The ex-chief executive of a small Scottish mutual life office has won his appeal at a tribunal where he was accused by the UK's Financial Conduct Authority and the Prudential Regulation Authority of transferring around £200,000 of his salary to his wife to reduce tax.
The two regulators had fined Stuart Forysth in relation to when he was chief executive of Scottish Boatowners Mutual Insurance Association, which specialised in insuring fishing boats, a total of £154,498, and banned him from working in the regulated sector.
But they had to apologise after a judgement from the Upper Tribunal found the accusations "wholly unsubstantiated".
This is not just a case of the Regulators failing to locate documents due to their inadequate document management processes."
The judgement had centred on whether Forsyth had "demonstrated a lack of integrity in relation to issues arising out of his wife's employment by the insurer" which covered the Statement of Principle 1 of the FCA's and PRA's Statements of Principle for Approved Persons, Rule 1 FCA's Individual Conduct Rules and Individual Conduct Standard 1 PRA's Insurance Conduct Standards.
After 15 years at the business, he joined major insurer RSA in 2016 but lost his job due to the penalties which the FCA and PRA levied against him.in relation to regulated activities - s 56 FSMA.
Judge Timothy Herrington's verdict argued that it was clear as Forsyth's solicitors had said in their response on 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 having failed to appreciate the significance of documents they had identified as potentially relevant. They also admit that they had 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 which Mr Forsyth, the regulated community and public at large, are entitled to expect.
We therefore consider that it is appropriate to make a number of recommendations which may assist in ensuring that better outcomes result in the future."
In light of the facts of the case, he made the following recommendations in relation to s 133A (5) FSMA:
(1) The FCA should consider whether its staff are adequately trained and have an adequate understanding of the importance of proper records management in the context of potential enforcement proceedings and the consequences that could follow if those procedures are not followed.
(2) The FCA should review its procedures for dealing with requests for disclosure of documents made after the usual disclosure process has been completed.
(3) The FCA should review the adequacy of its Disclosure Memorandum in its current form and whether it is fit for purpose as it is currently being used. Legally privileged material should be kept separate to other material.
(4) The FCA should make an assessment as to when the relevant limitation period begins which should be regularly reviewed as new information comes to its attention.
(5) The recommendations set out above are equally applicable to the PRA, as appropriate. In addition, the PRA should undertake a full review of its processes for the recording of supervisory and other information that may be relevant to possible enforcement actions.
(6) The approach to joint investigations should be reviewed. Where the conduct concerned falls equally within the scope of both Regulators consideration should be given as to whether there should be a single investigation by one of the Regulators and a single regulatory decision.
"We direct that the Regulators respond with their views on these recommendations in a timely fashion and provide the Tribunal with an estimated timeframe for their response as soon as practicable after the release of this decision", the tribunal statement concluded.
In response, the FCA said it would carefully consider the tribunal's recommendations, and admitted errors resulted in the late disclosure of documents. A spokesman added: 'The FCA has apologised to Mr Forsyth and the tribunal for those errors."
The PRA said it "accepts the findings that it took a flawed approach in relation to identifying material held in this case. 'These errors resulted in the late disclosure of certain materials, for which we have apologised to both Mr Forsyth and to the court."