Stuart Forsyth v Financial Conduct Authority and Prudential Regulation Authority (Upper Tribunal)

Stuart Forsyth v Financial Conduct Authority and Prudential Regulation Authority (Upper Tribunal)'s Tags

Tags related to this article

Stuart Forsyth v Financial Conduct Authority and Prudential Regulation Authority (Upper Tribunal)

Published 6 July 2021

DAC Beachcroft and Blackstone Chambers successful in dismissal of fine and Prohibition Order against former CEO of Mutual Insurer.  FCA and PRA decision to ban/fine Mr Forsyth was widely reported when announced in November 2019.  The ban/fine has now been overturned. 

Link to judgment.

Summary

  • Upper Tribunal finds overwhelmingly in Stuart Forsyth’s favour in overturning the FCA’s and PRA’s decision to seek to ban him from working in the regulated sector. 
  • Regulators’ previous findings that Mr Forsyth’s conduct demonstrated a lack of integrity have been found by the Tribunal to be wholly unsubstantiated.
  • Upper Tribunal describes Mr Forsyth as “an honest and credible witness” and criticises the FCA and PRA on numerous counts, including their pursuit of unpleaded allegations at trial and their failure to comply with important disclosure obligations.
  • Tribunal was deeply troubled by the FCA and PRA’s failure to comply with its disclosure obligations throughout the course of the proceedings and has issued a series of far reaching recommendations to seek to address these failings.
  • Mr Forsyth says: “I would like to thank the Upper Tribunal for its thorough and reasoned approach to my case.  On a proper analysis of the situation it has found I have done nothing wrong.  I have always maintained the FCA’s and PRA’s approach was incorrect and based on a flawed assessment of the situation.”
  • Jonathan Brogden, partner at DAC Beachcroft with conduct of the case for Mr Forsyth, says, “The Upper Tribunal’s judgment serves as a vindication of Mr Forsyth’s conduct.  It has found he did nothing wrong and that is the right result.  The FCA and the PRA got this wrong and despite Mr Forsyth’s clear and consistent evidence throughout the investigation and enforcement action against him, neither regulator was prepared to or able to recognise the truth of the situation.  We have had to fight long and hard to achieve the right result for Mr Forsyth.  The strength and clarity of the Upper Tribunal’s findings are welcome and we fully expect Mr Forsyth to resume his distinguished career in marine insurance as swiftly as possible.” 

On 6 July 2021 the Upper Tribunal handed down judgment in Mr Forsyth’s reference challenging the Financial Conduct Authority’s (“FCA”) and the Prudential Regulation Authority’s (“PRA”) decisions to prohibit him from working in the regulated sector and imposing a combined fine of £154,498.   The Tribunal’s judgment sets aside the fine and directs the regulators to give effect to the Tribunal’s clear and unequivocal determination.

 

Background

Following a process of investigation and enforcement action starting in 2017 with a hearing before the FCA’s Regulatory Decisions Committee and the PRA’s Enforcement Decision Making Committee, the FCA and PRA originally reached a determination in 2019 that Mr Forsyth’s conduct demonstrated a serious lack of integrity in relation to the manner in which, as the CEO of a mutual insurer, he allocated salary and bonus payments to his wife, involved himself in an internal investigation into such payments, created false documents to deliberately mislead his employer’s Remuneration Committee as to such payments and recklessly misled the PRA as to what had been agreed his employer. The total amount of tax alleged to be saved was said to be some £18,000.

Having considered the parties’ pleaded cases, all the documentary evidence, witness evidence and expert evidence and following a seven-day trial where Mr Forsyth and his wife were subjected to intense cross examination, the Tribunal has found, as a matter of fact, that all of the allegations raised by the FCA and the PRA are unsubstantiated and that Mr Forsyth did not fail to act with integrity in any respect.  As a result, the Tribunal has set aside the fine imposed on Mr Forsyth and has, in accordance with the procedural rules, remitted the matter to the FCA/PRA with a direction to reconsider their decisions to prohibit Mr Forsyth in accordance with its findings to give effect to its determination.  Given the strength and clarity of the Tribunal’s decision, this can only mean the regulators must publicly (and swiftly) withdraw the decision notices/prohibition order so that Mr Forsyth may rightly resume his distinguished career in marine insurance.

The Tribunal found, despite the FCA and PRA’s counsel’s attempts to discredit them in cross examination, that Mr Forsyth was, “an honest and credible witness in respect of all of the disputed matters” and that he was “consistent in his evidence which in all material respects did not differ with what he told the Regulators in interview” and that Mrs Forsyth was “an impressive witness” and it “accepted her evidence in full”. 

Conversely, the Tribunal was troubled by a number of ways the FCA and PRA chose to run their case at trial.  This included an attempt to introduce a wholly unpleaded allegation of the timing of creation of alleged false documents during trial which the Tribunal found was entirely contrary to the documentary evidence, including that which the regulators had relied on in making its allegations against Mr Forsyth.  Further, and of greater concern was a suggestion by the FCA and PRA that Solvency II compliance could be achieved utilising consultants with little, if any, input or understanding by the CEO or Board. This suggestion was rightly found by the Tribunal to be "extraordinary that the Regulators should submit that it was acceptable for the Chief Executive to abrogate his responsibility in this way”. 

The Tribunal was also deeply troubled by the FCA and PRA’s failure to comply with its disclosure obligations throughout the course of the proceedings.  These disclosure failings related to the important issue of limitation, an issue which has been subject to substantial consideration by the Upper Tribunal in the past.  In this regard, the Tribunal found that the FCA and PRA’s failure to comply with its disclosure obligations (including mislabelling documents as legally privileged when they clearly were not), “cannot be regarded as anything other but the most serious failing on the part of the Regulators.  Such failings threaten the integrity of the Tribunal process.  If these documents had not come to light, then it is possible that the Tribunal would have made findings on an issue in respect of which it had no jurisdiction because of the expiry of the limitation period.”  The FCA’s disclosure failings were found by the Tribunal to have been the result of “a basic lack of competence on the part of those entrusted with performing the tasks that the FCA processes require” whilst the PRA’s, “problems appear to be more systemic because of the lack of systems which replicate those maintained by the FCA”.  The Tribunal considered these disclosure failings so serious that it has issued 6 recommendations under s.133A(5) of FSMA which indicate that the FCA should consider whether its staff are adequately trained and have an adequate understanding of the importance of proper record management, and that the FCA and the PRA should review their document management processes and procedures, including those that relate to joint investigations. 

 

Commentary

Jonathan Brogden, partner in DAC Beachcroft’s regulatory disputes team and who had conduct of the case for Mr Forsyth throughout, commented, “The Tribunal’s judgment serves as vindication of Mr Forsyth’s conduct.  He has always maintained that he acted properly, that everything he did was with his employer’s full knowledge and understanding and that he did not at any time seek to mislead the PRA.  The Tribunal has found, on consideration of all the evidence, that Mr Forsyth was and always has been telling the truth.  The regulators’ judgment in this case was poor and the way they have treated Mr Forsyth, right through to the trial, has been unacceptable.  The regulators have a lot to learn from this case and I genuinely hope they take on board the Tribunal’s findings and criticisms.  So far as their disclosure failings are concerned, I was pleased that the tribunal adopted in full our comments where, in the judgment they say, “…as Mr Forsyth’s solicitors said in their response to this issue, this is not just a case of the Regulators failing to locate documents due to their inadequate document management processes.  They have also admitted to having failed to appreciate the significance of documents they had identified as potentially relevant.  They also admit that they had the opportunity to rectify the situation before the trial period but failed to do so.  We therefore accept, as Mr Forsyth’s solicitors said, that the Regulators’ conduct has fallen well below the standards Mr Forsyth, the regulated community and the public at large are entitled to expect”. 

Mr Forsyth commented, “Before this case I had a 30-year unblemished career in the marine insurance industry.  Over the years of being subjected to the regulators scrutiny, I have consistently maintained my innocence of the serious allegations levelled at me.  I am relieved that through the expertise and experience of the Upper Tribunal it has been determined as a matter of fact that I have done nothing wrong.  My wife and I have been through a hellish experience in this case, which seems to me to have resulted from the regulators flawed judgment.  It has only been through sheer determination, the unwavering support of my wife and the support and expertise of my legal team at DACB Beachcroft and Blackstone chambers that I find myself fully vindicated.  I look forward to resuming my unblemished career in the marine insurance industry as soon as possible.  I genuinely hope the regulators learn from the errors they made in my case and work to restore the faith of regulated professionals in its competence, processes and procedures as I would not want anyone else to go through what I have been through.”

 

Mr Forsyth was represented by Jonathan Brogden (Partner), Aleks Spencer (Associate), Annabel Walker (Senior Solicitor) and Ben Jones (solicitor) at DACB Beachcroft LLP and by Andrew George QC at Blackstone Chambers. 

Key Contacts