Making the punishment fit the crime
The FSA's Final Notices are now littered with directors of financial services firms personally fined and made the subject of prohibition orders, not only for dishonesty but also for lacking competence and capability in the management of their businesses.
The case of Julian Harris might be viewed as just another in that sad litany of cases, but is interesting for the very precise nature of the prohibition order imposed by the FSA.
Historically, when the FSA has brought enforcement proceedings against an individual, where it has found dishonesty or lack of integrity, it has made a total prohibition order prohibiting the individual from exercising any controlled function at any financial services firm; where it has merely found incompetence, it has made a partial prohibition order prohibiting the individual from exercising any significant influence controlled function. As well as CEOs and other directors, such partial orders have been made against compliance officers and money laundering reporting officers.
Mr Harris was found to have failed to conduct adequate monitoring of the Appointed Representatives engaged by his network business. But rather than make a prohibition order preventing him carrying on any significant influence controlled function, the prohibition order only prevents him fulfilling the compliance oversight role. He can carry on in other controlled functions, and indeed the FSA register shows he is still a director, money laundering reporting officer and chief executive of authorised firms.
Fans of Gilbert & Sullivan will recall that the object is "to make the punishment fit the crime". It is impossible to know the details but one might speculate four reasons why the FSA has achieved that in this case:
- It is impossible to be competent (or incompetent) in the abstract. It is always necessary to identify particular skills required for a particular role, and therefore perfectly logical that an individual found by the FSA to lack the competence and capability necessary to perform a compliance function might still be perfectly competent for other governing functions
- In this case, Mr Harris was the sole trader in the business. Preventing him carrying on any governing function would effectively have closed down the business, a sanction which might well have been viewed as excessively harsh
- Preventing Mr Harris continuing in the compliance oversight role will require him to appoint an independent compliance officer. The FSA might therefore be emphasising the importance of firms always having an independent compliance officer
- Like most FSA Final Notices, this case was settled. The very precise and limited outcome shows how much can be achieved in negotiation with the FSA.