Tribunal overturns FSA decision to fine CEO – John Pottage took on the role of UK Head of Wealth Management at UBS in 2006. Various compliance issues came to light between Mr Pottage’s appointment in September 2006 and July 2007. Mr Pottage directed detailed investigations of these issues as they arose and a comprehensive review of operational risks and controls in July 2007. Remedial action was taken following the investigations and an independent audit firm confirmed that the controls issues had been corrected.
The FSA decided to fine Mr Pottage £100,000 for breaches of Principle 7 of the Principles for Approved Persons, which requires reasonable steps to ensure that the business complies with regulatory rules and standards. The FSA viewed each of the compliance issues as warning signals of potential wider issues in governance and risk management at the firm. Mr Pottage viewed the earlier compliance issues as limited issues in back office operations and he initiated the full review only after an unauthorised trading incident came to light and there was evidence of wider governance and risk management failings.
The FSA claimed that Mr Pottage failed to initiate a comprehensive review of operational risks and controls on commencement of his role or in response to relevant warning signals. As a consequence the FSA claimed that Mr Pottage failed to implement improvements to systems and controls sufficiently quickly.
The Tribunal upheld Mr Pottage’s challenge to the FSA’s decision, determining that there was no evidence that Mr Pottage had breached his regulatory obligations and, hence, there was no misconduct.
Points of particular interest are:
- • the Tribunal recognised that senior managers do not have strict liability for failings within their area of responsibility; however, senior managers need to take reasonable steps to ensure compliance;
- • the Tribunal found that Mr Pottage was entitled to rely on advice from risk management and compliance specialists at the firm.
- CEOs cannot blindly trust the information provided from those responsible for risk management and compliance but, so long as they take reasonable steps to probe and verify that information, they can rely on it; and
- • this decision is unlikely to deter the FSA from bringing further enforcement actions against senior managers but enforcement staff are likely to scrutinise more carefully the roles of individuals and consider whether they have taken reasonable steps to fulfill their obligations.
Copies of the Tribunal decision and related FSA statement are available.
http://www.tribunals.gov.uk/financeandtax/Documents/decisions/John_Pottage_v_FSA_decision.pdf
http://www.fsa.gov.uk/library/communication/statements/2012/pottage.shtml
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