Tribunal disagrees with FCA on fine amount

The FCA had found Arian Financial LLP had breached Principles 2 and 3 in respect of failings in its financial crime prevention systems and controls in relation to business introduced by the now infamous “Solo group”, and had decided to fine the firm nearly £750,000. The firm (which stopped trading in 2022) did not dispute liability, but did dispute the way in which the FCA had calculated the fine and made a reference to the Upper Tribunal in this respect.

The Tribunal reviewed the basis on which the FCA had calculated the fine and agreed with its assessment at all levels, except on the first level of disgorgement and the adjustment for deterrence (Step 4). The question was what “financial benefit derived directly from the breach” should mean. After reviewing several cases, the Tribunal said this should be assessed on a case by case basis. It was persuaded that it will sometimes be appropriate to deduct expenses that are directly referable to generation of revenue, such as custody and brokerage fees, and that it may also be appropriate on occasion to discount sums that were disbursed immediately on receipt. In this case, the applicant said the FCA should have deducted from the gross revenue the commission that was paid out. The FCA said that the commission in question, paid to the trading company of one of its consultants, was effectively the firm’s own “general expense” which case law had held should not be deductible because receipts that allow firms to remunerate their own staff are “financial benefits” to the firm concerned – and should effectively be treated the same as salaries to employees would. The Tribunal said that seeking to disgorge the full amount of commissions would amount to the imposition of a further penal sanction. As a result, it concluded that the net “Step 1” figure should be the share of the commission retained by the firm.  On the Step 4 adjustment for deterrence, the Tribunal found the FCA’s decision to apply a multiplier of 4 too high, saying that an appropriate multiplier would be one that would achieve a figure of around the same amount as the disgorgement amount.  So, on the Tribunal’s calculations, the appropriate total penalty would be a little under £290.000.