Markos Markou v The Financial Conduct Authority [2023] UKUT 00101 (TCC)

‘Statement of Principle 1: An approved person must act with integrity in carrying out his accountable functions.’

“An approved person will only be in breach of a Statement of Principle where he is personally culpable. Personal culpability arises where an approved person's conduct was deliberate or where the approved person's standard of conduct was below that which would be reasonable in all the circumstances.”

“40. In Tinney v FCA [2018] UKUT 0435 (TCC) the Tribunal, having considered the cases of Hoodless and Blackwell v FSA (2003) and Vukelic v FSA (2009) at [10] and [11] set out the following guidance at [12] to [14] which we gratefully adopt: "12. The Tribunal in First Financial Advisors Limited v FSA [2012] UKUT B16 (TCC) agreed with the observation in Vukelic and endorsed the guidance in Hoodless and Atlantic Law. At [119], the Tribunal observed: "Even though a person might not have been dishonest, if they either lack an ethical compass, or their ethical compass to a material extent points them in the wrong direction, that person will lack integrity." "12. The Tribunal in First Financial Advisors Limited v FSA [2012] UKUT B16 (TCC) agreed with the observation in Vukelic and endorsed the guidance in Hoodless and Atlantic Law. At [119], the Tribunal observed: "Even though a person might not have been dishonest, if they either lack an ethical compass, or their ethical compass to a material extent points them in the wrong direction, that person will lack integrity." 13. We agree. A lack of integrity does not necessarily equate to dishonesty. While a person who acts dishonestly is obviously also acting without integrity, a person may lack integrity without being dishonest. One example of a lack of integrity not involving dishonesty is recklessness as to the truth of statements made to others who will or may rely on them or wilful disregard of information contradicting the truth of such statements. Such behaviour was found to be evidence of a lack of integrity by the Tribunal in Vukelic at [119]: "It may be that Mr Vukelic was not dishonest on this transaction in the sense of deliberately participating in a scheme to deceive and we are prepared to accept that he was not. But he turned a blind eye to what was obvious and failed to follow up obviously suspicious signs. We do not believe that an educated professional in a senior position could have been oblivious to the signs that the transaction depended on concealment for its success. It is possible, but unlikely, that Mr Vukelic simply failed to spot what should have been obvious to a person in his position. But if that had been so it would have resulted from an inexcusable failure to ask obvious questions." 14. The Tribunal in Allen v FSA (2009) adopted the view of the Tribunal in Vukelic that to turn a blind eye to the obvious and to fail to follow up obviously suspicious signs is a lack of integrity. We agree with the views expressed in Vukelic and Allen but note that 'recklessness' is a difficult concept that is not defined in the FSMA or Statements of Principle produced by the FCA. In R v G [2003] UKHL 50, [2004] 1 AC 1034 , the House of Lords construed 'recklessly' in the Criminal Damage Act 1971 as meaning that a person acts recklessly when he is aware of a risk that a circumstance exists or a result will occur and it is, in the circumstances known to him, unreasonable to take the risk. The House of Lords based its interpretation on the definition proposed by the Law Commission in clause 18(c) of the Criminal Code Bill annexed to its Report on Criminal Law: A Criminal Code for England and Wales and Draft Criminal Code Bill, Vol 1 (Law Com No 177, 1989). A similar definition of recklessness was included in a draft Bill for reforming the law of offences against the person, which the Government published in 1998 but did not take forward. The definition was quoted by Lady Hale and Lord Toulson, in a joint judgment, in Rhodes v OPO & Anor [2015] UKSC 32 at [84]. They pointed out that recklessness is a word capable of different shades of meaning and presents problems of definition. However, they set out the definition proposed by the Law Commission in a scoping consultation paper on Reform of Offences against the Person (LCCP 217, 2015): "A person acts recklessly with respect to a result if he is aware of a risk that it will occur and it is unreasonable to take that risk having regard to the circumstances as he knows or believes them to be." We adopt that proposed definition as an appropriate standard of recklessness in this case." 41. Mr Khan also drew our attention to the later Court of Appeal case of Wingate v SRA [2018] 1 WLR 3696. In that case Rupert Jackson LJ made the following observations at [95], [97], and [100] as to the standard of conduct expected of a professional person acting with integrity: "95. Let me now turn to integrity. As a matter of common parlance and as a matter of law, integrity is a broader concept than honesty… 97. In professional codes of conduct, the term "integrity" is a useful shorthand to express the higher standards which society expects from professional persons and which the professions expect from their own members. See the judgment of Sir Brian Leveson P in Williams at [130]. The underlying rationale is that the professions have a privileged and trusted role in society. In return they are required to live up to their own professional standards. … 100. Integrity connotes adherence to the ethical standards of one's own profession. That involves more than mere honesty. To take one example, a solicitor conducting negotiations or a barrister making submissions to a judge or arbitrator will take particular care not to mislead. Such a professional person is expected to be even more scrupulous about accuracy than a member of the general public in daily discourse." 42. Wingate concerned the standard of conduct expected of a solicitor. We accept that Mr Forsyth, as the Chief Executive of a regulated insurance firm, would likewise be expected to adhere to higher standards than those expected from general members of the public because of the trust that the public rightly put in those who lead regulated financial services firms. This is one of the ways of distinguishing "integrity" from "honesty". The latter concept is a basic moral quality which is expected of all members of society. Honesty involves being truthful about important matters and respecting the property rights of others. Telling lies about things that matter or committing fraud or stealing are generally regarded as dishonest conduct: See Wingate at [93]. It follows that a person who is dishonest in his conduct is guilty of more serious misconduct than a person who acts without integrity. That is why regulators are usually astute in identifying whether they characterise the conduct of which they complain as demonstrating a lack of honesty as opposed to a lack of integrity. 43. It is clear that there are both subjective and objective elements to the test of what constitutes a lack of integrity. As is now the case with an allegation of dishonesty since the Supreme Court's judgment in Ivey v Genting [2017] 3 WLR 1212, the test is essentially objective but nevertheless involves having regard to the state of mind of the actor as well as the facts which the person concerned knew: see Wingate at [115] to [120]. 44. Therefore, as Mr Khan correctly submitted, in this case we may have regard to the actual state of Mr Forsyth's knowledge or belief as to the facts but there is no requirement that the Regulators prove that Mr Forsyth appreciated that what he had done constituted a failure to act with integrity in the objective sense.”

“Reckless behaviour is capable of being characterised as a lack of integrity, and in determining whether behaviour is reckless regard must be had to what would reasonably have been appreciated or understood by persons in the same position as the individual in question. The standard to be applied is an objective one and does not depend on the particular knowledge the individual may, or may not have, of the risk in question. In the regulatory context with which we are concerned, a reckless failure to consider whether something is a risk may equally be found to amount to lack of integrity, as could be a reckless disregard of a known risk.”

“A person acts recklessly with respect to a result if he is aware of a risk that it will occur and it is unreasonable to take that risk having regard to the circumstances as he knows or believes them to be.”

“(5). In the case of a disciplinary reference or a reference under section 393(11), the Tribunal- (a) must determine what (if any) is the appropriate action for the decision-maker to take in relation to the matter, and (b) on determining the reference, must remit the matter to the decision-maker with such directions (if any) as the Tribunal consider appropriate for giving effect to its determination. (6). In any other case, the Tribunal must determine the reference or appeal by either- (a). dismissing it; or (b) remitting the matter to the decision-maker with a direction to reconsider and reach a decision in accordance with the findings of the Tribunal. (6A) The findings mentioned in subsection (6) (b) are limited to findings as to- (a) issues of fact or law; (b) the matters to be, or not to be, taken into account in making the decision; and (c) the procedural or other steps to be taken in connection with the making of the decision. (7) The decision-maker must act in accordance with the determination of, and any direction given by, the Tribunal.”

‘We have done so, and in the familiar phrase, the time has come to say once and for all that the civil standard of proof applies in relation to all disciplinary and non-disciplinary references made to this Tribunal pursuant to FSMA.’

"48. In this regard I would say something about the importance of contemporary documents as a means of getting at the truth, not only of what was going on, but also as to the motivation and state of mind of those concerned. That applies to documents passing between the parties, but with even greater force to a party's internal documents including emails and instant messaging. Those tend to be the documents where a witness's guard is down and their true thoughts are plain to see. Indeed, it has become a commonplace of judgments in commercial cases where there is often extensive disclosure to emphasise the importance of the contemporary documents. Although this cannot be regarded as a rule of law, those documents are generally regarded as far more reliable than the oral evidence of witnesses, still less their demeanour while giving evidence. The classic statement of Robert Goff LJ in The Ocean Frost [1985] 1 Lloyd's Rep 1 at p.57 is frequently, indeed routinely, cited: "

“… FSE was not trading and could not pay the fees as it was prevented from renewing its PII, solely because of the failure of the Authority to conclude investigations that had been opened against both the Applicant and Mr Markou personally as regards, among other things, FSE’s policies and procedures aimed at countering mortgage fraud. … We regard Mr Markou as an honest witness who gave consistent and credible answers under cross-examination. We therefore have no hesitation in accepting his evidence which to a significant degree was corroborated by the documentary evidence that we saw. In particular, Mr Markou was mindful of his and his firm’s legal and regulatory obligations and demonstrated to us a willingness to comply with those obligations wherever possible in relation to the matters which are the subject of this reference. That was clearly demonstrated by his voluntary act in ensuring that FSE carried on no further regulated activity once issues had been raised in a supervision visit that place in 2017 and the impact that had on the ability of FSE to obtain PII…” b. At [34]: “It appears from his own evidence that Mr Markou was aware that Barclays’ action had prompted the visit. He notified his insurance brokers of this development at the same time, which happened to coincide with the time that FSE’s PII came up for renewal. FSE’s PII was due to expire on 11 May 2017 and clearly this development was material in the context of the renewal. Accordingly, after discussion with the broker, Mr Markou decided not to renew FSE’s PII until the outcome of the visit was known and that FSE would cease to undertake any new business in the meantime.” c. At [45]: “FSE decided not to take steps to renew its PII until the position following the Supervision Visit had been clarified. FSE maintained its decision not to undertake any new business until it had been able to obtain PII. Accordingly, it asked its brokers, Oak Insurance Services to arrange cover. The brokers were unsuccessful in doing so.” d. At [52]: “Following FSE’s decision not to undertake any new regulated activity in the light of the results of the Supervision Visit and its consequential failure to obtain renewal of its PII, it was not surprising that FSE and Mr Markou hoped that the position regarding the instigation of any enforcement proceedings would be known as soon as possible. We observe that the Authority took no steps to exercise its supervisory powers to prevent FSE carrying on any regulated business following FSE’s refusal to cancel its permission voluntarily and we assume therefore that the Authority took the view that the concerns it had expressed in the Supervision Letter were not so serious that they merited further supervisory action.” e. At [68] & [69]: “During his cross-examination, Mr Markou explained that due to the fact that FSE ceased to trade after 9 May 2017, it did not have the resources to pay the outstanding fees. The firm did have some income after that date, some £13,000 according to its last financial return. Mr Markou explained that 85% of that income is payable to the advisors who had placed the business to which the income related so that there was very little income available to pay the firm’s other debts. Mr Markou explained that he had used his own resources to pay some of the firm’s other debts. The usual practice of the firm was to pay the Authority’s fees out of current income rather than make provision for them in earlier accounting periods, on the basis that on the assumption that the firm was continuing to trade, there would be sufficient income to pay the fees as they became due. … We accept Mr Markou’s evidence on this point and also his further evidence given in cross-examination that had the firm had the resources to do so the fees would have been paid, but that those resources were not available because of the decision taken by the firm to cease trading pending the resolution of the issues that arose after the Supervision Visit...” f. At [90] & [91]: “90. In our view, FSE also acted responsibly and prudently in ceasing to carry on any regulated activities once the concerns in the Supervision Letter had been expressed and by deciding to await further developments rather than attempt to renew its PII immediately. Clearly, the risk to consumers has been mitigated by that approach…. 91. In those circumstances, we find as a matter of fact that after 9 May 2017 FSE was managing its business in such a way as to ensure that its affairs were being conducted in a sound and prudent manner. It did everything it reasonably could to push the enforcement process along. It was of course, open to the Authority at that point to use its supervisory powers to put the cessation of business for the time being on a formal footing until circumstances changed by varying FSE’s Part 4A permission by, for example, making it a condition that it did not resume trading until it obtained PII and paid its outstanding fees. It is clear from our findings of fact that had such an instruction been given, then the Authority would not have pursued the cancellation of the firm’s Part 4A permission and then could have pursued the enforcement investigations which, if the outcome was favourable to FSE, would have enabled it to resume trading because it would then be likely that it would be in a position to pay the fees and obtain PII. We therefore agree with the RDC’s observation that without the investigation being pursued and the firm not being in a position to trade it was indeed caught in a “vicious circle”. 92. Because the Authority treated the case simply as a routine case of a firm simply failing to have PII and pay its fees, and it is clear from our findings of fact that there was more to the case than that, it follows that the Authority has failed to take into account a number of relevant factors in reaching its decision. As the authorities we have referred to above demonstrate, that in itself justifies us allowing the reference and referring the matter back for reconsideration.” [Emphasis Added]

“That was because since the 9 May 2017, I stopped trading because I was more or less told -- well I was told, basically, that I shouldn't trade any longer until the matter is resolved. I have not traded -- there's been no new business from 9 May 2017 and the actual PII ended on 12 May but, actually, it wasn't until July that they confirmed that they were not renewing.”

“I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase ‘privity of interest’.”

“Issue estoppel may arise when a particular issue forming a necessary ingredient in a cause of action has been litigated and decided and in subsequent proceedings between the same parties involving a different cause of action to which the same issue is relevant, one of the parties seeks to reopen that issue.”

“Unusually, the Authority filed no witness evidence. That is surprising, bearing in mind that the burden of proof lies on the Authority”

“…the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of a matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case.”

“FSE did not submit any new mortgage business after 9 May 2017. The only moneyreceived to matters dealt with prior to 9 May 2017 and related to fees earned prior to this date.”

“Even if Mr Markou is incorrect in respect of whether there was a direct finding on this issue, it was a matter which the FCA could have introduced evidence upon, and assuch it is now an abuse for the FCA to attempt to assert that it can prove this issue toa finding which would be in direct conflict with the UT’s finding that FSE was nottrading at the material time.”

‘the circumstances, the evidence and the allegations before the Regulatory Decisions Committee (‘RDC’), and not the decision, are "the subject-matter of the reference"’

“In this case, I do not consider that the charge made against Mr Allen has changed. My view is that, as recognised by the Tribunal in Parker, there is a distinction between an allegation or charge and the evidence relating to it. I consider that the allegation in this case is that Mr Allen is not fit and proper to perform any function in relation to regulated activities because he lacks honesty and integrity. It follows that the ‘matter referred’ or ‘subject-matter of the reference’ in this case is whether Mr Allen is a fit and proper person. I regard the circumstances pleaded in the original and amended Statement of Case as evidence that relates to that allegation. The Authority no longer relies on the evidence contained in the original Statement of Case for the reasons set out above. The Authority has not, however, withdrawn its allegation that Mr Allen is not a fit and proper person. The Authority now relies on other evidence which, it says, shows that Mr Allen is not a fit and proper person but the allegation is the same. The factual situation in Parker was, in my view, different. In that case, the allegation was of market abuse relating to specific dealings in shares. Market abuse in relation to other share transactions would be a new allegation involving separate misconduct, albeit of the same type. In the case of Mr Allen, the allegation is general rather than specific. The allegation is not that Mr Allan was not fit and proper in relation to a specific transaction or transactions. As the Tribunal held in Jabre, it is the allegations made in the Decision Notice and the circumstances on which these are based that comprise the matter referred. The allegation in the Decision Notice was that Mr Allen is not a fit and proper person to perform any function in relation to regulated activities generally because he lacks honesty and integrity. Any evidence that relates to Mr Allen’s honesty and integrity, whether or not it was available to the Authority at the time of the Decision Notice, may be considered by the Upper Tribunal.”

“87. As we indicated above this position is not satisfactory. It is to be expected that in normal circumstances the Authority should maintain the same case as it set out in its Warning Notice and on which the subject would have framed his representations before the RDC. As the case of Allen v FCA (FS/2012/0019) indicates, there can be a departure from this position where new circumstances come to light after a Warning Notice has been issued but we are not convinced that the subject matter of the reference embraces matters that were raised by the RDC on its own initiative but which do not relate to a change in circumstances without those circumstances having been the subject of a full investigation and the Warning Notice procedure.”

“That was because since the 9 May 2017, I stopped trading because I was more or less told -- well I was told, basically, that I shouldn't trade any longer until the matter is resolved. I have not traded -- there's been no new business from 9 May 2017 and the actual PII ended on 12 May but, actually, it wasn't until July that they confirmed that they were not renewing.” 58.3. However, the Applicant repeated at various times the evidence that FSE “did not trade” without any qualification. 58.4. The FSE Tribunal found as fact that FSE “did not trade”: FSE Tribunal Decision [4], [62], [66], [68], [69], [88]. 59. It follows, therefore, that the Applicant, directly and through his counsel, has adopted inconsistent positions. The Authority considers that the assertion that FSE “did not trade” was misleading by omission as the Applicant should have been clear that FSE in fact carried on regulated activities beyond 9 May 2017 without PII in place and indeed beyond 10 July 2017 (the date on which the Applicant knew the PII had expired and would not be renewed). The Applicant has provided unclear and contradictory evidence regarding this activity. 60. In particular, in paragraph 19 of his written submissions to the RDC dated 11 September 2020, the Applicant stated: “FSE did not submit any new mortgage business after 9 May 2017. The only money received to matters dealt with prior to 9 May 2017 and related to fees earned prior to this date.”

“Even if Mr Markou is incorrect in respect of whether there was a direct finding on this issue, it was a matter which the FCA could have introduced evidence upon, and as such it is now an abuse for the FCA to attempt to assert that it can prove this issue to a finding which would be in direct conflict with the UT’s finding that FSE was not trading at the material time.” 62. By asserting “abuse” the Applicant appears to suggest that the Authority should not be permitted to rely on facts that are now accepted by the Applicant to be true, namely that FSE was indeed submitting mortgage applications (and thereby carrying on regulated activity) after 9 May 2017, despite his denial that it was “trading”

“Yes, I understand that if there is a suspicion, there is a suspicion and you look into it.”

‘8. One of the biggest “wrongs” committed by the Authority, is in relation to the manner in which they stated that I have lied in my witness statement dated 2 December 2019, which was used in the above case. The Authority allege that I lied, in that I accepted new business under FSE after 9 May 2017, despite being expressly advised that no new work was to be undertaken after that date (and I voluntarily agreed to that as set out in my email of 10 May 2017 (00:16). References are made by the Authority to mortgage applications being submitted after 9 May 2017. These have not been disclosed to us by the Authority despite us requesting full and frank disclosure of all such documentation, but in any event, my position remains unchanged. No new work was undertaken by FSE. 9. Further, and more importantly, despite referring to the fact that FSE would complete “ongoing business” taken on prior to 9 May 2017, the reality of the situation was that there was no such work undertaken. The Authority refer to the relevant date being 14 October 2017, which is completely inaccurate and this based upon the submission of a residential mortgage application (which has not been disclosed to us), which is vehemently denied as this work was not undertaken by FSE. Therefore, there was no period of time whereby FSE undertook work without insurance in place as the PII insurance expired on 12 May 2017. 10.To be clear, the only matters undertaken by FSE were routine accounting aspects, which were incapable of being dealt with in advance, as the drawdown of the facilities (or otherwise) had not yet completed and the timeframe for doing so was unknown to us.’

‘27. Of the 10 [mortgage] applications identified by the Authority as occurring after 11 May 2017, the vast majority of these are irrelevant in the context of the Authority’s decision in any case, which, per para 2.2 of the RDC Decision Notice (Document C.013 at page 2 thereof), was that the Applicant’s failing “was to prevent FSE fromtransacting mortgage business between 10 July 2017 and 14 October 2017”. Only 3 of the 10 applications were submitted after 10 July 2017, with the others all being submitted earlier than that.’

“I think there is about three cases that I identified that were posted after and they were done by Agnieszka”

“So, the error there was that when Agnieszka put it through, and/or Jowita, the three cases we are talking about, that was the time when there was not, there was not PII insurance and that is a fact so I cannot argue with that.”

“[A]nything after the 9th [May 2017] that appears that have been discussed and shown afterwards were regulated business, nothing else except for regulated business. And of those that were submitted, three of them were, did not have PII cover.”

“That is just something I had assumed because I had told Agnieszka and Jowita not to do any new business.”

“[W]hen the new warning notice came on 23 July 2020 I think it was, when it was pointed out, that is when I started to address my mind to that.”

“Q. Is this the same evidence that you gave to the Upper Tribunal? A. In what respect, sorry? The position has been the same. After they came, I said there is going to be no new business, no one walked through the door and said "Can I have a mortgage", we did not do that. Anything was there that was ongoing, Agnieszka and Jowita finished it off and that was it.” “Q. Is it your belief that paragraph 9 [of the witness statement dated 25 April 2022] is the same evidence that you gave to the Upper Tribunal in the FSE reference? A. What I have just said now is what the evidence is, and I would say that this is along the same lines of exactly what I am saying, both of those paragraphs are saying the same thing.”