Director loses appeal against FCA fine and ban in conflict of interest case

Out-Law News | 13 Jan 2015 | 5:05 pm | 2 min. read

A non-executive director who failed to declare a conflict of interest has lost her appeal against the Financial Conduct Authority (FCA), which had fined her £154,800 and banned her from holding a regulated financial services role.

In 2012, the FCA's predecessor the Financial Services Authority (FSA) found that Angela Burns had "failed to act with integrity" in her role as a non-executive director at two mutual societies while at the same time notifying an investment manager in the US that she had previously provided with consultancy work of potential business opportunities with the mutuals. The Upper Tribunal has now upheld the regulator's decision following an appeal by Burns (40-page / 236KB PDF).

Corporate governance expert Martin Webster of Pinsent Masons, the law firm behind Out-Law.com, said that the case emphasised both the need for directors to make regular, up-to-date declarations of interest; and the added risks of acting as a director in sectors such as financial services, which are subject to stricter regulation.

"While the final sanction is yet to be decided, if the FCA's original penalty is confirmed Burns will suffer not only a significant cash fine plus costs but also the loss of her livelihood as an 'approved person'," he said.

"Outside the world of financial services, the same failure would have amounted only to a breach of directors' duties under the Companies Act, actionable by the company to recover any loss suffered. In this case there was no loss, so, while the director might have been forced to stand down, there would have been no other penalty," he said.

Burns was employed by mutual societies MGM and Teachers as a non-executive director, which is a 'controlled function' under FCA rules. She had previously been contracted to provide advice to US investment manager Vanguard on its proposed entry into the UK investment market. Burns had kept in touch with Vanguard with a view to providing additional consultancy work in the future, but the regulator had alleged that she had "attempted to use her [non-executive director] positions to benefit herself" when she wrote to the firm to remind them that she wanted to provide consultancy to it in the future at the same time as informing it of potential business opportunities at the mutuals.

Although it rejected some of the regulator's findings, the Upper Tribunal found that Burns was "not a reliably trustworthy witness on critical matters". It said that some of her communications with Vanguard "sought to create a situation where she would have a personal interest which could conflict with the interests of" one of the mutuals, and "fell below the standards expected of an approved person". By omitting part of her employment history from her application for approval to perform a controlled function, amongst other failings, Burns had also "failed to act with integrity" and was not a "fit and proper person" to perform those roles, the tribunal said.

"A non-exec position requires rigorous adherence to the proper standards concerning avoidance of conflicts and the making of disclosures," the tribunal said in its ruling. "Her failure in this respect was compounded by her willingness, with a view to personal gain, to use materially incomplete CVs and to sign false declarations on her CF2 application forms. Our conclusion is that she is not fit and proper for the CF2 function."