Background
The Financial Ombudsman Service (FOS) ordered BriceAmery Capital Ltd (BCL) to pay an award after a complaint from a “Mr A.” BCL refused to pay, insisting the complainant was a “Mr B” who was committing identity fraud. Due to BCL’s non-payment, the Financial Conduct Authority (FCA) issued a Decision Notice to cancel BCL’s authorisation to conduct regulated activities. BCL referred the matter to the Upper Tribunal.
During the proceedings, the FCA held a video call with the complainant. The individual on the call more closely resembled Mr B than Mr A, and he became uncooperative when asked for further identity verification. Concluding there was a compelling case of identity fraud, the FCA discontinued its enforcement action against BCL.
Following the FCA’s withdrawal, BCL applied to the Tribunal for an order requiring the FCA to pay its legal costs, which it calculated at over £1.1 million. BCL argued that the FCA’s decision to take enforcement action was unreasonable from the start and that it acted unreasonably in conducting the proceedings.
The Court’s Holding
The Upper Tribunal (Deputy Judge Anne Redston) refused BCL’s application for costs. The court found that the FCA had not acted unreasonably, even though its enforcement action was based on an award that was ultimately found to have been procured by fraud.
The Tribunal held that the FCA’s initial Decision Notice was not unreasonable at the time it was made. The FCA was entitled to rely on the FOS’s final decision, particularly after BCL’s own judicial review challenge to that decision had been dismissed by the High Court as “totally without merit.” The court noted that a decision can be wrong without being “unreasonable.” The FCA was not obligated to conduct its own fraud investigation at the outset, given the determinations by the FOS and the High Court.
Furthermore, the Tribunal found that the FCA had not acted unreasonably in defending or conducting the proceedings. Once the FCA obtained new information from its own inquiries that suggested identity fraud, it acted promptly to investigate and then withdraw its case. This conduct was deemed reasonable, and therefore the legal test for awarding costs against the regulator was not met.
Key Takeaways
- A regulator’s decision can be factually wrong but not legally “unreasonable” for the purpose of awarding costs.
- Regulators are generally entitled to rely on the formal decisions of other bodies like the Financial Ombudsman Service and the courts, without needing to “look behind” those decisions.
- A firm’s failure in its own legal challenges (such as a judicial review being deemed “totally without merit”) can justify a regulator’s decision to proceed with enforcement action.
- A regulator does not act unreasonably by withdrawing proceedings promptly after discovering new evidence that undermines its case.
Why It Matters
This decision underscores the high bar for regulated firms seeking to recover costs from the FCA, even when the firm is ultimately vindicated on the facts. It sharply distinguishes between a regulator being incorrect and being “unreasonable,” a crucial standard in costs applications. The ruling confirms that the primary responsibility for challenging a FOS award lies with the firm through the judicial review process, not with the FCA during its own enforcement considerations.
For financial firms, this case serves as a caution that merely asserting fraud is not enough to stop enforcement action for non-compliance with a FOS award. Without a successful court challenge to the award itself, firms may find themselves facing regulatory action, and will have little chance of recovering costs even if the regulator later withdraws its case.