The FCA and Upper Tribunal
The FCA's 'further decision notice' on Mr Tariq Carrimjee (senior partner and CEO of Somerset Asset Management) revealed that, the regulator has taken on board the Tribunal's view that banning Mr Carrimjee from all regulated activity would be 'irrational and disproportionate', and it has instead decided to prohibit him from performing compliance oversight (CF10) and money laundering reporting functions (CF11).
Following Mr Carrimjee's referral to the Upper Tribunal, the Judge remitted the matter to the FCA with a direction to reconsider its decision to prohibit Mr Carrimjee from performing any function in relation to any regulated activities. The question of withdrawal of approval in respect of CF10 and CF11 functions did not arise as Mr Carrimjee had already given up these roles.
Mr Carrimjee's submissions consisted of 5 principal points:
- He was a fit and proper person;
- There was no evidence to suggest he would repeat his mistake;
- A prohibition order would therefore serve no purpose;
- Prohibiting him would be a breach of the Authority's duty to act consistently; and
- His failings were not relevant to the money laundering function of a CF11.
In response, the FCA considered:
- Mr Carrimjee's failure to report the risk of market abuse was particularly serious given Mr Carrimjee's responsibility for compliance oversight. He had over-relied on reassurances from a broker at another firm (Mrs Parikh of Paul Schweder Miller & Co) rather than escalating his concern that his client might have been intending to engage in market manipulation, and seeking external advice.
- This was not a 'one off'. Mr Carrimjee had 'adequate time to take a step back and reflect on his concerns' and correct his initial 'momentary failure'. It was not convinced that by voluntarily relinquishing both compliance and money laundering roles, he had learnt from his mistakes. In particular the FCA was not impressed that despite having ample time, Mr Carrimjee had not undergone any further compliance training or otherwise taken steps to demonstrate he could now deal properly with any compliance risk.
- A prohibition order would still serve a lawful purpose as it acts as an important message to the financial services sector: namely, those who are not considered fit and proper will not be allowed to hold functions relating to relevant regulated activities. The prohibition order would be in line with the FCA's consumer-protection objective and act as a valuable deterrent to others in the financial services sector.
- Prohibiting Mr Carrimjee is consistent with its treatment of other parties in the matter. In 2013 the FCA had fined (but not prohibited) Mrs Parikh, and had fined and prohibited Mr Davis (the compliance officer at Paul Schweder Miller & Co) from exercising the compliance oversight and money laundering reporting functions. The regulator distinguished Mr Carrimjee on the basis that (a) he held the compliance oversight function, whereas Mrs Parikh did not, (b) Mrs Parikh had escalated her concerns by reporting to Mr Davis, (c) whilst Mr Carrimjee had resigned as compliance officer, this was not relevant as the regulator takes into account the facts at the time of the breach when assessing its seriousness, and (d) Mr Carrimjee was responsible for the client relationship.
- The regulator agreed that the question of prohibiting Mr Carrimjee in respect of his money laundering reporting function is a separate issue, and that he had correctly identified his failure did not involve money laundering reporting. Nonetheless the expectations on a CF11 are parallel to those on a CF10, as such, the prohibition of both is appropriate.
It goes without saying that the case of Mr Carrimjee reinforces the increasing regulatory pressure on those performing compliance functions in regulated firms. However, the FCA's commentary on the fourth point is perhaps the most interesting: whilst final notices should not be treated as 'precedents' given the FCA's consideration of each matter on a 'case-by-case basis', it reinforces the importance of the regulator's consistent delivery of its messages to the market. Nevertheless, as noted in my blog on the risk of enforcement 'ping pong' between the Upper Tribunal and FCA, whilst the FCA has won this round, in theory, Mr Carrimjee could still refer the matter back to the Tribunal.