A former financial adviser who was given a 22-month suspended prison sentence for the attempted sexual grooming of a child under the age of 16 has lost his appeal against an industry prohibition order.
It was the first time that the tribunal had to consider a case where the prohibition order was based on a criminal offence not involving dishonesty and was unrelated to the individual’s regulated activity.
Despite prevailing at the upper tier tribunal, the presiding judge had pretty strong criticism for how the Financial Conduct Authority handled the case.
Background
As reported by International Adviser in March, Jon Frensham (formerly Jonathan James Hunt) was the subject of a FCA decision notice.
It concluded he “was not a fit and proper person to perform a function in relation to any regulated activity due to the fact that on 10 March 2017 he was convicted by a jury […] for attempting to meet a child under the age of 16, following acts of sexual grooming…”.
In 2016, while on bail for a separate similar offence, he arranged to meet with someone he believed to be a 15-year-old girl with whom he had been communicating online, sometimes exchanging messages of a sexual nature.
On arriving at the venue, he found that the girl was in fact a grown woman and he was subsequently arrested.
But Frensham appealed the FCA ban on the grounds that the “the prohibition order is wholly disproportionate and should not be applied in circumstances where there has been no dishonesty finding in relation to conduct which, whilst very serious, took place outside the professional sphere”.
Not cut and dry
As per the FCA’s own handbook, entitled The Fit and Proper Test for Employees and Senior Personnel, a legal conviction on its own is not sufficient to warrant a ban.
“The authority treats each situation on a case-by-case basis, taking into account the seriousness of, and circumstances surrounding, the offence, the explanation offered by the convicted person, the relevance of the offence to the person’s role, the passage of time since the offence was committed and evidence of the individual’s rehabilitation.”
Given that the case was the first of its kind, the judge thanked the legal representatives of both parties “for their very clear and comprehensive submissions”.
The decision from the upper tier tribunal ran to 45 pages and focused on five key points:
1. The relevance of Frensham’s conviction to the performance of his functions as an IFA and whether the FCA erred in its approach to that issue;
2. Whether the question of the relevance of the conviction is affected by the fact that, in committing the offence, Frensham acted in breach of the bail conditions to which he was subject at the time;
3. The extent to which the FCA was entitled to place weight on:
- The fact that Frensham did not inform the authority that he was arrested on two occasions and had been remanded in custody,
- The fact that Frensham carried on the business of his firm while he was on remand before a locum was appointed without reporting the matter to the authority,
- The failure of Frensham to inform the authority of the decision of the Chartered Insurance Institute (CII) to refuse to renew his statement of professional standing (SPS) and expel him from its membership.
4. The extent to which the authority has given appropriate weight to the length of time since the offence occurred and the evidence of his rehabilitation; and,
5. Whether the prohibition order is in all the circumstances disproportionate, taking into account Frensham’s right to a private life under article 8 of the European Convention of Human Rights.
FCA blunder
Two representatives from the Financial Conduct Authority were present at the tribunal and cross-examined.
The statements and responses from Anna Couzens, a manager in a department in a sub-division of the FCA’s enforcement and market oversight division, and David Blunt, head of the conduct specialists department within the supervision division, were a point of frustration for the judge.
“We regard it as unsatisfactory that the authority did not put forward appropriate witnesses and that those witnesses who did attend were not properly prepared,” he said.
“We make no allegation of any lack of honesty or integrity on the part of either Ms Couzens or Mr Blunt.”
Out on bail
Frensham was also cross examined and described by the judge as “highly articulate and intelligent”.
“He gave clear and comprehensive answers and did not shirk from dealing with the circumstances that led to his conviction. No allegations of dishonesty have been made against Frensham and one particular matter, in our view, indicates that Frensham gave what he believed to be honest answers in his cross examination.”
Frensham attributed his interaction with the girl as being driven by turmoil in his personal life, which included an arrest for arranging to meet another young woman who represented herself online as 18 – but was, in fact, 16.
The 16-year-old’s father made a complaint to the police, which resulted in Frensham being arrested, interviewed and released on conditional bail.
He was not ultimately charged with any criminal offence but was still subject to bail conditions when he tried to meet with the 15-year-old girl.
But despite his supposed candour, when asked if he intended to have sex with the 15-year-old girl, Frensham said no.
The judge said that Frensham “appears to have convinced himself that that was not his intention at the time, and we find it difficult to understand why he has come to that conclusion, although it appears to be a belief that he genuinely holds.”
The judge added: “[That he] cannot at this stage accept that he intended to have sexual relations with a 15-year-old girl is highly relevant to our assessment as to whether he genuinely shows remorse at having committed a criminal offence as opposed to remorse at his actions that led up to the meeting and the subsequent effect that his behaviour has had on him and the others who have been affected by it.”
Reputational damage
One of the key pillars behind the FCA’s decision to impose a prohibition order was the wider ramifications for the financial services sector and its image should someone with Frensham’s conviction not be banned.
The judge, however, agreed with Frensham’s lawyer that the FCA’s linking of his “personal integrity to his professional role on the basis of the nature of the offence alone is speculative and unconvincing”.
Following his arrest, Frensham’s client list dropped from 93 to 64 individuals from 43 households.
“It is clear that he has kept a considerable number of his clients who are willing to continue to use his services notwithstanding his conviction and the adverse publicity that it generated,” the judge said.
The judge added that statements from the FCA’s witnesses, Couzens and Blunt, seeking to establish a connection between the personal and professional “appear to be bare assertions and no evidence has been offered to support them”.
“They seek to establish a link between Frensham’s behaviour and the consumer protection objective, but such evidence as we do have in relation to Frensham’s activities in the four years since his conviction suggests that there has been no cause for concern that [he] acted without integrity in relation to any dealings with clients.”
He said: “It would have been helpful had the authority’s assertions been backed up by criminological or psychological evidence which could support the view that the serious failure to act with integrity in one’s personal life, in the manner that Frensham did, by seeking to exploit for his own sexual gratification a young girl, runs a significant risk that he would likewise seek to exploit vulnerable clients-such as the elderly- who seek to rely on him putting his client’s interests before his own when giving them advice on how to deal with their investments, mortgages and pensions.”
Stronger footing
However, the judge said the FCA was on “sounder ground” when it sought to establish a link between the offence and the integrity objective.
“We accept that objective embraces public confidence in the financial services industry and in that context whether there is a significant risk that the confidence of consumers will be impaired if it is known that a person guilty of an offence of this nature is allowed to work as a financial adviser.”
He added: “Frensham’s offence was committed because he put his own interests before those of a person he believed to be a 15-year-old girl who he sought to exploit for his own sexual gratification.
“In those circumstances, the authority is clearly entitled to consider whether that kind of behaviour would seriously affect his professional reputation and that of the industry as a whole.”
Final straw
It was this tendency to place his own interests above others that sealed the outcome of the tribunal.
Frensham did not dispute that he failed in his obligations to report the following to the FCA:
- His first arrest and the imposition of bail conditions
- His second arrest and remand in custody
- His SPS not being renewed and being under investigation by the CII
- The CII’s decision to expel him
“In our view,” the judge said, “the reasons why those failures occurred follow a similar pattern.
“They all provide evidence that in his dealings with the authority, Frensham decided to put his own interests and those of the firm before the need to comply with the clear obligations to be open and transparent with the authority.”
Frensham’s lawyer further attempted to prove that the prohibition order was disproportionate but the judge was unmoved.
The submissions fail to “engage with the serious matters regarding non-disclosure that we have identified and the breach of the bail conditions,” the judge said.
“We accept that had the authority relied on the nature of the offence alone, then the issue of qualitative relevance and the impact of Frensham’s right to a private life then the issue of proportionality would have been engaged.”
He concluded: “It is our experience that it is often the case that it is not the fact that a criminal offence has been committed that is fatal to an applicant’s case but the manner in which he deals with the consequences that follow.
“In this case, we have found that the way Frensham dealt with those consequences demonstrated a lack of integrity which entitles the authority to exercise the prohibition power in order to further its statutory objectives.”
In a final chastisement to the FCA, the judge said: “We have found some flaws in the authority’s approach to the relevance of the conviction, in our view those flaws do not justify us asking the authority to reconsider its decision.”
