Much like an elephant, the UK Financial Conduct Authority ("FCA") never forgets, as Thomas Llewellyn Kalaris and Saranac Partners Limited ("Saranac") have learnt to their cost. This lesson has come by way of a recent FCA Decision Notice pointing to misleading statements made by Mr Kalaris during the course of interviews nearly a decade ago. While on its face, there may be little that jumps out as being particularly ground breaking in this decision, firms and individuals should take note of the FCA's increasingly sophisticated approach to gathering and utilising data, in particular the increasingly prominent role of intelligence in gatekeeping access to the financial services profession.

Earlier this month, the FCA published a Decision Notice (from 17 November 2022) refusing an application for authorisation for Mr Kalaris to carry out Senior Manager functions for Saranac, a firm which he founded in 2017. The FCA was not satisfied that Mr Kalaris was fit and proper to hold an approved Senior Manager function, relying on perceived failures to be open and cooperative during compelled interviews undertaken in the context of previous enforcement investigations. The FCA found that during the course of two separate interviews Mr Kalaris had provided untrue and misleading evidence. Perhaps unsurprisingly, given the seriousness of the FCA's conclusions and the impact on the future career of Mr Kalaris, the decision has been referred to the Upper Tribunal.

As part of its investigatory toolkit, when conducting enforcement investigations, the FCA will often conduct interviews, both of subjects under investigation and persons connected to the subjects. Such interviews are generally conducted using the FCA's compelled powers under the Financial Services and Markets Act 2000 ("FSMA"), meaning that the interviewee will be compelled to answer the FCA's questions and is not entitled to offer 'no comment' to questions which may result in an incriminating or unfavourable answer. Before conducting such an interview, the regulator will give a warning that knowingly providing false or misleading information during the course of an investigation is a criminal offence under section 177 of FSMA. Mr Kalaris, so the FCA concluded, failed to heed that warning during the course of two separate investigations as follows:

• Mr Kalaris was interviewed in 2013 in connection with an investigation into his former employer concerning a failure to disclose to the market fees paid during the course of a capital raising. This investigation resulted in a decision notice being issued against the firm, imposing a fine of £50million.

Although no such decision notice was issued against Mr Kalaris, and the Serious Fraud Office prosecution of Mr Kalaris and other bank executives resulted in an acquittal in February 2020, the FCA has taken the position that it is entitled to rely on alleged misleading statements made by Mr Kalaris in interview. In particular they point to statements made by Mr Kalaris that there was no connection between the agreement (referred to as the June Agreement in the Decision Notice) under which fees were paid and the recipients participation in the capital raising. Call recordings revealed that Mr Kalaris had been involved in negotiating this agreement meant that the FCA considered that there were reasonable grounds for 'considering that these answers were not open and cooperative and were untrue and misleading (and that Mr Kalaris knew this)'. No decision was made by the FCA to charge Mr Kalaris with an offence under s177 in relation to this statement.

At the time of the interview, Mr Kalaris was an approved person, which meant that in addition to the requirement under FSMA not to knowingly provide false or misleading information in the course of an interview, he was also subject to Statement of Principle 4 (which has now been replaced by Conduct Rule 3). This placed a requirement on Mr Kalaris to be open and cooperative in his dealings with the FCA.

• Mr Kalaris was also interviewed in 2014, in the course of a separate investigation looking into the behaviour of the Chief Operating Officer of the wealth and investment management division of his previous firm.

During the course of this interview Mr Kalaris denied that he had knowledge of the existence of a particular document until 17 December 2012. The importance of this date was that it was some days after his attendance at a meeting on 10 December 2012, which the FCA had asked him questions about. In 2019, in proceedings that Mr Kalaris was not a party to, the Upper Tribunal concluded that there was clear evidence that Mr Kalaris did in fact know about this document prior to 17 December 2012. On this, the Decision Notice states the following: "there are reasonable grounds to consider that in the interview Mr Kalaris knowingly sought to give the misleading impression that he was entirely unaware of the [document] until 17 December 2012." While, at the time of this interview, Mr Kalaris was no longer an approved person or subject to Statement of Principle 4, the FCA found that "his lack of willingness to be open and cooperative is nevertheless relevant to assessing" his fitness and propriety now.

The FCA, in its Decision Notice, describes the Senior Manager Regime as being "designed around the spirit of accountability with a focus on unambiguous responsibility, candour with regulators and, fitness and propriety on the part of individual." Anyone who has encountered the regime will know that fitness and propriety is a somewhat nebulous concept. However, honesty and integrity has always been a key component and it would be difficult to argue that knowingly misleading the regulator, as alleged here, should not be relevant to determinations of fitness and propriety.

Aside from the comments on the fit and proper test, this decision highlights the FCA's retention and use of the information it gathers both from external sources and as a result of enforcement investigations, across its directorates. The increased use of intelligence should perhaps be unsurprising to those who noticed the relatively recent appointment of Laura Dawes as Authorisations Director following an extended post as interim director of the enforcement division concerned with strategy, policy and intelligence. The FCA has used this enhanced cooperation previously to counter the challenge of 'phoenixing' (which involves companies continuing misconduct through the apparent failure of one business which is transplanted wholesale to successive companies, generally to avoid financial or regulatory accountability) to good effect, preventing attempted phoenixing by firms before they have the opportunity to cause harm. This decision though proves the breadth of intelligence, including historic evidence, the FCA has at its disposal and the extent to which it is prepared to use the information it has collected to conduct 'gatekeeping' of the entry of individuals into approved roles in financial services firms, even where identified misconduct has not resulted in enforcement action – a natural consequence perhaps of the drive towards a 'data led regulator'. 

The question arises perhaps, as to whether as a matter of fairness and transparency, further warnings ought now to be given during the course of compelled interviews by the FCA as to the use that both the content and the quality of the information could be put in the future. It is our view that this ought to be considered in particular where the person being interviewed is not themselves the subject of an investigation and where they do not have legal representation.

Mr Kalaris is seeking to challenge this decision at the Upper Tribunal, and it may be that subsequent review finds that he did not knowingly mislead the FCA. However, whatever the decision of the Upper Tribunal on the facts, this decision should serve as a clear warning of the potential consequences of a failure to be both fully prepared for interview and fully transparent.