Costs Orders Against The Financial Conduct Authority

Regulatory investigations and investigation costs are a signifi cant source of indemnity claims for FI and D&O insurers. Whilst rarely used, there is a mechanism available which allows the subject of an investigation to seek their costs back from the regulator in certain circumstances. In this article we take a look at two cases (both concerning individuals) where a proportion of costs incurred were successfully recovered from the UK fi nancial regulator, the Financial Conduct Authority (FCA).

Upper Tribunal appeals

The Upper Tribunal Tax and Chancery Chamber (the "Tribunal") hears a variety of appeals, including appeals against certain decisions made by the FCA, covering a wide range of disciplinary and regulatory matters, such as authorisation and permissions, penalties for market abuse and disciplinary sanctions. Appeals from Tribunal decisions can be made to the Court of Appeal on a point of law only.

In proceedings before the Tribunal, the normal practice is for parties to bear their own costs on the basis that the Tribunal's power to make costs orders is limited by the Tribunal Procedure (Upper Tribunal) Rules 2008/2698 (the "2008 Rules"), rule 10. This prescribes that the Upper Tribunal may not make an order in respect of costs or expenses except in certain situations. In relation to financial services cases the relevant provisions are rules 10(3)(d)-(f), which provide that a costs order can be made:

(d) if the Upper Tribunal considers that a party or its representative has acted unreasonably in bringing, defending or conducting the proceedings;

(e) if, in a financial services case, the Upper Tribunal considers that the decision in respect of which the reference was made was unreasonable; or

(f) if, in a financial sanctions case, the Upper Tribunal considers that the decision to impose or uphold a monetary penalty in respect of which the appeal was made was unreasonable.

These powers are rarely exercised by the Tribunal in financial services cases (the majority of applications made under rule 10 are against the Revenue and Customs Commissioners). However, in the last few years there have been two cases which provide a valuable insight into the situations where the Tribunal has been willing to make such an award in a financial services case and serve as a warning to the FCA going forward.

Angela Burns v The Financial Conduct Authority [2017] EWCA Civ 2140

Ms Burns was appointed as a non-executive director of two UK mutual societies. Upon investigation, the FSA (as it was then) found that Ms Burns was in breach of her fiduciary position, had failed to disclose conflicts of interest and had acted to further her own commercial interests. The FSA imposed a financial penalty and made an order prohibiting her from performing any function in relation to any regulated activity.

Ms Burns denied the allegations and made a reference to the Tribunal for the case to be...