Background
The approved persons regime, which applied in this case, will be phased out completely in December 2019. After that time, firms to which it currently applies will be subject to the Senior Managers and Certification Regime (SM&CR) which already applies to most large regulated firms. A key feature of the SM&CR is that firms must take responsibility for ensuring their employees satisfy the fit and proper person test. The test is the same under the old approved persons regime as it is under the SM&CR. All regulated firms should carry out an assessment of employees who could pose a significant risk of harm at least annually and the FCA requires that all relevant matters should be considered in this assessment including whether a person "has been criticised by a Court or Tribunal whether publicly or privately".
Facts
Mr Radia was employed by Jefferies initially as an equity research analyst before becoming their Managing Director in 2009. His role was subject to the approved persons regime. In May 2015, Mr Radia brought a disability discrimination claim against Jefferies, which was heard by an Employment Tribunal in November 2016. The Tribunal dismissed his claim and made adverse findings about Mr Radia's evidence describing it as "not credible in many respects" with some parts being "clearly an untruth". The Tribunal found that this was of "grave concern" for a regulated person such as Mr Radia. The Tribunal did not go as far as saying Mr Radia was dishonest but did find that in several areas of his evidence he had not told the truth or had misled the Tribunal.
The Employment Tribunal judgment was handed down in February 2017. Mr Radia was suspended the next day pending a disciplinary investigation into the allegation that he had fundamentally breached his contract of employment "by acting dishonestly". One month later he was dismissed for gross misconduct. Jefferies' reason for dismissal relied solely on the Employment Tribunal's findings against Mr Radia. It concluded that his behaviour was not compatible with him performing a regulated position and he no longer satisfied the fit and proper person test.
Mr Radia brought further claims against Jefferies relating to his whistleblowing rights and alleging victimisation and unfair dismissal. The Tribunal also dismissed these claims. Mr Radia then appealed to the EAT.
EAT
On appeal, Mr Radia alleged Jefferies was not entitled to dismiss him on the basis of the first Tribunal's findings about his credibility. Jefferies had characterised the findings as amounting to dishonesty, despite the Tribunal not explicitly using these words. However, the EAT held that it was open to Jefferies to rely on the credibility finding as the trigger for disciplinary proceedings without requiring further investigation at that stage. It also found that Jefferies was entitled to rely on the Employment Tribunal's findings as the basis for his dismissal. The EAT said that those findings "on any view were very damaging to the Claimant whether or not they amounted to findings of deliberate dishonesty".
Mr Radia was in fact successful on his second ground of appeal, that Jefferies should have given him a hearing for his appeal against his dismissal.
Comment
It is fairly unusual for the EAT to address the FCA's fit and proper person test so this judgment will be of interest and some considerable comfort to all regulated financial services firms. The EAT has made clear that employers can use a Tribunal's criticism of an employee's conduct during proceedings when assessing that employee's fitness and propriety. It also shows that for employees who are subject to the SM&CR, any behaviour which brings their honesty and integrity into question can potentially amount to gross misconduct even in absence of an internal or FCA investigation.
Authored by Dan Cotton and Ingrid Nixon.
