The High Court has quashed an FSA decision to levy a £100,000 fine against a former senior banker over failures in supervision and risk management during the financial crisis.
The claimant, who has been granted anonymity, brought the judicial review proceedings to challenge a decision made by the Regulatory Decisions Committee to issue a decision notice against him in October 2010.
Where the FSA investigates a firm and believes action is justified, case papers are submitted to the RDC. The RDC decides whether to send out a warning notice informing the party involved that the FSA takes further action.
The firm or individual then has 28 days to argue its case to the RDC, after which point the RDC decides on the case and if appropriate issues a decision notice.
The RDC is separate from the FSA staff who investigate enforcement cases, but members of the RDC are accountable to the FSA board.
In this case, the claimant challenged the proposed £100,000 fine and decision notice on the basis that the RDC failed to provide the reasons behind the fine, which it has a duty to do.
The FSA argued it gave adequate reasons for the fine. It also argued a claim for a judicial review could not be pursued as the claimant could have taken his case to the Upper Tribunal, which hears appeals after the decision notice stage, and therefore there was no need for a judicial review.
The case was heard in private at the Royal Courts of Justice in London on April 3 and April 4, with a redacted version of the judgment published on May 25.
The judgment says following an RDC hearing the FSA issued a decision notice which stated that during a two week period in 2008, the claimant should have been aware of certain information which he failed to escalate.
The failure was said to have resulted in an incorrect public statement made about the bank the claimant worked for. The bank is also unnamed in the judgment.
The presiding judge in the case, Mr Justice Silber, found in favour of the claimant and agreed the RDC had not provided adequate reasons for its decision. It also agreed that the Upper Tribunal was not a suitable remedy for this case, as the Upper Tribunal cannot force the FSA to comply with its duty to explain why it is taking a particular action.
He also noted the claimant could not decide whether or not to go to the Tribunal without being armed with the reasons why action was being taken against him. Taking the case to Tribunal also poses the risk of higher penalties being imposed.
In the judgment Mr Justice Silber says: “The fundamental flaw in the decision notice is that it attempted to summarise the representations made by the claimant in great detail, but crucially did not explain why those representations had been rejected.
“I quash the decision of the FSA because the reasons in the decision notice were inadequate and the alternative remedy to a claim for judicial review of remitting the case to the Upper Tribunal is not suitable to determine the issue.”
The case will now have to be reconsidered by a different RDC.
The FSA says it is considering the judgment. It has not yet decided whether it will appeal the judgment.