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Chapter 17: Enforcement powers of the FSA

In Paul Davidson and Ashley Tatham v FSA, 7 September 2006 Davidson and Tatham successfully appealed against FSA fines of £750,000 and £100,000 respectively for market abuse and the Financial Services and Markets Tribunal directed that the Financial Services Authority should pay the costs and expenses incurred by them in the proceedings. This is the first time that costs have been successfully recovered for the full proceedings. Paragraph 13(2) of Schedule 13 to FSMA 2000, provides that the Tribunal has the ability to award costs to a party where the FSAs decision which is the subject of the reference to the Tribunal was unreasonable. The Tribunal held that for a decision to be to be unreasonable, it was not necessary to prove dishonesty, lack of good faith or an improper motive on the part of the FSA. The test was whether the decision was unreasonable given the facts and circumstances which were known or ought to have been known to the FSA at the time when the decision was made. In this case, the Tribunal considered that the FSAs decision was unreasonable in three respects: (1) The FSA's approach to the evidence and the facts was not reasonable in that the FSA knew that there were significant conflicts in the witness evidence but decided to place disproportionate weight on the evidence of one witness. (2) The FSA's approach to the law on market abuse was unreasonable because it had neither considered what disclosure rules were applicable nor whether they had been breached. (3) The level of penalty that the FSA sought to impose was unreasonable. Further the Tribunal held: (1) It was unreasonable to decide against criminal proceedings on the ground that a higher civil penalty could be imposed. (2) Penalties imposed on approved persons should, in principle, be higher than those imposed on people who are not approved. (3) The distinction made between the levels of penalties imposed on the individuals in the case was in all the circumstances unreasonable. The Tribunal did not consider it unreasonable that the FSA had not withdrawn the proceedings against Mr Davidson and Mr Tatham. The Tribunal indicated (perhaps rather optimistically) that, as a result of the enforcement process review and specifically the introduction of exclusive legal support for the FSA's Regulatory Decisions Committee, many of the mistakes made by the FSA in this case were unlikely to occur again.

 

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