Stuart Forsyth v the Financial Conduct Authority and the Prudential Regulatory Authority: Integrity Findings

Published 7 julio 2021

Decision of the Upper Tribunal dated 6 July 2021

The decision concerns two references by Mr Forsyth in respect of decision notices issued by the FCA and the PRA (the “Regulators”) on 30 September 2019.  Pursuant to the decision notices, each Regulator sought to prohibit Mr Forsyth from working in the regulated sector and impose a combined fine of £154,498.

Mr Forsyth was the former CEO of Scottish Boatowners Mutual Insurance Association (“SBMIA”).  The Regulators contended that over a 6 year period Mr Forsyth’s conduct demonstrated a serious lack of integrity in breach of Principle 1 (Integrity) of the Regulators’ Statements of Principle for Approved Persons, Rule 1 (Integrity) of the FCA’s Individual Conduct Rules and Individual Conduct Standard 1 (Integrity) of the PRA’s Insurance Conduct Standards.

The allegations were that:

1. From 2010, Mr Forsyth improperly allocated a substantial part of his annual contractual bonuses to his wife, also an employee of SBMIA;
2. From 2013, Mr Forsyth increased the proportion of his annual salary which he allocated to Mrs Forsyth to a level which was excessive and unjustified by any work she performed;
3. These salary and bonus arrangements were not made in accordance with SBMIA’s ordinary remuneration procedures and were not fully disclosed to SBMIA’s Board and Remuneration Committee (“RemCo”);
4. When internal concerns were raised at SBMIA about certain matters including payments of part of Mr Forsyth’s remuneration to Mrs Forsyth, he improperly involved himself in the investigation by an external auditor;
5. Mr Forsyth created false minutes of the RemCo which purported to show the RemCo had agreed salaries of both Mr and Mrs Forsyth in 2013 to 2015.  Mr Forsyth prepared these minutes deliberately to create a misleading record that the RemCo had agreed these payments; and
6. Mr Forsyth recklessly provided the PRA with an incomplete set of the SBMIA RemCo minutes for 2013 to 2015 which misled the PRA as to what had been agreed by the RemCo

Throughout the Regulators’ investigation and enforcement proceedings, Mr Forsyth maintained that his wife was paid commensurate to the work she undertook, that his and his wife’s remuneration was disclosed to and known by SBMIA’s board and RemCo, that he had not improperly involved himself in an investigation into his conduct and that he had at no time created false minutes with an intention to mislead SBMIA’s board, RemCo or the PRA. 

The Tribunal has found, as a matter of fact, that the Regulators have not made out their case that Mr Forsyth failed to act with integrity in relation to each of the allegations made against him.  

Dealing with each allegation made by the Regulators:

1. Improper allocation of bonuses

The Tribunal found this raised two issues: (i) whether there was anything inherently improper in Mr Forsyth agreeing to assign his contractual bonus to his wife and (ii) whether Mrs Forsyth did in fact undertake the work, or the extent of the work, for which she was being additionally rewarded. 

The Tribunal found no evidence that Mr Forsyth’s motive was to reduce his own tax liability or that he was in any way seeking to hide the source of the monies as being derived from his own employment.  There was nothing wrong with an employee who believes that a fellow employee is deserving of increased remuneration for her work, deciding to transfer to that employee remuneration to which he would otherwise be entitled as a result of his own work. 

The Tribunal concluded that Mr Forsyth did not fail to act with integrity simply because he decided to assign all or part of his contractual bonus to Mrs Forsyth.

2. Excessive and unjustified allocation of salary

The Tribunal found that Mr and Mrs Forsyth did not exaggerate the amount of work that Mrs Forsyth undertook for SBMIA. Mr Forsyth was correct to regard the global remuneration awarded was in respect of the running of the office of the Chief Executive which consisted of him and his wife.  Neither the total amount awarded or the amounts allocated out of that global amount to Mrs Forsyth can be regarded as outside a reasonable range.  Mr and Mrs Forsyth worked together as a team and it would be wrong to belittle the contribution Mrs Forsyth made, which the Regulators sought to do.  The Tribunal agreed with Mr Forsyth that the quantum of remuneration paid to Mrs Forsyth was neither excessive nor unjustified by reference to the service she performed and was within the lawful and permissible range of remuneration which SBMIA was entitled to award Mrs Forsyth for her services.

The Tribunal concluded that Mr Forsyth did not fail to act with integrity in the manner in which a proportion of the remuneration awarded to him by SBMIA’s RemCo was allocated to Mrs Forsyth. 

3. Failure to follow SBMIA procedures and not disclosing bonus/salary awards to SBMIA’s Board/RemCo 

The Regulators accepted at trial that the SBMIA Board had given authority to RemCo to agree a global remuneration package and to leave it to Mr Forsyth as a matter of discretion to agree the split between him and his wife.  Neither the Board nor RemCo were expecting to be told what the split was or to decide what it would be.  The Regulators also accepted at trial that Mr Forsyth was not required under that mandate to obtain any further approval of the split although he did in practice obtain the approval of a senior member of the RemCo 

In light of the Regulators concessions, its case on this point was unsustainable.  Mr Forsyth followed the agreed process in the manner in which the salary split was determined and reported.  Mr Forsyth did not fail to act with integrity in that regard. 

4. Improper involvement in an investigation regarding his conduct

The Tribunal found that (i) no criticism can be made of Mr Forsyth as to the process for drawing up terms of reference for the investigation, (ii) Mr Forsyth did not ask the authors of the investigation report to remove details of the level of his and his wife’s salary in order to conceal the level of his wife’s remuneration from the SBMIA Board - the primary driver was to avoid leaking salary figures to the local community, and (iii) the text of the report which Mr Forsyth wished to change did not affect any substantive opinion or determination of the report.

The Tribunal concluded the Regulators’ case on this point was unsustainable and that Mr Forsyth did not fail to act with integrity as regards the manner in which he was involved in the investigation and in the production of the investigator’s final report. 

5. Creation of false minutes with intention to mislead SBMIA’s board/RemCo 

The Tribunal found that Mr Forsyth did not deliberately create a misleading record that the RemCo had agreed a salary split.  The agreed process did not require formal RemCo approval but there was no attempt by Mr Forsyth to conceal the position from RemCo. 

The Tribunal concluded that Mr Forsyth did not fail to act with integrity in the manner in which he created the record of the salary split.

6. Acting recklessly in provision of false minutes to the PRA which misled it as to what RemCo had agreed

In light of the Regulators findings of fact that Mr Forsyth did not create false minutes of what SBMIA’s RemCo had agreed, the provision of the documents recording the final salary splits was not designed by Mr Forsyth to mislead the PRA and no subterfuge was intended at any point. 

The Tribunal found that the Regulators case on this point was unsustainable and that Mr Forsyth did not fail to act with integrity in the manner in which relevant documents were provided to the PRA. 

The Tribunal concluded that, “Our evaluation of our factual findings leads to the conclusion that they cannot support any findings of a lack of integrity on Mr Forsyth’s part.  That in turn leads to the conclusion that we must allow the references”.

In accordance with the legislative framework, the Tribunal determined that the fine is set aside and remitted the matter to the Regulators with a direction to reconsider their decisions to prohibit Mr Forsyth in accordance with its findings with a direction that effect be given to its determination.  This can only mean, in the circumstances, the withdrawal of the prohibition order.