Beams and Motes

November 30 2019

The FCA has been in the news lately though, perhaps, not for the reasons it would like. (How wonderfully appropriate was the last syllable of the name of the FCA manager having to remind staff how to behave, Georgina Philippou). But it has been other conduct by FCA staff which is perhaps more concerning for those hoping to rely on its protection.

Over the summer, the FCA’s Head of Conduct, David Blunt, gave an interview about the FCA’s expectations with regard to certification and regulatory references, in particular, what firms should be doing when staff left to work for other firms within the sector. Regulatory references were key, said Mr Blunt.

“What we want to do with this regime is to stop people who’ve got poor conduct histories simply moving from firm to firm because the new hiring firm should be able to get the information they need better to understand the conduct history of their new hires.

Well, indeed. Having bad apples move from firm to firm is a very bad idea. All too tempting to get rid of someone and make them another firm’s problem. The new regime is intended to stop firms doing that by imposing an obligation on them to reveal not just conduct rules breaches leading to disciplinary action but also “any other relevant conduct matters.” What a marvellously flexible phrase that is!

Still, what of the FCA itself when it becomes aware of poor conduct by those it regulates? The obligation to prevent bad actors from moving round the industry cannot just be down to firms themselves. Consumers surely expect the regulator to take some action. And yet, as the dismal saga of the Woodford Equity Income and other Woodford funds shows, this expectation may be a touch too trusting.

This article describes the role of Link, the authorised corporate director of the Woodford funds, in the events leading up to their closure, trapping many investors in funds which will take time to liquidate, with many facing the prospect of losses. Link’s role in this affair is to be examined by the investigation set up by the FCA. It has already been publicly attacked by Andrew Bailey, the FCA’s director, for failing to inform the FCA about the Woodford funds’ decision to list illiquid shares in Guernsey in order to get round the rules limiting its investments in unlisted shares, a manoeuvre described by Bailey as “regulatory arbitrage”.

All very true. But what has also come out is that the directors of Link had been involved as the corporate director of two other funds (now closed) involved in questionable behaviour, resulting in investors being misled, losing substantial amounts and having to be compensated: Arch Cru (2009) and Connaught Income (2012 ). In the latter case, Link (then owned by Capita) was censured by the FCA for a string of failings and made to pay compensation to investors. As one of those advising the misled Connaught investors put it: “You have to ask the question why were they allowed to continue to operate with all their permissions intact after Connaught?”. Why indeed?  Why – when the Woodford funds were being scrutinised by the FCA – was the involvement of Link and its previous history not noticed by the FCA and, if noticed, no action – apparently – taken?

Similar questions can be raised in relation to some of the directors involved in another company which has gone bust, leaving its investors stranded – London Capital & Finance. There too it appears that there were close links between it and companies which the FCA had previously censured. No doubt the full story will be revealed when the FCA’s investigation into this is – finally – published.

But for consumers who have entrusted their savings to such companies, this will often come too late. If firms and individuals are regulated by the FCA, consumers will assume that the regulator has thoroughly investigated the past history of all those associated with the firms they authorise, the past history of those working in it, that it will have noticed when those firms and individuals have come to its notice for bad or poor behaviour and that it will take this into account when deciding whether to permit them to continue working in the sector.

After all, there is little point collecting intelligence (or being given it by whistleblowers, as was the case with Connaught) – or even publicly ticking off a company or individual – if it is not followed up with effective action.

This is not a new problem for regulators. One Robert Maxwell was described by the Department of Trade and Industry in 1971 as unfit to run a public company. Despite this damning verdict, no action was ever taken to prevent him – legally – becoming a director of such a company. That failure cost Mirror Group pensioners very dearly when, 20 years later, Maxwell’s various companies went bust with the loss of pension fund assets which had been used in a vain attempt to keep his companies afloat. In the lead up to the trial of two of Maxwell’s sons, one of the many advisors acting for Maxwell was asked why they did not steer clear of him, given the DTI’s earlier well-publicised verdict. Their reply was that, since the DTI had taken no action to disbar Maxwell from acting as a director, why should the advisors apply a higher standard than the regulator.

Good question. And we know today’s answer. Firms have their own responsibility to ensure high standards of conduct in their staff. They cannot simply outsource their judgment to the regulator.

But that does not absolve the FCA from acting – and rather more effectively than simply describing what has happened – when it too becomes aware of misconduct or gross incompetence by those it regulates. It is surely the very minimum consumers have a right to expect from a body which has their protection as one of its statutory objectives.


Photo by Maria Teneva on Unsplash



On Leadership and Good Investigations

October 14 2019

It is generally a good idea, when facing severe criticism from an inquiry, not to try and justify the behaviour which has been criticised. No good will come of it: you will look like someone paying lip service to the findings who really thinks you’ve done nothing wrong.

It is advice which the Metropolitan Police singularly failed to follow in their response to the report by Sir Richard Henriques on Operation Midland, the now notorious investigation into alleged child abuse. The day of its publication the Met’s response focused on why no senior officer had done anything wrong despite the long list of failings catalogued: 43 in total, including that, in obtaining search warrants without being fully transparent about the evidence they had, the police had broken the law.

This is about as serious a failure as it is possible to have by public servants whose primary and most important duty is to uphold it. Not break it.

The Met’s apology for the upset caused by the searches seemed to be quite unequal to the failure – the sort of apology you might make if you’d inadvertently interrupted someone having a bath – rather than a realisation of the very great damage done to policing and the administration of justice if those tasked with it cannot be bothered to behave lawfully.

The report by the IOPC (Independent Office for Police Conduct) the following day adopted the same self-justifying tone to explain why there was no basis for disciplining any of the officers involved despite its comprehensive investigation, one so comprehensive that none of the officers involved had been interviewed. What would the IOPC consider an inadequate investigation to be?

One of the critical failings was the police deciding – and publicly announcing – that allegations (of murder and child rape) were true and believable before they had been investigated, as a result of an obligation to believe a victim and, indeed, to call them a victim rather than a complainant. Paragraphs 1.11-1.35 of the report on why these two practices are so seriously prejudicial to proper investigation, the presumption of innocence and the burden of proof (the foundations of our entire criminal justice system) are very well worth reading. In consequence, one of the judge’s most important recommendations was for the police not automatically to believe complainants: “If one policy decision results from this review I trust that the instruction to ‘believe’ a victim’s account will cease.”  The police seem disinclined to follow this advice. Even Vera Baird, the Victims’ Commissioner, despite being a QC, seems not to understand that belief in an allegation is not necessary to investigate it properly.

The belief that victims must be believed without question did not come from nowhere. It arose in part in response to previous police failings. In 1982 Roger Graef’s documentary series about Thames Valley Police caused a stir when the episode entitled “A Complaint of Rape” showed male policemen treating a female rape victim with harsh dismissiveness. This led to important and valuable changes in how the police investigated this most serious and sensitive of crimes. Similar changes have been made with regard to how child victims of sexual abuse are treated, both by the police and by the courts when they give evidence. All of this is welcome: old-fashioned assumptions (that women are asking for it, that children are liars) are no basis on which to investigate crimes.

Some old-fashioned attitudes still persist though: young troubled girls in care are seen as not “nice” and in effect asking to be abused by their attackers, the assumption this time being wrapped up in the mistaken and nonsensical notion that an underage child has given “consent”. At the other end, the police have veered from ignoring crimes alleged against the famous (Savile) to pursuing them with unseemly malice and a misguided focus on making media headlines (Cliff Richard).  (If there is one thing to be regretted from the decision to abandon the second half of the Leveson Inquiry is that there was no examination of the police’s relationship with the press and whether this is compatible with their policing role. It is something which needs much more scrutiny than it is, for obvious reasons, ever likely now to get.) It as if the police veer from one position to another in response to the scandal du jour without any understanding of – or firm attachment to – the long-standing principles underlying the criminal justice system

Now the police have adopted the spuriously sentimental assumption that a victim should be believed without question. To do so is fatally to confuse therapy and care with investigation. The former is laudable but not the role of the police. The latter is.

For investigators to do their job properly they need two skills above all: emotional intelligence – empathy, an ability to understand human behaviour and motivation and build a relationship with both (alleged) criminal and victim. The second is to have what Graham Greene described as the “splinter of ice in the heart”, the judgment and analysis that makes them look coolly and dispassionately at the facts, to base their opinions on what they have found and not what they would like to believe to be true, that makes them remember that they need to find and test the evidence and ensure that it is good enough to convict someone to the standard required.

As the report put it:

“Any process that imposes an artificial state of mind upon an investigator is, necessarily, a flawed process. An investigator, in any reputable system of justice, must be impartial. The imposed ‘obligation to believe’ removes that impartiality.”

If the police allow sentimental beliefs, preconceived opinions and assumptions, pressure from the media or politicians to override the judgments they need to make, they are doing a profound disservice – to the victims (who need their complaints taken seriously and investigated properly, a crucially important difference to simply being believed), to the defendants (who are entitled not to be accused publicly – or at all – on the basis of opinion unsupported by any evidence), to the public’s faith in policing, to the administration of justice itself.

What is so dismaying about the police’s response to the Henriques report is not just the rush to protect their own, the desire to explain why disciplinary action was unjustified, the belief that incompetence and negligence were not sufficient to merit any kind of action.  The approach was that the police had broken no disciplinary rules; they did not intend to cause harm and there was no evidence of criminal behaviour so that was that.  The level of incompetence and negligence on display, the failures in basic investigative tradecraft were simply to be ignored.

No: what’s worse is the assumption that nothing more than this can or should be expected.

The police had passed the low bar expected of them.  43 failings in one inquiry can happen but no-one need take any responsibility.

It is a stunning failure to understand what leadership means.  Leadership means, in essence, taking responsibility for what happens in your watch – even if you are not personally to blame.  Those senior officers who were in position when this lamentable series of failures occurred were the leaders in charge.  If leadership is to mean anything, if setting an example to all those in the police service matters, if an apology is to be meaningful, if learning lessons is to be something other than a cliché to be trotted out, if integrity at the top of policing is to have substance, then those in charge of this inquiry should, in all honour, take responsibility and resign.  Not seek to evade it with self-serving justifications and remorseful cries of “Oh, if only I’d done something different.

The Home Secretary (not noted for either her empathy or integrity or, indeed, her understanding of the criminal justice system – as this article suggests – has apparently asked for a further inquiry to be carried out – though since it is to be carried out by the very body which has come up with the practices roundly criticised by the Henriques report, don’t build your hopes too high. In the meanwhile, the Prime Minister has made great play of his intention to fund 20,000 more police for our streets.  Without wishing to downplay the work of ordinary policemen or, indeed the need for effective policing, with this sort of inadequate leadership and incompetence on show, it is worth asking whether this really is the best use of public money?  Maybe fixing the problems identified by Sir Richard Henriques and implementing his recommendations might come before spaffing money on more police. It can’t, after all, cost that much to remind police leaders of that well-known saying: “The buck stops here.

They’ll be the judge of that.

September 29 2019

It is generally a good idea, when losing a case before a court or regulatory tribunal, to concede with as much good grace as possible and to keep your immediate thoughts about the idiocy of the judges to yourself.  No good will come of it and you will look like a sore loser.  No-one sensible will pay any attention to what you say, your complaints falling into the “Well they would say that, wouldn’t they” category.  Even worse than being thought a sore loser is being thought of as your case’s Mandy Rice-Davies.

You may think that the tribunal or court may well have erred in law or fact or failed to take coherent and well-argued arguments into account or not given them the weight they deserved.  But it will be for others to make the considered analysis that any decision, particularly any important or controversial decision, needs.

There has recently been such a decision in relation to Britain’s constitutional arrangements, an area of law which does not normally make it to the front pages of anything.  Despite this, the Supreme Court’s decision on what prorogation of Parliament means and how such a power should be used by the executive is very well worth reading.

Reflections on it, those missing documents relating to how the government reached its decision – still to be provided to Parliament, despite its request – and the legal advice the Government received can be found here.

A companion piece to the Supreme Court’s judgment is this year’s Reith Lectures, a series of five lectures by a former Supreme Court judge, Lord Sumption, on the relationship between law and politics.  For all the fuss raised by over-excitable commentators (and even some apparently parti pris lawyers-turned-politicians) about the former straying into the latter, this is an argument which is as old as time itself. Those in power have always chafed when any sort of restraint is placed on their power, whether it came from the Church or law or Parliament or even the pesky people. And now those troublesome – and independent – judges are the latest to remind rulers that they too are subject to the law.

Judicial independence is there to protect the judges from over-mighty politicians. But much more importantly  – and this is usually forgotten, it – and the rule of law – are there to protect us.

Let the last word go to a former Lord Chancellor, Thomas More (as imagined by the playwright Robert Bolt in A Man For All Seasons):-

“And when the last law was down, and the Devil turned around on you–where would you hide, Roper, the laws all being flat? This country’s planted thick with laws from coast to coast — man’s laws, not God’s — and if you cut them down…d’you really think you could stand upright in the winds that would blow then? Yes, I’d give the Devil benefit of law, for my own safety’s sake.”