The Court of Appeal has broadly upheld the FCA's appeal against the Upper Tribunal's decision in the case of Mr Markos Markou, the director of a mortgage brokerage firm. The result is that Mr Markou has been prohibited from the financial services industry for a lack of integrity and fined £10,000.
Mr Markou, the CEO and sole director of Financial Solutions (Euro) Limited (FSE), initially received a Decision Notice from the FCA. This Decision Notice found that he lacked integrity, was not fit and proper, and that his approval should be withdrawn. It also stated that he should be prohibited from any involvement in regulated activities. It imposed a financial penalty of £25,000. The FCA's decision was based on findings that Mr Markou had failed to implement the FSE's anti-fraud policies, inadequately supervised mortgage advisers, and allowed the firm to conduct regulated activities without professional indemnity insurance (PII).
Mr Markou then referred the Decision Notice to the Upper Tribunal. The Tribunal allowed the reference, determining that his conduct was not reckless and did not demonstrate a failure to act with integrity. It decided that the FCA should impose no penalty or disciplinary sanction. However, it found that Mr Markou had not ensured that FSE refrained from carrying out regulated mortgage activities without PII, and it referred the matter back to the FCA to decide what action it should take in light of its findings.
The FCA appealed the Tribunal's decision to the Court of Appeal:
- It challenged the Tribunal's finding that it lacked jurisdiction to address allegations that Mr Markou had misled both the FCA's Regulatory Decision Committee (RDC) and the Tribunal itself regarding its trading without PII. The Court of Appeal applied the test in the recent BlueCrest judgment (a Court of Appeal judgment), which effectively broadened the interpretation of the scope of the Upper Tribunal's jurisdiction. It found that the new allegations were sufficiently connected to the existing case to fall within the Tribunal's jurisdiction.
- The Court of Appeal applied (as had the Tribunal) the two-stage test for recklessness that considers both the awareness of risk (subjective element) and the reasonableness of taking that risk (objective element). Further, it noted that such recklessness, particularly in senior roles like a director or CEO, could demonstrate a lack of integrity, as these individuals are held to higher standards.
- On reviewing the facts, the Court of Appeal found that Mr Markou was aware of the risk of the FSE operating without PII, that his conduct in light of that was reckless and that such recklessness demonstrated a lack of integrity in a senior manager and CEO.
- Furthermore, the court found that the Tribunal was mistaken in clearing Mr Markou of recklessness concerning the evidence he provided, both in his witness statement and before the Tribunal, noting that this was self-evidently indicative of a lack of integrity.
- In addition, the Court of Appeal agreed in part with the FCA's assessment that Mr Markou failed to comply with the FSE's anti-mortgage fraud policies, specifically the requirement to obtain four months' worth of payslips and bank statements and to review each mortgage application file. The court held that partial adherence to a policy is not equivalent to its proper implementation. The court determined that Mr Markou had taken a deliberate decision not to adhere to the policy that he had chosen to adopt, and that he had not notified the FCA. His actions in this respect also constituted recklessness, inconsistent with the integrity to be expected of a senior manager.
- The Court of Appeal did, however, uphold the Tribunal's decision on one of the grounds, which concerned the alleged inadequacy of supervision over the two mortgage advisers.
The result was that the appeal was allowed on several grounds and that the FCA's decision to withdraw approval and to prohibit Mr Markou were left to stand. However, the penalty was reduced to £10,000.
Comment
What is perhaps most noteworthy about the case is that it is a further example of a trend seen in recent years of the FCA's willingness to appeal Tribunal decisions to the Court of Appeal. Further, in contrast to the Seiler case, but in common with the BlueCrest case, it represents a win for the regulator, which may well embolden it taking such steps in future. Beyond this, the underlying details reinforce the high standards of conduct and integrity expected of senior managers in the financial services sector. It is an interesting case study of how recklessness can in appropriate circumstances lead to a finding of a lack of integrity.