Integrity, Dishonesty and the FCA

A significant decision in the Upper Tribunal Tax and Chancery on 31 August upheld the FCA’s decision to prohibit and withdraw its approval for Jon Frensham, an IFA convicted of attempting to groom a child of 15 for sex.

The FCA’s original Decision Notice explained that it had concluded that Frensham was not a fit and proper person on the basis that he lacked the necessary integrity and reputation and, as a consequence, posed a risk both to consumers and to confidence in the financial system.

The Tribunal’s endorsement of the FCA’s decision can be seen a significant inflection point in how conduct not directly related to regulated activities is viewed. It lends weight to the FCA’s agenda on culture and non-financial misconduct.

It will also have come as a relief to the regulator, after it lost an integrity-related appeal at the Tribunal in July this year against its decision to withdraw regulatory approvals for Stuart Forsyth, CEO of a small insurance firm, over what the FCA claimed was an artificially high salary paid to his wife.

Integrity in the spotlight

This new decision underlines the need for PR people to recognise the potential implications of individual’s behaviour - both within and beyond their professional roles - from a conduct risk perspective.

Frensham attempted to argue that his grooming conviction had no bearing on his professional activities. The Tribunal’s rejection of his defence, suggests that a lack of integrity, independently of outright dishonesty, cannot be seen as immaterial to an individual’s professional fitness and propriety.

The separate issues of lack of integrity and dishonesty can be tricky to disentangle - but both need to be taken very seriously. How your business handles these issues plays an important role in how your company culture develops and evolves – and is something you will need be to be able to account for if challenged.

On dishonesty and lack of integrity

In this context, it may be helpful to refer back to the case of Tinney v FCA 2018, which set out three essential guidance steps of crucial relevance here:

  • Even though a person might not have been dishonest, if they either lack an ethical compass, or their ethical compass, to a material extent, points them in the wrong direction, that person will lack integrity

  • A lack of integrity does not necessarily equate to dishonesty. While a person who acts dishonestly is obviously also acting without integrity, a person may lack integrity without being dishonest. One example of a lack of integrity not involving dishonesty is recklessness as to the truth of statements made to others who will or may rely on them or wilful disregard of information contradicting the truth of such statements

  • Recklessness is a difficult concept. However, a simple definition is offered by the Law Commissions: a person acts recklessly with respect to a result if he is aware of a risk that it will occur and it is unreasonable to take that risk having regard to the circumstances as he knows or believes them to be.

Questions you need to consider

The FCA has clearly learned lessons from its previous involvement in Tribunals, which has helped hone the guidance it currently issues. The regulator has previously been criticised for how it handled cases. But this latest Tribunal decision highlights the growing momentum behind the FCA’s conduct risk focused agenda. 

In light of which, HR teams need to give urgent and serious consideration to the following questions:

  • Are your staff adequately trained?
  • Specifically, do you understand how to manage records properly from the perspective of potential future legal action (evidence and audit trail)?
  • How reliable are your policies around how to handle disclosures and data requests?
  • Are your disclosure policies fit for purpose?
  • Do you store data in a legally privileged and secure manner?

If you’re in any doubt as to how you should be handling any of the above - or any other aspect of the issues raised in this article - please don’t hesitate to contact me or one of my colleagues at IHRS, and we will be happy to help. Email HRhelp@ihrsolutions.co.uk, call 01604 709509 or visit the website.

About the author

Katherine is a member of the senior management team at RWA. She has over 20 years’ international experience working in HR, across various sectors, including financial services, insurance and regulated environments. Over the years, she has collaborated with some exceptionally talented HR professionals, with whom she has joined forces on special projects. Her network of HR professionals provides advice and training to companies and other HR teams.

In her role with RWA, Katherine heads up RWA’s Human Resources Consultancy and provides objective support to firms on employment law and HR issues. She uses her extensive skills and knowledge to work with firms to help them develop strong and resilient HR strategies and establish healthy organisational cultures.

Katherine holds a degree in Business Administration and Management from the University of Northampton and a Postgraduate Diploma in Human Resource Strategies from London Metropolitan University. She is a Fellow of the Chartered Institute of Personnel and Development (FCIPD).

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