Financial Institutions FSDR e-briefing: FCA publishes Decision Notice banning and fining former NED for conflicts of interest failings

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12-07-2013

FCA publishes Decision Notice banning and fining former NED for conflicts of interest failings

 Summary

On 24 May 2013, the FCA published the Decision Notice issued to Angela Burns, a former non-executive director (NED) at two mutual societies for failing to disclose her conflicts of interest.

The FSA imposed a financial penalty of £154,800 on Ms Burns for breaching Statement of Principle 1 (integrity) of the FCA’s Statements of Principle for Approved Persons (APER).  It also banned Ms Burns from performing any significant influence function relating to any regulated activity.

Failings

The Decision Notice concerns Ms Burns’ conduct in a personal capacity while holding the CF2 (NED) controlled function at two mutual societies and her use of those positions for her own longer term benefit. 

In 2006, Ms Burns completed a consultancy project for a US based investment manager.  Shortly after she completed this project, Ms Burns asked the investment manager for the opportunity to turn her proposal into a UK business.  The investment manager did not take her up on her proposal but she stayed in touch with them.

In September 2008, Ms Burns put forward a proposal outlining the consultancy work she could perform for the investment manager.

In January 2009 and May 2010, Ms Burns became a NED and chair of the investment committee for two UK mutual societies.  Upon taking up her NED positions, Ms Burns notified the investment manager of her new roles and renewed her request for consultancy work.

Ms Burns did not tell the mutual societies that she was at the same time trying to obtain work from the investment manager and, in the FCA’s opinion, attempted to use her NED positions to benefit herself when she emailed the investment manager on:

• 24 February 2009, notifying it of the potential business opportunity at one of the mutual societies and in the same email reminded the investment manager of her interest in obtaining consultancy work and a NED position from the investment manager; 
• 26 February 2009, reminding it of the potential business opportunity at one of the mutual societies and in the same email asked the investment manager to consider her for a role as a NED; and 
• 5 November 2010, reminding the investment manager of her 2008 proposal.

During Ms Burns’ tenure as NED and chair of the investment committees at both mutual societies, one mutual society placed a £350 million mandate and the other was considering placing a £750 million mandate with the investment manager.

In the FCA’s opinion, Ms Burns had a duty to disclose her interest in seeking consultancy work from the investment manager to her fellow mutual society directors.  Ms Burns made no such disclosure.  In the FCA’s view, Ms Burns also attempted to use her NED positions inappropriately to benefit herself.

Comment

This case demonstrates the FCA’s determination to pursue enforcement action against individuals, unusually in this instance against a NED.  In the press release accompanying the Decision Notice, Tracey McDermott, FCA Director of Enforcement and Financial Crime, expressly warned NEDs that they need to manage their conflicts of interest scrupulously and to observe principles of corporate governance.  She stated, “The position of NEDs is critical to the effective functioning of a board and to maintaining the confidence of customers.  Because of the nature of their role, NEDs are more likely to have a portfolio of appointments and are likely to find themselves having to manage conflicts of interest more frequently than their fellow directors.”

The case is also relevant to the FCA’s relatively new power to publish Decision Notices (following amendments to section 391 of the Financial Services and Markets Act 2000, the Financial Services Act 2010 gave the FCA the power to publish Decision Notices, as well as Final Notices).  Ms Burns applied to the Upper Tribunal for an order preventing the FCA from publishing the Decision Notice, however, her application was unsuccessful.  Ms Burns did not accept the findings of the FCA and has referred the matter to the Upper Tribunal who will ultimately determine the appropriate action for the FCA to take: either upholding, varying or cancelling the FCA’s decision.