In a Decision Notice dated 22 January 2016 the FCA's Regulatory Decisions Committee (RDC) determined that, whilst not dishonest, Arif Hussein, formerly a derivatives trader at UBS, lacked integrity because he "closed his mind" (i.e. was reckless) to the possibility that colleagues with LIBOR submission responsibilities would follow his stated preferences when making their submissions. The RDC imposed a prohibition which Hussein elected to appeal to the Upper Tribunal (the FCA was time-barred from additionally seeking a penalty). This article does not focus particularly on the facts of the Hussein matter, but rather its procedural and tactical learning points.
Before the Upper Tribunal, despite the finding in the RDC, the FCA's Statement of Case included an allegation that Hussein had acted dishonestly. It is well known to practitioners that FCA Enforcement can (and will) re-instate allegations rejected by the RDC in certain cases. The risk that RDC findings may get worse before the Upper Tribunal must therefore be taken into account when deciding whether to appeal, especially in cases on the margins of a more serious fitness and propriety finding than the RDC have reached. Whilst conceptually the ability of the FCA to have a second "bite at the cherry" jars with the RDC's status as a committee of the FCA, it is consistent with the Upper Tribunal providing a hearing de novo.
However, whilst the FCA may adapt its case before the Tribunal, it is an entirely different matter for an applicant to change his/her evidential position. Before the RDC, Hussein said that relevant communications with trader colleagues (who were also LIBOR submitters) were for the purpose of exploring internal hedging opportunities only. However, before the Upper Tribunal, Hussein also said that he believed that it was acceptable (indeed UBS best practice and something that he was aware of) for his trading positions to be taken into account by the LIBOR submitters, provided that this did not result in UBS being other than in the "middle of the pack" of LIBOR submitting Banks. As a result of this shift in position the FCA argued that Hussein must be lying to either the RDC or the Upper Tribunal, thereby strengthening its case for an integrity related prohibition on the basis of dishonesty.
Ultimately, the Tribunal were persuaded by Hussein's adapted position and determined that he had not acted dishonesty or recklessly. However, the change in position was more problematic. Hussein said that his recollection of the dual-purpose of his communications only arose when he read the Decision Notice in his own case. The Tribunal was prepared to give Hussein the "benefit of the doubt" in respect of the answers he gave to FCA Enforcement during the investigation interview as he was apparently very nervous and the communications he was discussing occurred some time ago and would not have been extraordinary at that time. In those circumstances, he could be forgiven for not discussing the communications dual purpose. However, the Tribunal viewed Hussein's submissions after that point as being untruthful and misleading. It did not believe that reading the Decision Notice was a revelatory moment.
It is interesting to note the Tribunal's somewhat wistful comment that had Hussein "laid all his cards on the table" before it, then it may have viewed his position more sympathetically. For the Tribunal, whilst it could understand why Hussein acted as he did for fear of the consequences of an adverse decision, it was a serious matter to be untruthful to the FCA and a more serious matter to lie on oath before the Tribunal. These were matters which the Tribunal said went to the heart of "fitness and propriety" to perform regulated activities. That is plainly right and any Applicant who has aspects of their case that have not been forthcoming or accurately stated can only sensibly address that by being truthful. Hussein's assessment appears to have been that his adapted position would better persuade the Tribunal. That assessment was accurate. However, it was also crucial that the Tribunal believe his stated reason for modifying his position. On that point, the Tribunal said that Hussein could offer no "rational explanation" for the change.
The Tribunal described its own decision as a "tragedy" for Mr Hussein, who it said had made a "serious error of judgment" but was not a "thoroughly bad person". It therefore commented that the FCA (that has the final say on prohibition in non-disciplinary cases) should consider whether to indicate that it would be willing to revoke the prohibition after a period of time. This attempt to throw Hussein a life-saver is interesting. The FCA may reasonably say that they will always consider an application on all its facts, even from someone who is banned and that its deliberations on fitness and propriety will include a consideration of the Tribunal's judgment and the time that has elapsed since the misconduct. The reality is that Hussein will likely find the taint of an adverse Tribunal decision, especially one on integrity, hard to shift.
Finally, it is worth taking note of the Tribunal's statement (in response to comments from the FCA's and Hussein's respective counsel) that it hoped that the FCA were not persuaded against taking cases against senior management because they were out of the jurisdiction or did not have their "fingerprints" on many documents. Whether the SMCR will enable more such cases against senior management remains to be seen. What can be said now is that Hussein's case took over five years from the start of the investigation to the Tribunal's judgment. Aside from the impact on the individual of such an incredibly lengthy process, resource constraints no doubt cause the FCA to take hard decisions – based on factors such as those identified by the Tribunal – when deciding which cases are more lower hanging fruit than others.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
