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.
- Characterisation in domestic law (not conclusive).
- Nature of conduct: does it overlap with criminal
- 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
- 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.
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).
10. Lord Lester of Herne Hill QC
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,
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. 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
The Minister and Mr Kentridge admitted that fines are punitive
and deterrent in nature.
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
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.
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
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
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.
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 appliedat least as regards privilege
against self-incrimination; therefore this proposal might be seen
as a clarification of the Government's proposals rather than a
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
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
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
13. See LIBA, Appendix 9, para 13. Back
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, paragraphs 102-110; Q4. Back
Chance, Appendix 5; LIBA, Appendix 9, para 10; Lord Steyn, Appendix
3; Lord Lester, Appendix 2, para 15. Back
17, paragraph 108. Back