17 December 2014

Obligations for approved persons don’t stop at the office door


Harvey Knight

Partner | UK

On 15 December 2014, the Financial Conduct Authority (‘FCA’) banned Jonathan Burrows, a former Managing Director at Blackrock Asset Management Investor Services Limited, from working in the financial services industry. This is a timely reminder that individuals who work in the financial services industry must demonstrate honesty and integrity in their personal, as well as their professional life.

The FCA has been placing an increasing emphasis on the importance of holding individuals to account for their behaviour as part of their objective of changing the culture within firms. The FCA wants senior individuals to set the culture of their firms by demonstrating ethical behaviour. Central to this approach, is the requirement that these individuals should act with honesty and integrity, including in their private lives. Tracey McDermott, the FCA’s director of enforcement, summarised the FCA’s approach as follows: ‘Approved persons must act with honesty and integrity at all times and, where they do not, we will take action’. Mr Burrows’ ban serves as a reminder that approved persons must be able to demonstrate honesty and integrity in both their professional and personal lives, and failure to do so may have severe consequences.

There had been public outcry when it was revealed in the press earlier in the year that an unnamed “fund manager” was Britain’s biggest rail-fare dodger. Anxious to avoid criminal prosecution and to keep his identity secret, the individual (later revealed by the press to be Mr Burrows) reached an out of court settlement with rail operator Southeastern and paid, within three days, the £42,550 of rail fares he had illegally avoided together with £450 of Southeastern’s legal costs. At the time, the existence of the settlement caused widespread fury that poorer rail fare dodgers were being prosecuted for theft, leaving them with a criminal record, whereas a wealthy fund manager had escaped prosecution with his identity protected and reputation intact.

Upon learning of the case and the settlement, the press, British Transport Police and the FCA began investigating to discover the identity of the fare dodger – the FCA’s interest driven by the revelation that the individual worked in the financial services industry as an “approved person” (someone who performs a controlled function for an authorised firm).

In order to become an approved person, the firm and the FCA must be satisfied that the candidate is “fit and proper”. The “fit and proper” test comprises three elements:

  1. the individual must be of good reputation, and have honesty and integrity;
  2. he or she must be financially sound (bankrupts and those on the verge of bankruptcy cannot be approved persons); and 
  3.  he or she must be competent and capable of performing the controlled function (in certain cases individuals will need to have completed courses of training, or demonstrate a certain amount of experience or qualifications before being able to take up their role).

Importantly for the first test – honesty, integrity and reputation – this is not confined solely to an individual’s professional life. If an individual is shown to have acted dishonestly or disreputably in their personal life (such as Mr Burrows’ fare-dodging), the FCA will take that into account as demonstrating that the individual is not fit and proper to be an approved person. When an individual becomes an approved person, they take on personal responsibilities to the regulator – if they are found to have breached the FCA’s statement of principles for approved persons the FCA may take enforcement action against them. Penalties may include a fine, public censure or a prohibition. Mr Burrows was no longer an approved person when the FCA decided to ban him from working in the financial services sector. Having informed his employer that it was likely to be contacted by the FCA in connection with his rail-fare dodging, he was suspended from Blackrock, and later left or was dismissed in July 2014 (reportedly without any pay-off). Blackrock has publically deplored Mr Burrows’s conduct.

Withers’ financial services regulatory team advises individuals and firms on compliance with financial services regulatory requirements, including the requirements for approved persons.

Category: Article