In this decision report we consider the recent decision notice published by the FCA, in which the FCA detailed its reasons for proposing to impose a prohibition order on a fund manager. The Upper Tribunal previously held that the fund manager had acted without due skill, care and diligence. The tribunal remitted the decision as to whether a prohibition order should be imposed on the fund manager back to the FCA to consider in light of its findings. The FCA decided that a prohibition order should be imposed. The fund manager has referred the FCA's decision to impose a prohibition order on him back to the tribunal.

Background

At the relevant time, Tariq Carrimjee was the senior partner at a firm that provided wealth management advice to clients. He was approved to perform the CF3 (chief executive), CF4 (partner), CF10 (compliance oversight) and CF11 (money laundering reporting) significant influence functions on behalf of that firm.

The FCA alleged that Mr Carrimjee acted without integrity in breach of Principle 1 of its Statements of Principle and Code of Practice for Approved Persons (APER) and recklessly assisted one of his clients, Rameshkumar Goenka, to commit market abuse. The FCA proposed fining Mr Carrimjee £89,004 and also proposed imposing a prohibition order on him, which would prevent him from performing the CF10 and CF11 significant influence functions in the future.

Mr Carrimjee challenged the FCA's proposed findings against him, as well as the sanctions it intended to impose on him, before the tribunal. The tribunal disagreed with the FCA. It concluded that Mr Carrimjee had not acted without integrity or recklessly assisted Mr Goenka to commit market abuse. Rather, the tribunal concluded that Mr Carrimjee had failed to act with due skill, care and diligence in relation to his dealings with Mr Goenka in breach of APER Principle 2.

The Upper Tribunal's comments about whether a prohibition order should be imposed on Mr Carrimjee

Mr Carrimjee's case was the first that the tribunal had to consider since its powers were restricted by amendments to the Financial Services and Markets Act 2000 (FSMA), which were made by the Financial Services Act 2012. Before these amendments, the tribunal was able to determine at its discretion what, if any, was the appropriate action for the FCA to take. However, the amendments to FSMA meant that, with regards to the FCA's proposal to impose a prohibition order on Mr Carrimjee, the tribunal had two options:

• To dismiss the FCA's proposal to impose a prohibition order on Mr Carrimjee.
• To remit the issue of whether a prohibition order should be imposed on Mr Carrimjee to the FCA with a direction to reconsider the matter in accordance with its findings.

The tribunal went with the latter of these two options, and remitted the decision as to whether a prohibition order should be imposed on Mr Carrimjee back to the FCA in light of its findings. In doing so, the tribunal made the following observations as to whether it would be appropriate for the FCA to impose a prohibition order on Mr Carrimjee:

• It had not concluded that Mr Carrimjee had acted without integrity or recklessly assisted Mr Goenka to commit market abuse, as the FCA had alleged.
• Its findings attributed the same level of culpability to Mr Carrimjee as had been attributed to:
  • Vandana Parikh: the broker who Mr Carrimjee had introduced to Mr Goenka, and who had executed the trades for Mr Goenka that the FSA (as it then was) found amounted to market abuse. Ms Parikh was found by the FSA to have acted without due skill, care and diligence in relation to her dealings with Mr Goenka in breach of APER Principle 2. Ms Parikh was fined £45,673.50 by the FSA, but no prohibition order was imposed on her.
  • David Davis: who held the CF10 and CF11 significant influence function roles at Ms Parikh's firm. Ms Parikh had escalated certain concerns she had about Mr Goenka and his trading to Mr Davis but the FSA concluded that Mr Davis did not take adequate steps to address or reassure himself about these concerns. Mr Davis was fined £70,258 by the FSA and a prohibition order was imposed on him, which prevented him from performing the CF10 and CF11 significant influence functions in the future. The basis for the prohibition order imposed was that Mr Davis lacked competence and capability to perform these significant influence functions.
• It is relatively rare for the FCA to impose a prohibition order in cases where individuals have failed to act with due skill, care and diligence on one occasion (as was the case with Mr Carrimjee).

The tribunal suggested that the second and third factors listed above suggested that it would be irrational and disproportionate for the FCA to impose a prohibition order on Mr Carrimjee.

Notwithstanding the Upper Tribunal's observations, the FCA decides to impose a prohibition order on Mr Carrimjee

Having considered the tribunal's judgment, the FCA decided that it was still appropriate for it to impose a prohibition order on Mr Carrimjee that would restrict him from performing the CF10 and CF11 significant influence functions in the future. In late November 2015, the FCA issued Mr Carrimjee with a decision notice, setting out this decision. This decision notice was published on the FCA's website in February 2016.

The basis for the FCA's decision to impose a prohibition order on Mr Carrimjee is that, in breaching APER Principle 2, the FCA believes that Mr Carrimjee "demonstrated a serious lack of competence in relation to the performance of the compliance oversight function (CF10) while also holding the money laundering reporting function (CF11)". In particular, the FCA made the following points:

• Failure to identify the risk of market abuse, or seek adequate reassurances. The tribunal found that Mr Carrimjee had failed to appropriately identify the risk of market abuse or do anything to allay his concerns about potential market abuse, other than to seek inadequate reassurances from Ms Parikh (the broker who executed Mr Goenka's trades). Mr Carrimjee attempted to argue that this was a "one off" and that his conduct was not serious enough to warrant a prohibition order. The FCA disagreed and referred to individuals performing the CF10 role as "an important source of intelligence for the Authority when it seeks to prevent market abuse in order to protect consumers".
• Lessons learned and risk of mistakes being repeated. Mr Carrimjee submitted that he had "learnt from his failures such that he would not make the same mistake again". As a result, Mr Carrimjee said that he continued to be fit and proper. In support of his position, Mr Carrimjee referred to the recent judgment of the tribunal in Bayliss & Co v Financial Conduct Authority [2015] UKUT 265 (TCC). In Bayliss, the tribunal held that it would not be appropriate to impose a prohibition order on an individual in circumstances where "he had learned lessons from his failures and would not make the same mistakes were he to continue in such a role". The FCA did not agree with Mr Carrimjee's position. The FCA said that, while it was persuaded that Mr Carrimjee would not repeat the mistake that gave rise to the FCA's enforcement action against him if the same facts were to arise in the future, it still considered that Mr Carrimjee lacked "the fundamental skills and judgment to discharge the compliance oversight (CF10) function effectively were he to be faced with novel and unfamiliar circumstances". In addition, the FCA noted that "despite having ample time, [Mr Carrimjee] has not undergone any further compliance training, acquired or refreshed his expertise or otherwise taken steps to establish that he now has the judgement to identify and properly respond to compliance risks".
• It does not matter that Mr Carrimjee no longer performs the CF10 and CF11 roles. Notwithstanding the fact that Mr Carrimjee no longer performed the CF10 and CF11 significant influence functions, the FCA still thought that imposing a prohibition order on him would "serve a lawful purpose". Here, the FCA referred to its consumer protection and integrity objectives. In particular, the FCA noted that it considers "Mr Carrimjee's lack of competence and capability to be so manifest … that he ought to be prohibited for the overall protection of consumers and the integrity of the market".
• Inconsistent treatment. Mr Carrimjee alleged that, by imposing a prohibition order on him, the FCA would be treating him inconsistently with Ms Parikh (who did not receive a prohibition order) and Mr Davis (who did receive a prohibition order). The FCA disagreed, and distinguished the conduct of Ms Parikh and Mr Davis from that of Mr Carrimjee. As regards Ms Parikh, the FCA said that Ms Parikh did not perform the CF10 role, nor did she have the client relationship with Mr Goenka. As regards Mr Davis, the FCA said that he was not as intimately involved as Mr Carrimjee in the events that gave rise to the FCA's investigation, nor did he have the client relationship with Mr Goenka. The FCA also pointed out that, notwithstanding these differences, Mr Davis was banned from performing the CF10 role in the future.
• Similar skill sets required to perform the CF10 and CF11 roles. The FCA's proposed prohibition order for Mr Carrimjee covers both the CF10 (compliance oversight) and CF11 (money laundering reporting) roles. Mr Carrimjee argued that, given his conduct only related to his performance of the CF10 role, any prohibition order imposed on him should only cover him performing the CF10 role (and not the CF11 role) in the future. However, the FCA described the "close parallels" between the skills, judgments and capabilities required for the CF10 and CF11 functions. In particular, the FCA noted that both functions "require the identification, monitoring, evaluation and, where appropriate, reporting of suspicious activity in the market". The FCA concluded that "[t]hese are the very skills, judgements and capabilities that Mr Carrimjee failed to exhibit".

Next steps: headed back to the Upper Tribunal

Mr Carrimjee has referred the FCA's decision to impose a prohibition order on him back to the tribunal.

The tribunal will be faced with the decision of either dismissing the FCA's proposal to impose a prohibition order on Mr Carrimjee, or alternatively re-remitting the decision back to the FCA to consider. Given that the tribunal has already considered the issue, it is perhaps more likely that the tribunal will either uphold or dismiss the FCA's proposal to impose a prohibition order on Mr Carrimjee.

Comment

The FCA's decision to impose a prohibition order on Mr Carrimjee goes against some quite clear comments made by the tribunal in its previous judgment concerning Mr Carrimjee. As a result, it will be interesting to see how the tribunal interprets the FCA's reasoning for maintaining its view that imposing a prohibition order on Mr Carrimjee is appropriate. A date is yet to be set for the tribunal to hear this reference.

This is the first case involving a prohibition order that the tribunal has been required to consider under its new powers. As this case demonstrates, where the tribunal opts to remit a decision back to the FCA there is the risk that the subject of an investigation may re-refer the relevant aspect of an FCA decision back to the tribunal to re-consider. This is likely to add to the considerable amount of time that it already takes to hear and conclude FCA cases that are referred to the tribunal. By way of example, the conduct on which the FCA's enforcement action against Mr Carrimjee is based took place almost six years ago (in October 2010) and the FSA's original decision notice concerning Mr Carrimjee was issued over three years ago (in March 2013).

Decision

FCA decision notice: Tariq Carrimjee (dated 26 November 2015, published by FCA on 5 February 2016)

This article first appeared on Practical Law and is published with the permission of the publishers.