Both the FCA and the PRA have stated in their publications and speeches that they will place an increased emphasis on individual accountability. However, the FCA has shown a new angle on this in publicising last month a case that it is bringing against a non-executive director (NED), Angela Burns, for not disclosing conflicts of interest (see Legal update, FCA publishes decision notice banning and fining former NED for conflicts of interest failings). The case has been referred to the Upper Tribunal, so the FSA’s decision (as the FSA conducted the investigation) will be reviewed, and no final determination has yet been made.

Ms Burns is an experienced investment professional, and runs her own investment consultancy business. In 2006, Ms Burns completed a consultancy project for a US based investment manager. Between 2008 and 2010, she maintained contact with the investment manager, and proposed further consultancy work that she could undertake for the manager. This was not taken up.

Between 2009 and 2011, Ms Burns worked as a NED (Controlled Function (CF)2) and as the chair of the investment committee at two mutual societies. Whilst at the mutual societies, she flagged up business opportunities to obtain investment mandates to the investment manager. One of the mutuals placed a £350 million mandate with the investment manager, and the other mutual considered placing a £750 million mandate with the investment manager. Over this period, Ms Burns was still trying to obtain consultancy work from the investment manager. The FSA held that Ms Burns did not recognise, and therefore failed to disclose, her interest in seeking consultancy work from the investment manager, and that her repeated attempts to do so amounted to a conflict of interest. The FSA also held that she attempted to use her NED positions to benefit herself. She should have disclosed the conflict of interest to the mutuals.

The FSA found that Ms Burns breached Statement of Principle 1 (integrity) of the Statements of Principle and Codes of Practice for Approved Persons (APER) by, among other matters, recklessly, and in breach of her fiduciary position as a NED at the two mutual societies, failing to disclose her conflicts of interest to the mutual societies. The FSA decided to ban Ms Burns and to impose a financial penalty of £154,800 on her.

The case has several interesting points. On the facts, there were certainly strong arguments for the FSA’s view that Ms Burns’ circumstances gave rise to a potential or actual conflict of interest which should have been disclosed. (Ms Burns’ argument is that her approaches to the investment manager over the period did not result in any new work, and therefore she had no interest to disclose). The FSA focused in particular on one e-mail which Ms Burns sent to the investment manager which could have been interpreted as a request for payment, but which the FSA accepted was not. Ms Burns accepted that her-email was badly worded, but said that it was sent in haste from a Blackberry. The FSA also accepted that Ms Burns did not act deliberately or dishonestly. There has been no previous enforcement case on the FSA’s expectations of NEDs, and few cases on conflicts of interest. In that context, the sanctions imposed look quite severe. In applying its five stage fining policy, the FSA decided to quadruple the part of the fine calculated on the new basis to uplift for deterrence from £19,950 to £79,800. The FSA’s reason for this, as stated in the decision notice, is the importance of the role of non-executive directors in the financial sector, and it is also stated that “For others, not heeding the lessons of this notice, the multiple may be higher”. There are very few enforcement cases where the fine has been uplifted by this kind of multiple for deterrence purposes. Ms Burns was also banned, on top of the fine. It looks like the FCA/FSA decided to use the Burns case to send out a very strong message to NEDs.

The clear lessons are:

Perhaps Ms Burns will receive a more sympathetic hearing in the Tribunal.

Many companies have spent a considerable amount of time and money to ensure that they comply with the Bribery Act 2010. The Bribery Act is widely recognised as setting a gold standard in anti-corruption legislation. There have only been three minor prosecutions under the Bribery Act so far, although it is rumoured that there are bigger cases in the pipeline. There may be some concern, therefore, that it has been reported that the government is already considering reviewing, and possibly relaxing, parts of the Bribery Act (see Legal update, Government expected to review, and possibly water down, Bribery Act 2010).

It appears that the government, as part of the continual drive to cut "red tape", is concerned about the impact of compliance on small and medium-sized enterprises (SMEs). It is reported that facilitation payments, the (usually smaller) payments which may be made to officials to allow or speed up a service, is one of the areas to be looked at. It is true that facilitation payments can present particular practical problems in some countries: if a large, intimidating official is shining a big light in your eyes demanding payment a long way from home, referring him to "adequate procedures" may not be enough.

But caution is surely required before diluting or differentiating the legislation so soon after it has been enacted, and before it has been properly tested. While SMEs do not have the same compliance resources as large companies, weakening the standards lower down the supply chain could be counterproductive. Large companies may be more reluctant to deal with smaller firms that only need to comply with lower standards, and in any event large companies cannot be expected to police or check due diligence at the end of the supply chain. Another solution might be some clear and realistic guidance on how to deal with facilitation payments.