Although the Immigration Bill 2015-16 has arrived, the details of the Immigration Act 2014 are still being digested. Apart from rogue employers and landlords, provisions enacted under the 2014 Act also created a system that deals with immigration offenders in relation to bank accounts. These banking provisions hardwired immigration law with the larger discourse of regulating financial services. The Financial Conduct Authority (FCA) is the UK’s famous conduct of business regulator. Like the Prudential Regulation Authority (PRA), a subsidiary of the Bank of England (BoE), the FCA is a creature of statute and owes its existence to the Financial Services Act 2012 which introduced wholesale changes to the UK’s regulatory framework for financial services. Among other things, on 1 April 2013, the 2012 Act abolished and replaced the earlier Financial Services Authority (FSA) with the FCA and the PRA. When he came into office Martin Wheatley, the cashiered CEO of the FCA, unwisely said that in his role as City Sheriff he would shoot first and ask questions later. George Osborne could not renew his contract because of his overt aggression to the financial elite; Wheatley resigned and lamented that he had “unfinished business” to settle. Prior to the 2008 financial crisis, the banks enjoyed a free hand to cheat.
Tracey McDermott (who has been acting as CEO from 12 September 2015) temporarily replaced Wheatley and Andy Haldane (the BoE’s Chief Economist) has been tipped as his permanent replacement. Wheatley bit the dust because the FCA’s clumsy and controversial March 2014 scoop to the Telegraph entitled Savers locked into ‘rip-off’ pensions and investments may be free to exit, regulators will say (about investigating 30 million ancient “zombie” insurance policies) not only destroyed market value (almost £3 billion in just a few hours) and caused market free-fall for companies such as Aviva and Prudential, but also demonstrated his misunderstandings about his own role as regulator. That is where he ended up throwing the axe at his own feet. But later on he candidly accepted that the debacle was a “screw up”. I am only mentioning all this because some provisions of the 2014 Act reach into an area where there is complete disorder about who does what and serious concerns exist about firms’ honesty. From that angle, immigration law’s interaction with mainstream banking law and financial regulation is bound to create more confusion. Bank misconduct takes various forms. Forex rigging, benchmark manipulation, PPI mis-selling and cheating on taxes are all examples (non-exhaustive) of this malaise. New scandals erupt all the time and it is impossible to keep track of events.
The FCA came under heavy fire from the Davis Report because of the “screw up” and to scotch the confusion, in light of public hearings that ensued, on 17 March 2015 the House of Commons Treasury Select Committee (the Treasury Committee) published its findings in the Thirteenth Report (2014-2015): Press briefing of information in the Financial Conduct Authority’s 2014/15 Business Plan (HC881). Evidence was taken from witnesses, including a number of prominent personalities, over four days in December 2014 and January 2015. Andrew Tyrie MP – Chair of the Treasury Committee and also the ex-Chairman of the Parliamentary Commission on Banking Standards which laid the foundation for sweeping reforms in the financial sector because of rampant cheating – shared the Davis Report’s view that the regulator had caused lasting damage. According to Tyrie, the FCA had fallen well below the standards it requires of the firms (approximately 73,000 in number) it regulates because:
The catalogue of errors made across the organisation is shocking – and some of the errors went to the top.
Prohibition: Immigration Act 2014
Bank accounts are vital for us all to have a normal life but as we know these days things are far from normal. As regards the 2014 Act, the red tape provision in section 40 (Prohibition on opening current accounts for disqualified persons) is detailed in six subsections. Under section 40(1) a bank or building society must not open a current account for a person who falls within 40(2) unless one of two conditions has been satisfied. The first condition is that the bank or building society has carried out a “status check” in respect of the applicant, that is a check in relation to their immigration status, and to verify that the person is not a “disqualified person” for whom an account should not be opened. The second condition is that the bank or building society has been unable to carry out a status check because of circumstances that cannot reasonably be regarded as within its control.
This might occur, for example, if it were unable to perform a check because of operational difficulties being encountered by the checking service for an extended period. Moreover, section 40(2) sets out the persons who may be disqualified from opening a bank account. A person may be disqualified from opening a current account if they are physically present in the UK and require leave to enter or remain in the UK but do not have it. The meaning of a “status check” and a “disqualified person” for the purposes of these provisions is explained in section 40(3). A status check means a check with a specified anti-fraud organisation or a specified data-matching authority. A disqualified person is a person who falls within section 40(2) and in respect of whom the secretary of state, who enjoys discretion as to who should be barred from opening current accounts, considers a current account should not be opened.
There will be some individuals who face legitimate barriers which prevent them from leaving the UK, even though they do not have leave. The secretary of state may enable these persons to open a current account. Under section 40(3) the prohibition on opening an account for a disqualified person extends to instances where the disqualified person is applying for a joint account, an account to which that person is to be a signatory or a named beneficiary, and also to instances where the disqualified person is to be added to an existing account as an account holder, signatory or named beneficiary.
Furthermore, under section 40(4) an anti-fraud organisation specified for the purposes of section 40(3)(a) must be an anti-fraud organisation within the meaning set out in section 68 of the Serious Crime Act 2007 and that a data-matching authority specified must be a person or body conducting data matching exercises within the meaning of Schedule 9 to the Local Audit and Accountability Act 2014, under or by virtue of that or any other legislation. The government has published a statement of intent that CIFAS will be the organisation specified to be the data-matching authority for the purposes of this section. The effect of section 40(5) is that where a bank or building society is unable to carry out a status check because it has not paid a reasonable fee for the status check to be carried out when required to do so, and it opens an account for a disqualified person, it will breach the prohibition on opening current accounts for disqualified persons.
Finally, section 40(6) provides that where a bank or building society refuses to open a current account in accordance with the requirements of section 40, the bank or building society must tell the person of the reason for refusal, if it can do so lawfully. The duty to inform the person of the reason for refusal is to enable the person, if relevant, to contact the immigration authorities if they consider that they are not, or should not be, disqualified from opening an account. However, the duty to inform is subject to any other provision that would prevent a bank or building society from communicating information to the person. For instance, if informing the person would amount to an offence under section 333A (tipping off: regulated sector) of the Proceeds of Crime Act 2002, the bank or building society could not tell them.
The Treasury is empowered under section 41(1) to make regulations, subject to the affirmative resolution procedure, enabling the City watchdog – the FCA – to make arrangements for monitoring and enforcing compliance with the prohibition imposed on banks and building societies by section 40. Under section 41(2)(a), the regulations may provide for the FCA to be given free access to the information held by the anti-fraud organisation or data-matching authority specified for the purposes of section 40 which is accessed by banks and building societies. Such access may be necessary to ensure effective regulation and enforcement by the FCA. Moreover, section 41(2)(b) provides any regulations may correspond to any provisions of the Financial Services and Markets Act 2000 (FSMA), in particular those listed in section 41(3), with or without modification.
Section 41(3) sets out specific matters that the regulations may cover in order to ensure the FCA can take such steps as necessary to put in place appropriate arrangements to combat and deter breaches of the obligations under section 40 by banks and building societies. The reference to “criminal offences” at section 41(3)(a) will, for example, enable the regulations to make it an offence for banks and building societies to mislead the FCA.
“Bank” and “building society” take the definition provided by section 42 and section 42(1) states that for the purposes of these provisions, a “bank” is an “authorised deposit-taker” that has its head office or a branch in the UK. This is subject to the exclusions set out at section 42(4). Moreover, an “authorised deposit-taker” under section 42(2) is defined consistently with the relevant provisions of FSMA and section 42(3) provides this definition does not include bodies that have permission to accept deposits only for the purposes of or in the course of another form of activity (for example insurance companies). “Building society” under sections 40, 41 and 42 means a building society incorporated (or deemed to be incorporated) under the Building Societies Act 1986.
Bank Account Regulations
The connected “regulations” are known as the Immigration Act 2014 (Bank Accounts) Regulations 2014. Under regulation 1, they entered into force on 12 December 2014 and they have made their way into the FCA’s Handbook in the form of the Immigration Regulations Instrument 2014 (FCA 2014/61).
The regulations operate by applying and making provisions corresponding to provisions of FSMA and enable the FCA to enforce the prohibition in section 40(1) (Prohibition on opening current account for disqualified persons) of the 2014 Act. As explained by Arden LJ in FSA v Fradley and Anor  EWCA 1183, FSMA is the “portmanteau statute” that deals with all kinds of investment activity, not just activities in traditional investments such as securities. (I could never fully understand why her Ladyship was not elevated to the Supreme Court, it must have been because of some string pulling in the old boys network, or a “quota system” for white men, and it must therefore also be awfully lonely at the top for Lady Hale DPSC.)
As noted above, section 40(1) of the 2014 Act prohibits certain banks and building societies (who the regulations refer to as “current account authorised persons”) from opening current accounts for “disqualified persons”. Within the meaning of sections 40(2) and 40(3)(b), as highlighted above, a person is “disqualified” for the purposes of section 40 in the event if (i) he or she is in the UK; (ii) he or she requires leave to enter or remain in the UK but does not have such leave; and (iii) if he or she is a person for whom the secretary of state considers that a current account should not be opened by a current account authorised person. Accordingly, enforcement action may be taken against current account authorised persons and, in certain circumstances, against the approved persons of current account authorised persons (approved persons include persons in certain senior management roles).
Part 2 of the regulations makes provision about the – shoot first and ask questions later – FCA and the watchdog is to perform certain functions in relation to the supervision of compliance with the regulations and section 40 of the 2014 Act, including with respect to putting in place arrangements designed to enable it to enforce the prohibition in section 40(1) and the requirements of the regulations, as well as with respect to complaints, penalties and fees. Notably, part 2 also provides for the FCA to be exempt from damages where it is carrying out its functions under the regulations. (See my post on the Supreme Court’s decision in FSA v Sinaloa Gold & Ors  UKSC 11 where Lord Mance JSC held that no general rule exists whereby an authority – like the FSA/FCA – acting pursuant to a public law duty, should be required to give a cross-undertaking in respect of losses incurred by third parties.)
Moreover, part 3 of the regulations provides for reporting and information. It makes provision for record keeping on the part of current account authorised persons, applies reporting obligations to the FCA on the part of current account authorised persons, and provides for the FCA to obtain relevant information from current account authorised persons and from organisations or authorities specified by the secretary of state (pursuant to section 40(3)(a) of the 2014 Act) with whom current account authorised persons are required to check to identify disqualified persons. Part 2 also applies restrictions on disclosure of relevant information by the FCA.
Part 4 provides for the FCA with investigatory powers (with appropriate modifications) by applying certain part 11 provisions under FSMA. Disciplinary measures and offences for breach of the prohibition in section 40 of the 2014 Act or the requirements of the regulations are provided for under part 5. Importantly, regulations 15 and 16 permit the FCA to publish a statement where it considers that a current account authorised person has breached a relevant requirement or where an approved person has been knowingly concerned in such a breach. The FCA has the ability to impose financial penalties for such conduct under regulation 17 and regulations 18 and 19 enable the FCA to restrict permissions under FSMA to carry out regulated activities and to suspend or restrict approvals of performance of controlled functions (under FSMA). Furthermore, it is an offence to mislead the FCA under regulation 20 and regulation 21 limits the extent to which a person can be liable for both misleading the FCA (under regulation 20) and to a penalty imposed pursuant to regulation 17. Finally, regulations 22 and 23 make provision for proceedings under regulation 20.
It is worth noting that part 6 sets out procedural requirements to be followed by the FCA when taking disciplinary action under part 5, including with respect to warning notices and decision notices where the FCA proposes or decides to take disciplinary action and the ability of persons concerned to refer to the Upper Tribunal (see rules, not to be confused with the underperforming immigration chamber of the Upper Tribunal). Lastly, part 7 applies the provisions in FSMA on references to the Upper Tribunal with appropriate modifications.
For newcomers to the field of financial misconduct, the procedural summary provided in the FCA’s enforcement guide is helpful but it is not a substitute for the Handbook (which is as complex as the random Immigration Rules). In actionable cases of misconduct against regulated firms, a Preliminary Investigation Report (PIR) is submitted to the Regulatory Decisions Committee (RDC) – composed of practitioners and non-practitioners representing the public interest and not part of the investigation team – which considers the response to the PIR. As an administrative decision-maker, the RDC does not engage in a judicial process.
Although representations are made before the RDC, full evidential analysis and the examination and cross-examination of witnesses does not take place and the concepts of burden and standard of proof are not strictly relevant. Notably, The FCA operates an interesting system of providing discounts on financial penalties.
The settlement discount scheme applied to financial penalties is such that all but one of the stages, namely stage 4, in the scheme allow a reduced penalty. Timing is vital in acquiring discounts which are tied to the enforcement procedure. Stage 1, the early settlement stage which runs from the time the investigation commences until the amount of the penalty is communicated (allowing a reasonable opportunity to achieve settlement), attracts a discount of 30% of the penalty imposed. Stage 2, which lasts from the end of stage 1 until the expiry of making written representations to the RDC, attracts a discount of 20%. Stage 3, which runs from the end of stage 2 until a decision notice is given, attracts a discount of 10%. Subsequently, proceedings in the Tribunal and any related appeals fall within stage 4 and no reduction in penalty arises.
Depending upon the type of action that is taken, FSMA provides different tests which are particular to the action contemplated; financial penalties under section 206 against authorised persons for breaches of the rules of conduct require the FCA to “consider” that a breach occurred; section 123 requires the FCA to be “satisfied” that market abuse has occurred.
Where appropriate the RDC sends a warning notice that further action is intended. Upon receiving the notice, the recipient not only has the right to see the material used to make the RDC’s decision but also has the right to access secondary material undermining the FCA’s case. Oral and written representations (within 14 days, extendable upon application) to the RDC’s warning notice should be made following which the RDC should reconsider the case in light of the representations made and any new information available.
After the reconsideration, where appropriate, the RDC issues a decision notice. If the recipient feels that they are wrongly notified of a fine, then they may refer their case to the Upper Tribunal (Tax and Chancery) within 28 days from the date of the decision notice. Moreover, subject to the provisions in the procedural rules, the Upper Tribunal also has discretion to allow references to be made after the 28-day time limit has expired.
The Future of the FCA
Just a couple of years after its inception, the FCA is already in the doldrums like its poorly performing predecessor organisation, the FSA. I have flagged up Wheatley’s cock-up above, here is some more information on it. In oral evidence tendered to the Treasury Committee on 27 January 2015, he retracted the statement about “shooting first” and expressed regret about what he had said. Against that, stressing the debilitating effects of historic incompetence (which remains unresolved without a “good deal of further work”), a bewildered Andrew Tyrie lamented:
The FCA has needed to grapple with the legacy of the serious problems it inherited from the FSA.
In contrast to the FCA Practitioner Panel, which acknowledged that the disaster was an “unavoidable consequence of the direction of travel of the FCA’s media policy”, as regards the FCA’s conduct Tsar the Treasury Committee concluded that:
Martin Wheatley did not accept that the FCA’s communications strategy was to blame for the events of 27 and 28 March … It is incorrect to claim, as Martin Wheatley has done, that the communications strategy was not in some way to blame for the events of 28 March 2014. The Committee is concerned that Mr Wheatley still does not acknowledge this.
My purpose here is to make the point that financial regulators are just as gung-ho as the Home Office. Wheatley’s behaviour paradigmatically illustrates this fact. If, like former JPMorgan executive Achilles Macris (see my post and Gloster LJ’s judgment currently being appealed by the FCA to the Supreme Court), you are a third party identified in enforcement action by the FCA in a final notice, if possible, you would probably prefer to switch predicaments and opt to deal with the Home Office instead. (Under FSMA, the FCA must desist from naming and shaming people in final notices but it does so in any event.) On the other hand, financial institutions are famous for cheating and have paid “record” fines over the last five years. However, regulators are equally famous for being inept at real-time and efficient enforcement work; in fact, if anything, their mistakes far exceed the egregious inefficiencies evidenced in the immigration “legacy exercise”.
Yet Wheatley – who was known as the “grey vampire” in the FCA and is considered to be an introverted and insipid individual by insiders – rejected reality and maintained:
I don’t accept that it’s a dysfunctional organisation or that we need a root-and-branch review.
Wheatley had personally approved the type of press pre-briefings – representative of a high-risk media policy that remained oblivious to the price sensitive nature of the information delivered to the Telegraph – which resulted in the debacle. Ultimately, such hard facts made a telling paradox for a man who refused to be captured by the industry but was dealt quite a bitter blow for his attempts to capture the press.
More red tape can only make things worse for immigrants. No doubt, the banking provisions of the 2014 Act are hurting many innocent people – they must be because that is exactly what they are deigned to do.
Outsourcing immigration law enforcement to the banks is a highly questionable thing. Arguably, it may be inappropriate for corporate entities to play a part in law enforcement at all (think privately run detention centres, private security companies killing innocent people while enforcing the law etc). The problem is magnified because the FCA is highly inefficient and its supervision of financial firms is rather weak. Financial misconduct in the banks is rife albeit some rogue traders have been made examples of to appease society. Indeed, things are looking dreadful for the dozen or so individuals charged by the Serious Fraud Office for manipulating financial benchmarks. The disproportionate sentence of 14 years’ imprisonment recently passed on Tom Hayes was enough to make one of them plead guilty, Hayes is a clearly a scapegoat because everyone at UBS – Switzerland’s largest lender – knew what was happening and Hayes said at trial that the bank distributed “an instruction manual on fixing LIBOR”. As we know so well the banks cannot manage to keep out of trouble, they are constantly being sucked into the quicksand of corporate cheating and – as the Conduct Costs Project reports, see post here – from 2010 to 2014 they have paid more than £200 billion in fines for their bad behaviour and misconduct.
Insofar as benchmark fixing is concerned, these days there is little room for doubt that the LIBOR scandal was just the tip of the iceberg because the rigging of the $5.3 trillion-a-day forex markets completely dwarfs the total $500-$800 trillion value of financial contracts underpinned by LIBOR. Citigroup, JPMorgan Chase & Co, Barclays and RBS all pleaded guilty in May in forex related criminal cases. Moreover, forex fixing claims worth billions are brewing in London – a colossal currency market – because of August’s $2 billion payout in New York by household names such as Barclays, HSBC and RBS and numerous others who will be enforcing the banking provisions of the 2014 Act.
Indeed, the settlement of class action litigation with investors, arising out of the rigging of WM/Reuters 4pm London Fix, has been tipped as opening the floodgates. This comes off the heels of May 2015’s foreign exchange (forex or FX) rigging penalties of $5.6 billion: watch excellent video on how the “Cartel” and “Coiled Cobra” rigged the marketplace.
So can the banks be trusted to enforce immigration law? No they probably cannot be. In fact as the emissions testing scandal shows in the case of car manufacturers, corporate entities almost always lie, cheat, steal, mislead, disguise, obfuscate, feign, distort, and confuse in order to maximise their advantage and to milk the market for profit.