Upper Tribunal lays down approach to disgorgement in penalty reference. Jason Mansell leading Tom Coke-Smyth act for Arian Financial LLP

In a decision which will be of particular interest to FCA enforcement lawyers, following a reference in relation to penalty only, the Upper Tribunal reduced a financial penalty imposed by the FCA upon Arian Financial LLP  (the “Firm”)  from £744,745 to £288,962.35.  

The Firm was a broker that had brokered trades on behalf of clients introduced to it from Solo Capital LLP .  The Firm had aways accepted that in onboarding the clients and in the trading which subsequently followed it had breached Principles 2 and 3 of the FCA Principles for Business .  

The Firm challenged the FCA’s assessment of penalty at the Upper Tribunal and,  in particular, the approach taken by the regulator to the issue of disgorgement and the multiplier.    

At the hearing it was not in dispute that 80% of the commissions the Firm received because of the introduced business were on paid to the self-employed broker who undertook the trading pursuant to pre-existing contractual arrangements.  

In Sapien Capital   https://www.fca.org.uk/publication/final-notices/sapien-capital-limited-2021.pdf  , a similar case decided in 2021, the FCA’s RDC had deducted broker commissions from its disgorgement figure.  In the Firm’s case the FCA had declined to do so and therefore sought to disgorge the gross revenue it had received.  The Firm contended 20% of the revenue it received should be disgorged, the remaining 80% having been paid to the broker.  In rejecting the FCA’s approach, the Tribunal said, “to seek to disgorge the full amount of the commissions payable to the Applicant would in our view amount to the imposition of a further penal sanction beyond that arrived at by the application of Steps 2 to 4 of the policy framework.”

The Tribunal also laid down some useful fact specific but real-world guidance as the application of Steps One to Five of the FCA’s penalty assessment matrix.  In reducing the multiplier from 4 to 2 at Step Four, the Tribunal said “the higher the ratio between the penal figure and the disgorgement figure, the more likely it is that the credible deterrence objective will be achieved. This is an approach followed in other penalty regimes, particularly that related to tax penalties, where penalties are often imposed in an amount which represents a percentage of the relevant tax at stake.”

Jason and Tom were instructed by Jonathan Roper and Kimberly Shaw of Charterhouse Law LLP. 

A link to the full judgment is here.