Joint Committee on Financial Services and Markets Second Report

Discipline and Enforcement

8. It is common ground that four factors fall to be taken into account in determining whether proceedings are civil or criminal for ECHR purposes.[7] They are:

  • Characterisation in domestic law (not conclusive).

  • Nature of conduct: does it overlap with criminal law?

  • Whether the regime applies to everyone (which would suggest a criminal-type regime), or only to a particular group subject to special regulation (which would suggest a civil regime).

  • Nature and level of penalty.

9. The Government maintains that all FSA disciplinary proceedings will be classed as civil in ECHR terms. Its main reason is that the scope of the regime is limited to a defined set of persons who are part of a regulated community which they have chosen to join. Mr Kentridge gave us a list of cases where the European Court of Human Rights has treated as civil the disciplinary proceedings of the regulators of various professions and occupations.[8] The list included some regulators operating on a contractual and self-regulating basis, like the Investment Management Regulatory Organisation (IMRO, which is now part of the FSA); but it also included statutory regulators like the FSA, such as the General Medical Council (GMC).[9]

10. Lord Lester of Herne Hill QC[10] considers that the Government's approach is "too sweeping¼, and leaves scope for considerable legal uncertainty and a real risk of a successful legal challenge in a particular case". He offers two arguments, both of which we put to the Minister.

11. First, in some cases the conduct proceeded against may be in the nature of criminal conduct. Mr Kentridge answered this argument by citing the European Court case of Wickramsinghe, a doctor.[11] In this case, the conduct which was the subject of disciplinary proceedings (before the UK General Medical Council) was itself clearly criminal (indecent assault); yet the court held the GMC's proceedings in respect of that conduct to be civil for ECHR purposes. Lord Lester cited the case of Oury in France; Mr Kentridge replied that in that case the conduct in question was closer to market abuse than to a disciplinary matter.[12]

12. Secondly, Lord Lester observed that, in some cases, the penalty at stake will be "drastic fines with a dominantly punitive, rather than compensatory or restitutionary purpose".[13] The Minister and Mr Kentridge admitted that fines are punitive and deterrent in nature.[14] But they insisted that the possibility of a fine did not make the regime criminal in ECHR terms; they cited the case of Brown, a UK solicitor fined £10,000 by the Law Society, whose appeal to Strasbourg on the ground that he had been subjected to criminal justice without the Convention safeguards was turned down. They observed that, in disciplinary proceedings, a fine may be more lenient than other possible sanctions, such as striking-off.

13. Lord Steyn[15] recognises the force of Lord Lester's arguments, but is of the view that "it is likely that the courts will generally speaking treat the disciplinary system as involving civil proceedings". But where the disciplinary matters closely overlap serious species of market abuse he regards the position as "entirely open."

14. It is not for us to prejudge the view of the courts on these conflicting legal arguments. Ministers are evidently satisfied that their case is strong enough to warrant a statement under s.19 of the Human Rights Act 1998 that the Bill is compatible with the ECHR.[16] However, on the evidence before us, there remains a possibility that, in particular circumstances, the courts will hold disciplinary proceedings under the legislation to be criminal proceedings in ECHR terms. This might arise for any of the following reasons:

  • The nature of the conduct in question may overlap with the criminal offences of insider dealing and misleading the markets, or with the wider market abuse regime which, the Government has conceded, may be found to be criminal.

  • The regime will apply only to individuals and firms working in financial services; and the Government makes much of the analogy with professions such as law and medicine. However this analogy is not altogether clear-cut; and, although there is substantial practitioner input into the work of the FSA, it will in fact be a body of a very different character from the General Medical Council, the Law Society, etc.

  • Finally, the nature of the penalty, whether a fine, public censure or withdrawal of authorisation, will in some cases be both severe and punitive, as both the FSA and the Government admit.[17] The Government seeks to distinguish between sanctions whose primary purpose is punishment and those which are primarily "protective". We are not wholly convinced by this distinction, since the criminal justice system itself may be said to have as its prime purpose the protection of society by the punishment and deterrence of crime.

15. We recommend that the Government should give this matter further thought, and we offer three possibilities for its consideration.

16. First, some of our witnesses suggest that it may be possible to draw a line in the Bill itself between disciplinary cases which might fall into the criminal category, and those which clearly would not.[18] For cases on the criminal side of the line, use of compelled statements would be restricted; subsidised legal assistance would be available; and the FSA would be advised to consider carefully before launching proceedings on the basis of breach only of a general Principle, rather than a detailed rule, lest they fail the foreseeability test of ECHR Article 7. This might be considered a small price to pay, to avoid defeat on human rights grounds in an important case. However we recognise that establishing appropriate statutory criteria for determining in advance which side of the line a particular case falls would not be easy, and would be bound to reduce the flexibility of the regime.

17. Alternatively, the Bill might provide for the FSA to apply criminal justice safeguards in disciplinary actions when it considers it appropriate to do so. This would allow more flexibility than writing a dividing line into the Bill, and it would allow practice to evolve in line with case law without a need for further legislation. As a public body, the FSA would of course be required to exercise this discretion reasonably and in accordance with the ECHR. Nothing in the Bill as presently drafted would prevent the FSA from proceeding as if the criminal justice safeguards applied—at least as regards privilege against self-incrimination; therefore this proposal might be seen as a clarification of the Government's proposals rather than a substantive change.

18. Finally, we would observe that the FSA's power to impose unlimited fines would look less like a criminal sanction if it were qualified in some way in the Bill. As it is, Clause 141 requires the FSA to publish a policy on fines and to abide by it, but lays down none of the content of that policy. In our First Report[19] we recommended against putting an upper limit on FSA fines, and we remain of this view. However in Consultation Paper 17 published in December, the FSA indicated that it envisaged setting fines with regard to, among other things, the nature of the offence, the profit made (or loss avoided) by the offender, and the offender's resources.[20] We suggest that a requirement along these lines might be written into the Bill. Requiring the amount of the fine to be related to the offender's resources could arguably be characterised as retributive. However, we recommend that the Bill should require, at least, that in setting the amount of any fine regard should be had to the mischief achieved or intended, and to whether the offender is an individual or a firm.

7  Evidence, p 2, para. 9; Lester Annexes C and D to First Report.  Back

8  Q 5. Back

9  Q 12. Back

10  Appendix 2. Back

11  Q 5. Back

12  Q 13. See LIBA, Appendix 9, para 13. Back

13  Appendix 2. Back

14  QQ 2-7. Back

15  Appendix 3. Back

16  For an account of the basis on which these statements are being made, see House of Lords Hansard 5th May 1999, col. WA92. Ministers will not normally provide written reasons, as they have in this case: Lords Hansard 19th May, col. WA 35. Back

17  CP 17, paragraphs 102-110; Q4. Back

18  Clifford Chance, Appendix 5; LIBA, Appendix 9, para 10; Lord Steyn, Appendix 3; Lord Lester, Appendix 2, para 15. Back

19  Paragraph 229. Back

20  CP 17, paragraph 108. Back

previous page contents next page

House of Lords home page Parliament home page House of Commons home page search page enquiries

© Parliamentary copyright 1999
Prepared 2 June 1999