Should Non-financial Misconduct Lead To Prohibition? Upper Tribunal Provides Helpful Guidance

• Published date: 24 March 2022
• Subject Matter: Finance and Banking, Consumer Protection, Financial Services, Dodd-Frank, Consumer Protection Act
• Law Firm: Herbert Smith Freehills
• Author: Ms Christine Young, Hywel Jenkins, Karen Anderson, Benedicte Perowne and David Palmer

In a decision dated August 31, 2021, the Upper Tribunal (Tax and Chancery Chamber) (the Upper Tribunal) dismissed a reference made by a financial adviser who had been prohibited by the Financial Conduct Authority (FCA) following non-financial misconduct. The FCA had found that Jon Frensham was not a fit and proper person in a decision notice dated 1 October 2020 (the decision notice), as a result of his criminal conviction for a serious indictable offence.

The FCA contended before the Upper Tribunal that the nature and circumstances of Frensham's offending showed that he lacked integrity and that there was a risk of eroding public confidence if individuals who committed such misconduct and abused their position of trust were permitted to continue working in the financial services industry. In addition, the regulator considered that Frensham had not been open and transparent in relation to a number of matters arising from his arrest and conviction.

While the Upper Tribunal was not satisfied that the decision to make a prohibition order against Frensham could have been reasonably arrived at based solely on his criminal conviction, when the conviction was considered against: (i) the circumstances in which it came to be committed; and (ii) Frensham's failure to be open and cooperative with the FCA, the Upper Tribunal considered that the decision to make a prohibition order was reasonably open to the regulator. It therefore dismissed Frensham's referral.

Factual background

Frensham was an independent financial advisor and the sole approved person of a financial advisory firm, of which he was also the majority shareholder. On March 10, 2017, Frensham was convicted of an offence related to child grooming, and was subsequently sentenced to 22 months' imprisonment, suspended for 18 months, and placed on the Sex Offenders Register until 2027.

At the time of the offence, which led to his conviction in 2017, Frensham was under investigation as the result of an earlier arrest in March 2016 and was therefore in breach of pre-existing bail conditions (of which the FCA had been unaware).

Frensham referred the decision notice to the Upper Tribunal on the basis that the FCA had "wrongly applied the fitness and properness test to the facts" and had "allowed irrelevant considerations to affect its judgment".

Upper Tribunal's decision

The Upper Tribunal confirmed that the FCA is "fully entitled to take into account non-financial misconduct which occurs outside of the work...