May 21, 2019

May 21, 2019

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May 20, 2019

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Employment Appeal Tribunal provides guidance on the FCA’s ‘fit and proper person’ test

In Radia v Jeffries International Limited, UKEAT/0123/18 the Employment Appeal Tribunal (“EAT”) held that an employer, Jeffries International Limited (“Jeffries”), properly dismissesd an employee where Jeffries considered that the employee fell short of the Financial Conduct Authority’s (“FCA”) ‘fit and proper person’ requirements that are set out in the FCA Handbook.

Judge holding gavel in courtroom

Background

In an earlier decision, the Employment Tribunal (“ET”) had dismissed the employee’s disability discrimination case, finding that his evidence was ‘not credible in many respects’, including some evidence that the ET described as ‘clearly an untruth’. Furthermore, he had ‘misled’ the ET, which was of ‘grave concern’ given that the employee was an FCA regulated individual.

Jeffries then went on to dismiss the employee, who was an ‘approved person’ under the FCA rules, alleging that his behaviour ‘was not compatible with his being a fit and proper person for the purposes of the FCA rules’. The firm relied on the ET’s findings rather than conducting its own further investigations into the employee’s misconduct.

Fit and proper person test

The FCA will only allow a person to be authorised as an ‘approved person’ to perform an FCA controlled function within a firm if they are a ‘fit and proper person’ for that role.

SUP10A of the FCA Handbook directs firms to the FIT section of the Handbook (Fit and Proper test for Employees and Senior Personnel Sourcebook) for further guidance on the criteria.

FIT details the most important considerations to be someone’s:

  • Honesty, integrity and reputation;
  • Competence and capability; and
  • Financial soundness.

FIT also applies to firms subject to the Senior Managers and Certification Regime (“SM&CR”). For these firms, there is also a continuing obligation on firms to ensure that approved persons continue to be fit and proper.

Specifically relevant to this case is the Guidance at FIT 2.1.3G (10), which says that the FCA can take into account whether a person has been publically or privately criticised by a court or tribunal when assessing whether that individual is ‘fit and proper’.

EAT found in favour of Jeffries

Following an appeal by the employee against his dismissal by Jeffries, the EAT held that it was reasonable for the employer to rely on the ET’s findings and so to dismiss the employee.

It was enough that a tribunal had questioned the employee’s creditability and so Jeffries did not need to make investigations and establish an employee’s dishonesty.

Comment

While the EAT did not consider the FCA rules per se, the case provides useful guidance for firms on the criteria for assessing ‘fit and proper’ in the context of credibility as a witness in court or tribunal proceedings. The case also shows that if a staff member falls short of that standard for FCA regulated persons, this can be grounds enough for dismissal.

The approved person’s regime will be replaced when the scope of the SM&CR extends to all authorised firms from December 2019. However, as highlighted above, there is a significant overlap on the rules in relation to ‘fit and proper person’.

Arguably, the move to SM&CR will mean that firms need an even firmer grasp on the fit and proper person test. This is because the regime will require all firms to certify certain staff (rather than applying to the FCA for approval). Therefore, guidance on the application of the FIT rules, such as provided for in the Jeffries case, will remain applicable and prove useful for firms going forwards.

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Garon Anthony, Squire Patton Boggs, litigation attorney
Partner

Garon Anthony is a partner in the Litigation Practice Group. He has specialised in dispute resolution work since he qualified as a solicitor and has considerable experience in general corporate and commercial litigation work, acting for both private and public sector clients.

Garon regularly resolves disputes for clients in the financial services/insurance sector. That encompasses professional negligence, fraud issues/recovery processes, dealing with claims and complaints by customers of the mis-selling of retail products, handling insurance policy coverage disputes for corporate...

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