The FCA’s recent prohibition of Joseph Molloy, a former senior HSBC Asset Management executive, has attracted attention because the underlying misconduct occurred entirely outside financial services. 

Following his conviction for fraud by false representation arising from a scheme to avoid paying train fares, the FCA prohibited him from performing any function in relation to regulated activities, concluding that the conviction demonstrated a serious lack of honesty and integrity.

The FCA imposed this extensive prohibition notwithstanding that the conduct occurred wholly outside financial services and despite Mr Molloy's guilty plea.

With non-financial misconduct now a clear regulatory priority, the case gives rise to an important question about the relevance of evidence of remorse, rehabilitation and proportionality in the assessment of fitness and propriety.

Does the FCA always make a prohibition order following conviction? 

There is no automatic rule that a criminal conviction results in a prohibition order. The FCA must assess the relevance of the conduct to the individual's fitness and propriety, having regard to all the circumstances of the case.

The FCA has on a number of occasions prohibited individuals following convictions for misconduct outside financial services, including serious sexual and violent offences. Nor is an indefinite prohibition following a conviction unusual.

There are useful comparators. In the case of Matthew Creed, who had been convicted of fraud, the individual argued that a three-year prohibition would be sufficient. The FCA rejected this, stating that it “does not have the power to issue a time-limited prohibition order”. It also declined to indicate that the prohibition should be revoked after a specified period.

Similarly, in the case of Paul Seakens, convicted of serious fraud and money-laundering offences and sentenced to 13 years’ imprisonment, the FCA rejected an argument that the prohibition should last only for the prison sentence. It again stated that it could not impose a time-limited prohibition and declined to give a prospective revocation indication.

What arguments can a person facing a prohibition order deploy?

An important point is that the FCA's prohibition power under section 56 FSMA is not binary.

The FCA can impose a full prohibition, covering any function in relation to any regulated activity, or a limited prohibition, restricted to specified functions, regulated activities, or even employment by a particular firm or type of firm.

Although the FCA considers that it cannot make a section 56 prohibition itself time-limited, its policy permits it to say in the Final Notice that it would be minded to revoke or vary the prohibition after a specified number of years, if the individual applies and there is no new evidence of unfitness. 

The FCA stresses that such an indication is not a guarantee of revocation: the individual must still satisfy the FCA that the underlying risk has been addressed and that they are fit and proper.

In practice, therefore, the principal means by which the FCA may recognise evidence of rehabilitation are through the scope of the prohibition imposed and, where appropriate, through an indication that it would be prepared to consider revocation in the future.

In the Frensham case before the Upper Tribunal, a post-conviction prohibition was challenged on grounds including proportionality and Article 8 ECHR (the right to respect for private life). Although unsuccessful on the facts, the Tribunal recognised that such considerations may be engaged when determining whether a prohibition is appropriate.

A prohibition order is therefore capable of being revisited in the future, either through the FCA's willingness to consider revocation or through an application under section 58 FSMA.

Proportionality: the next frontier in NFM cases?  

The Molloy case does not mark a departure from existing FCA policy. The regulator has long treated criminal dishonesty, whether inside or outside financial services, as highly relevant to fitness and propriety. 

The more interesting question is whether, as the FCA's expanded non-financial misconduct regime takes effect, and a wider class of conduct cases require consideration, greater attention will be paid to proportionality, rehabilitation and the circumstances in which an individual should be given a realistic pathway back into regulated activity. Those issues may prove to be the next frontier in FCA prohibition cases.