staff who are not subject to the conduct rules, which in sub-paragraph (r) includes "personal assistant or secretary".
The Upper Tribunal in this case noted that it was common ground that excepted employees "have roles with functions which would be fundamentally the same in a non-financial services firm" – this being how the test was described in the consultation when the individual conduct rules were introduced.
In this case, Mr Bolelyy's employment contract stated that his job title was "senior investment analyst". He reported directly to Mr Rowland as CEO of the UK Branch of the bank. His role was expressed to cover "technical and investment analysis as well as managing the due diligence process of standalone investment projects". The contract provided that additional duties might be required, and it was not disputed that Mr Bolelyy was Mr Rowland's personal assistant.
The Upper Tribunal commented that some of Mr Bolelyy's work was not unique to the financial services sector: he booked rooms and restaurants, arranged meetings, took meeting notes, printed documents, liaised with other personal assistants, assisted with drafting presentations, prepared emails to give effect to Mr Rowland's instructions, filed and sorted documents on behalf of Mr Rowland, liaised with other departments in the Bank on behalf of Mr Rowland in connection with recruitment, proofread documents and undertook online research for Mr Rowland, including Russian language content, which he summarised for Mr Rowland.
However, on detailed examination of Mr Bolelyy's role, the Upper Tribunal found that his role also included carrying out research and analysis as instructed by Mr Rowland, and went beyond the administrative tasks associated with the role of personal assistant.
What are the tests for application of principle 1 of the FCA's Principles for Businesses?
FCA PRIN 3.2.1AR sets out what the FCA's Principles for Businesses apply to (except in relation to the Consumer Duty). This case concerned the application of principle 1: "A firm must conduct its business with integrity."
The key elements of the application test that required consideration included whether the conduct in question was part of the bank's business, whether the conduct of the employees could be attributed to the bank, and whether it related to regulated activities or ancillary activities in relation to designated investment business.
It was common ground in this case that Principle 1 had to be interpreted in light of its purpose. Principle 1 is a fundamental obligation on firms under the regulatory system. Its purpose is to protect and enhance the integrity of the UK financial system.
The Upper Tribunal considered that, as contended by the FCA, the approach to vicarious liability in tort was a helpful approach in determining whether an activity forms part of a firm's business. It was necessary to ask what the nature of the employee's role was and then ask whether there was sufficient connection between that role and their wrongful conduct to make it right for the firm to be held accountable. In doing so, it was important to stand back and ask whether the objective of Principle 1 requires the activity to be characterised as part of the firm's business.
A firm should be accountable if the intention of the employee is to further the firm's interests in some significant way. That is particularly the case where the personal interests and the firm's interests are closely intertwined.
Further, if an individual is acting within the scope of their actual or ostensible authority, then that would indicate that they are carrying out the firm's business. "In most cases involving an employee, it will be appropriate to consider whether they were acting in the course of their employment in identifying a firm's business. In the case of others, it will be appropriate to consider the scope of their actual or ostensible authority. In the case of directors, it may be appropriate to consider both concepts".
In general, if conduct forms part of the firm's business, there is no additional test of attribution. "If it does relate to the firm's business, then we see no reason why the firm should not be held culpable for that conduct. In our view, the policy argument underpinning vicarious liability, namely enterprise risk, together with the policy imperative of deterrence strongly suggest that a firm should be culpable for conduct of which it takes the benefit. It is true that vicarious liability is a rule of liability and not attribution. However, it is the underlying test of whether the conduct is carried out in the course of the individual's employment or office which, in our view, should guide culpability. The obligation under Principle 1 is not merely to conduct with integrity that part of the firm's business of which the directing mind had knowledge. It is to conduct all the firm's business with integrity. The firm has control over its employees and there is no policy reason why it should not be accountable for the conduct of those employees acting in the course of their employment."
However, if the conduct in question were that of a very junior employee in the course of their employment, then it may not be just and fair for a firm to be held culpable and to have acted without integrity in relation to that conduct.
When it came to whether the conduct related to regulated activities or ancillary activities in relation to designated investment business, in this case the conduct did not relate to the relevant regulated activities of advising on investments or arranging deals in investments, as no particular investments were identified. However, the conduct did relate to ancillary activities in relation to designated investment business.
"Ancillary activity" is defined in the FCA Handbook as an activity which is not a regulated activity but which is: (a) "carried on in connection with a regulated activity"; or (b) "held out as being for the purposes of a regulated activity". The Upper Tribunal in this case observed that "The phrase "in connection with" is a broad one and should be given its natural and ordinary meaning. In Campbell v Conoco (UK) Ltd [2002] EWCA Civ 704 at [19], Rix LJ described those words as "widely regarded as being as wide a connecting link as one can commonly come across". Therefore, conduct which falls just short of being a regulated activity for missing one of the key elements could well still be within scope of principle 1 as ancillary activity.
