Content Options

View Options

Status: You are viewing the version of the handbook as on 2009-03-31.

DEPP 6.2 Deciding whether to take action

DEPP 6.2.1GRP

The FSA will consider the full circumstances of each case when determining whether or not to take action for a financial penalty or public censure. Set out below is a list of factors that may be relevant for this purpose. The list is not exhaustive: not all of these factors may be applicable in a particular case, and there may be other factors, not listed, that are relevant.

  1. (1)

    The nature, seriousness and impact of the suspected breach, including:

    1. (a)

      whether the breach was deliberate or reckless;

    2. (b)

      the duration and frequency of the breach;

    3. (c)

      the amount of any benefit gained or loss avoided as a result of the breach;

    4. (d)

      whether the breach reveals serious or systemic weaknesses of the management systems or internal controls relating to all or part of a person's business;

    5. (e)

      the impact or potential impact of the breach on the orderliness of markets including whether confidence in those markets has been damaged or put at risk;

    6. (f)

      the loss or risk of loss caused to consumers or other market users;

    7. (g)

      the nature and extent of any financial crime facilitated, occasioned or otherwise attributable to the breach; and

    8. (h)

      whether there are a number of smaller issues, which individually may not justify disciplinary action, but which do so when taken collectively.

  2. (2)

    The conduct of the person after the breach, including the following:

    1. (a)

      how quickly, effectively and completely the person brought the breach to the attention of the FSA or another relevant regulatory authority;

    2. (b)

      the degree of co-operation the person showed during the investigation of the breach;

    3. (c)

      any remedial steps the person has taken in respect of the breach;

    4. (d)

      the likelihood that the same type of breach (whether on the part of the person under investigation or others) will recur if no action is taken;

    5. (e)

      whether the person concerned has complied with any requirements or rulings of another regulatory authority relating to his behaviour (for example, where relevant, those of the Takeover Panel or an RIE); and

    6. (f)

      the nature and extent of any false or inaccurate information given by the person and whether the information appears to have been given in an attempt to knowingly mislead the FSA.

  3. (3)

    The previous disciplinary record and compliance history of the person including:

    1. (a)

      whether the FSA (or any previous regulator) has taken any previous disciplinary action resulting in adverse findings against the person;

    2. (b)

      whether the person has previously undertaken not to do a particular act or engage in particular behaviour;

    3. (c)

      whether the FSA (or any previous regulator) has previously taken protective action in respect of a firm, using its own initiative powers, by means of a variation of a Part IV permission or otherwise, or has previously requested the firm to take remedial action, and the extent to which such action has been taken; and

    4. (d)

      the general compliance history of the person, including whether the FSA (or any previous regulator) has previously issued the person with a private warning.

  4. (4)

    FSA guidance and other published materials:

    The FSA will not take action against a person for behaviour that it considers to be in line with guidance, other materials published by the FSA in support of the Handbook or FSA-confirmed Industry Guidance which were current at the time of the behaviour in question. (The manner in which guidance and other published materials may otherwise be relevant to an enforcement case is described in EG 2.)

  5. (5)

    Action taken by the FSA in previous similar cases.

  6. (6)

    Action taken by other domestic or international regulatory authorities:

    Where other regulatory authorities propose to take action in respect of the breach which is under consideration by the FSA, or one similar to it, the FSA will consider whether the other authority's action would be adequate to address the FSA's concerns, or whether it would be appropriate for the FSA to take its own action.

DEPP 6.2.2GRP

When deciding whether to take action for market abuse or requiring or encouraging, the FSA may consider the following additional factors:

  1. (1)

    The degree of sophistication of the users of the market in question, the size and liquidity of the market, and the susceptibility of the market to market abuse.

  2. (2)

    The impact, having regard to the nature of the behaviour, that any financial penalty or public censure may have on the financial markets or on the interests of consumers:

    1. (a)

      a penalty may show that high standards of market conduct are being enforced in the financial markets, and may bolster market confidence;

    2. (b)

      a penalty may protect the interests of consumers by deterring future market abuse and improving standards of conduct in a market;

    3. (c)

      in the context of a takeover bid, the FSA may consider that the impact of the use of its powers is likely to have an adverse effect on the timing or outcome of that bid, and therefore it would not be in the interests of financial markets or consumers to take action for market abuse during the takeover bid. If the FSA considers that the proposed use of its powers may have that effect, it will consult the Takeover Panel and give due weight to its views.

DEPP 6.2.2AGRP

2The factors to which the FSA will have regard when deciding whether to impose a penalty under regulation 34 of the RCB Regulations are set out in RCB 4.2.3 G.

Discipline for breaches of FSA rules on systems and controls against money laundering

DEPP 6.2.3GRP

The FSA's rules on systems and controls against money laundering are set out in SYSC 3.2 and SYSC 6.3. The FSA, when considering whether to take action for a financial penalty or censure in respect of a breach of those rules, will have regard to whether a firm has followed relevant provisions in the Guidance for the UK financial sector issued by the Joint Money Laundering Steering Group.

Action against approved persons under section 66 of the Act

DEPP 6.2.4GRP

The primary responsibility for ensuring compliance with a firm's regulatory obligations rests with the firm itself. However, the FSA may take disciplinary action against an approved person where there is evidence of personal culpability on the part of that approved person. Personal culpability arises where the behaviour was deliberate or where the approved person's standard of behaviour was below that which would be reasonable in all the circumstances at the time of the conduct concerned.

DEPP 6.2.5GRP

In some cases it may not be appropriate to take disciplinary measures against a firm for the actions of an approved person (an example might be where the firm can show that it took all reasonable steps to prevent the breach). In other cases, it may be appropriate for the FSA to take action against both the firm and the approved person. For example, a firm may have breached the rule requiring it to take reasonable care to establish and maintain such systems and controls as are appropriate to its business (SYSC 3.1.1 R or SYSC 4.1.10 R), and an approved person may have taken advantage of those deficiencies to front run orders or misappropriate assets.

DEPP 6.2.6GRP

In addition to the general factors outlined in DEPP 6.2.1 G, there are some additional considerations that may be relevant when deciding whether to take action against an approved person pursuant to section 66 of the Act. This list of those considerations is non-exhaustive. Not all considerations below may be relevant in every case, and there may be other considerations, not listed, that are relevant.

  1. (1)

    The approved person's position and responsibilities. The FSA may take into account the responsibility of those exercising significant influence functions in the firm for the conduct of the firm. The more senior the approved person responsible for the misconduct, the more seriously the FSA is likely to view the misconduct, and therefore the more likely it is to take action against the approved person.

  2. (2)

    Whether disciplinary action against the firm rather than the approved person would be a more appropriate regulatory response.

  3. (3)

    Whether disciplinary action would be a proportionate response to the nature and seriousness of the breach by the approved person.

DEPP 6.2.7GRP

The FSA will not discipline approved persons on the basis of vicarious liability (that is, holding them responsible for the acts of others), provided appropriate delegation and supervision has taken place (see APER 4.6.13 G and APER 4.6.14 G). In particular, disciplinary action will not be taken against an approved person performing a significant influence function simply because a regulatory failure has occurred in an area of business for which he is responsible. The FSA will consider that an approved person performing a significant influence function may have breached Statements of Principle 5 to 7 only if his conduct was below the standard which would be reasonable in all the circumstances at the time of the conduct concerned (see also APER 3.1.8 G).

DEPP 6.2.8GRP

An approved person will not be in breach if he has exercised due and reasonable care when assessing information, has reached a reasonable conclusion and has acted on it.

DEPP 6.2.9GRP

Where disciplinary action is taken against an approved person the onus will be on the FSA to show that the approved person has been guilty of misconduct.

Action against directors, former directors and persons discharging managerial responsibilities for breaches under Part VI of the Act

DEPP 6.2.10GRP

The primary responsibility for ensuring compliance with Part VI of the Act, the Part 6 rules, the prospectus rules or a provision otherwise made in accordance with the Prospectus Directive or a requirement imposed under such provision rests with the persons identified in section 91(1) and section 91(1A) (Penalties for breach of Part 6 rules) of the Act respectively. Normally therefore, any disciplinary action taken by the FSA for contraventions of these obligations will in the first instance be against those persons.

DEPP 6.2.11GRP

However, in the case of a contravention by a person referred to in section 91(1)(a) or section 91(1)(b)(i) or section 91(1A) of the Act ("P"), where the FSA considers that another person who was at the material time a director of P was knowingly concerned in the contravention, the FSA may take disciplinary action against that person. In circumstances where the FSA does not consider it appropriate to seek a disciplinary sanction against P (notwithstanding a breach of relevant requirements by such person), the FSA may nonetheless seek a disciplinary sanction against any other person who was at the material time a director of P and was knowingly concerned in the contravention.

DEPP 6.2.12G

Persons discharging managerial responsibilities within an issuer and their connected persons, who have requested or approved the admission of a financial instrument to trading on a regulated market, and connected persons have their own responsibilities under the disclosure rules, as set out in DTR 3, for which they are primarily responsible. Accordingly, disciplinary action for a breach of the disclosure rules will not necessarily involve the issuer.

[Note: In paragraph 6.2.12, 'connected person' has the meaning in relation to a person discharging managerial responsibilities within an issuer attributed to it in subsection (5) of the definition of 'connected person' in the Handbook Glossary.]

DEPP 6.2.13GRP

In deciding whether to take action, the FSA will consider the full circumstances of each case. Factors that may be relevant for this purpose include, but are not limited to, the factors at DEPP 6.2.1 G.

Discipline for breaches of the Principles for Businesses

DEPP 6.2.14GRP

The Principles are set out in PRIN 2.1.1 R. The Principles are a general statement of the fundamental obligations of firms under the regulatory system. The Principles derive their authority from the FSA's rule-making powers set out in section 138(General rule-making power) of the Act. A breach of a Principle will make a firm liable to disciplinary action. Where the FSA considers this is appropriate, it will discipline a firm on the basis of the Principles alone.

DEPP 6.2.15GRP

In determining whether a Principle has been breached, it is necessary to look to the standard of conduct required by the Principle in question at the time. Under each of the Principles, the onus will be on the FSA to show that a firm has been at fault in some way.

Discipline for breaches of the Listing Principles

DEPP 6.2.16GRP

The Listing Principles are set out in LR 7. The Listing Principles are a general statement of the fundamental obligations of listed companies. The Listing Principles derive their authority from the FSA's rule making powers set out in section 73A(1) (Part 6 Rules) of the Act. A breach of a Listing Principle will make a listed company liable to disciplinary action by the FSA.

DEPP 6.2.17GRP

In determining whether a Listing Principle has been broken, it is necessary to look to the standard of conduct required by the Listing Principle in question. Under each of the Listing Principles, the onus will be on the FSA to show that a listed company has been at fault in some way. This requirement will differ depending upon the Listing Principle.

DEPP 6.2.18GRP

In certain cases, it may be appropriate to discipline a listed company on the basis of the Listing Principles alone. Examples include the following:

  1. (1)

    where there is no detailed listing rule which prohibits the behaviour in question, but the behaviour clearly contravenes a Listing Principle Principle;

  2. (2)

    where a listed company has committed a number of breaches of detailed rules which individually may not merit disciplinary action, but the cumulative effect of which indicates the breach of a Listing Principle.

Action involving other regulatory authorities or enforcement agencies

DEPP 6.2.19GRP

Some types of breach may potentially result not only in action by the FSA, but also action by other domestic or overseas regulatory authorities or enforcement agencies.

DEPP 6.2.20GRP

When deciding how to proceed in such cases, the FSA will examine the circumstances of the case, and consider, in the light of the relevant investigation, disciplinary and enforcement powers, whether it is appropriate for the FSA or another authority to take action to address the breach. The FSA will have regard to all the circumstances of the case including whether the other authority has adequate powers to address the breach in question.

DEPP 6.2.21GRP

In some cases, it may be appropriate for both the FSAand another authority to be involved, and for both to take action in a particular case arising from the same facts. For example, a breach of RIE rules may be so serious as to justify the FSA varying or cancelling the firm's Part IV permission, or withdrawing approval from approved persons, as well as action taken by the RIE. In such cases, the FSA will work with the relevant authority to ensure that cases are dealt with efficiently and fairly, under operating arrangements in place (if any) between the FSA and the relevant authority.

DEPP 6.2.22GRP

In relation to behaviour which may have happened or be happening in the context of a takeover bid, the FSA will refer to the Takeover Panel and give due weight to its views. Where the Takeover Code has procedures for complaint about any behaviour, the FSA expects parties to exhaust those procedures. The FSA will not, save in exceptional circumstances, take action under any of section 123 (FSA'spower to impose penalties), section 129 (Power of court to impose penalties), section 381 (Injunctions), sections 383 or 384 (Restitution) in respect of behaviour to which the Takeover Code is relevant before the conclusion of the procedures available under the Takeover Code.

1
DEPP 6.2.23GRP

The FSA will not take action against a person over behaviour which (a) conforms with the Takeover Code or rules of an RIE and (b) falls within the terms of any provision of the Code of Market Conduct which states that behaviour so conforming does not amount to market abuse. The FSA will seek the Takeover Panel's or relevant RIE's views on whether behaviour complies with the Takeover Code or RIE rules and will attach considerable weight to its views.

DEPP 6.2.24GRP

If any of the circumstances in DEPP 6.2.26 G apply, and the FSA considers that the use of its disciplinary powers under section 123 or section 129, or of its injunctive powers under section 381 or of its powers relating to restitution under section 383 or 384 is appropriate, it will not take action during an offer to which the Takeover Code applies except in the circumstances set out in DEPP 6.2.27 G.

DEPP 6.2.25GRP

In any case where the FSA considers that the use of its powers under any of sections 123, 129, 381, 383 or 384 of the Act may be appropriate, if that use may affect the timetable or outcome of a takeover bid or where it is appropriate in the context of any exercise by the Takeover Panel of its powers and authority, the FSA will consult the Takeover Panel before using any of those powers.

DEPP 6.2.26GRP

Where the behaviour of a person which amounts to market abuse is behaviour to which the Takeover Code is relevant, the use of the Takeover Panel's powers will often be sufficient to address the relevant concerns. In cases where this is not so, the FSA will need to consider whether it is appropriate to use any of its own powers under the market abuse regime. The principal circumstances in which the FSA is likely to consider such exercise are:

  1. (1)

    where the behaviour falls within sections 118(2), 118(3) or 118(4) of the Act;

  2. (2)

    where the FSA's approach in previous similar cases (which may have happened otherwise than in the context of a takeover bid) suggests that a financial penalty should be imposed;

  3. (3)

    where the behaviour extends to securities or a class of securities which may be outside the Takeover Panel's jurisdiction;

  4. (4)

    where the behaviour threatens or has threatened the stability of the financial system; and

  5. (5)

    where for any other reason the Takeover Panel asks the FSA to consider the use of any of its powers referred to in DEPP 6.2.22 G.

[Note: In this section, 'securities' has the same meaning given in subsection (1) of the definition of 'security' in the Handbook Glossary]

DEPP 6.2.27GRP

The exceptional circumstances in which the FSA will consider the use of powers during a takeover bid are listed in DEPP 6.2.26G (1), DEPP 6.2.26G (3) and DEPP 6.2.26G (4), and, depending on the circumstances, DEPP 6.2.26G (5).

DEPP 6.2.28G

[deleted]2

2