Upper Tribunal Overturns UK Financial Services Authority Fine and Find - PDF document

Upper Tribunal Overturns UK Financial Services Authority Fine and Findings Against a CEO and Compliance Of�cer John Pottage v. FSA (FS/2010/0033) If you have any questions regarding the matters discussed in this memorandum, please contact the following attorneys or call your regular Skadden contact.This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its aliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable WWW. BCijinE • Boston • BrussCls • AF • Frurt • FonE onE • Fouston • ondon • os AnEClCs • Mosow • MAF • Cw Yorklo lto • pAris • o pulo • Telephone: + 44.20.7519.7000Four Times Square, New York, NY 10036Telephone: +1.212.735.3000 2 by then a series of new compliance failings was emerging. vhese included allegations of payment fraud. breach of client money rules. noncompliance with withholding tax obligations and unauthorkn order to comply with his regulatory obligations. the FuA argued that rottage should have:questioned the assurances he received that there were no fundamental de�ciencies with the design and operation of risk management and governance procedures. vhe FuA said that he should not simply have accepted what he was told and should have veri�ed carried out a continuous process of monitoring that would have allowed him to appreciate sooner than he did. in the face of a series of “warning signals.” that there were recognised that there were fundamental de�ciencies and implemented an operational risk review sooner.rottage’s meetings and discussions with risk and compliance staff. group internal audit. the COO and The Tribunal’s Decisionvhe vribunal found that the FuA did not establish its case of regulatory misconduct against rottage. although it accepted that there were “serious �aws” in the operational effectiveness of wdu’ risk FuA rules provide that an approved person only will be in breach of a utatement of rrinciple where he is personally culpable. his conduct was “deliberate” or below that which is reasonable in all circumstances. jowever. the FuA did not allege that rottage’s conduct was deliberate or that simply because matters went wrong while rottage was CEO. there had been a failure to take “reasonable care.” vhe FuA had to prove to the vribunal that the appropriate time for instituting the operational vhe vribunal’s view was that: on the basis of the evidence. rottage did take an active role in meetings with the risk there was insuf�cient evidence apparent to rottage that there were �aws that needed there was insuf�cient evidence apparent to rottage that called for a major systematic overhaul of wdu’ systems and controls — the “warning signals” should not have Although rottage was in a position of in�uence. the vribunal accepted that he “did not have the authority to make changes to the governance and risk management frameworks.” The Tribunal also noted that no one else in wdu risk or compliance had suggested that it was necessary to carry out a