In a “rare defeat” for the Financial Conduct Authority, the Upper Tribunal has found the regulator was wrong to have cancelled a firm’s permissions despite its lack of professional indemnity insurance and failure to pay regulatory fees.
The Upper Tribunal found the FCA had incorrectly cancelled Financial Solution (Euro)’s (FSE) permissions as it had not taken into account the reasons why the firm did not have professional indemnity insurance nor why it had not paid its fees or levies.
The issue started in May 2019 when the regulator handed FSE a decision notice to remove its permissions.
This was after it found FSE had failed to comply with its rules on the basis that it had not paid any fees or levies to the FCA.
It also found the firm had failed “to make appropriate provision in respect of its liabilities” by not having any PII in place.
But FSE argued its failure to get PII was a direct result of the FCA carrying out investigations into the firm and its director, which had meant no insurance provider would give it PI cover while these investigations were ongoing.
What's more, as a consequence of not having PI, it had taken the decision to not trade and therefore could not afford to pay the FCA’s fees and levies.
The regulator had pursued the firm over concerns with its credit-broking business at the time.
FSE claimed the FCA was “irrational” not to cancel or reduce its fees in circumstances where the firm was not trading due to the FCA’s own regulatory action.
Judge Timothy Herrington found FSE had acted “responsibly and prudently” when deciding to halt its regulated activities once it could no longer secure PII and said “the risk to consumers has been mitigated by that approach”.
The Upper Tribunal found in favour of the firm and agreed the FCA had not taken into consideration the firm's circumstances before making its decision to withdraw its regulatory permissions.
Judge Herrington said: “Because the [FCA] treated the case simply as a routine case of a firm simply failing to have PII and pay its fees, and it is clear from our findings of fact that there was more to the case than that, it follows that the [FCA] has failed to take into account a number of relevant factors in reaching its decision.”
Therefore Judge Herrington remitted the matter back to the FCA for further consideration.
Rachel Couter, partner at law firm Osborne Clarke, said: “This is a welcome example of the Upper Tribunal hearing the matter afresh without (as can sometimes be perceived) starting from the premise that the FCA must have been justified in the actions it had taken.
“It is fortunate that FSE considered its treatment so egregious that it referred the matter to the Upper Tribunal. We can only hope that other firms will be similarly bolstered in the potential usefulness of an Upper Tribunal reference in appropriate cases."