Tribunal Upholds Ban And Fines For Corrupt And Dishonest Adviser

The Upper Tribunal has upheld the FCA's decision to ban Darren Antony Reynolds from working in financial services and fine him £2,037,892. The FCA has issued a Final Notice as a result.

The FCA made its decision in 2023, following a warning in 2022. The FCA concluded that Mr Reynolds lacked honesty and integrity and was therefore not a fit and proper person to perform functions in relation to any regulated activity.

The Tribunal found that Mr Reynolds was dishonest when he gave pension transfer advice and investment recommendations to his customers, causing them significant harm.

Mr Reynolds showed a clear disregard for his customers' interests. He encouraged British Steel Pension Scheme members to transfer out of their defined benefit pension scheme, despite knowing that the advice was wholly unsuitable. He also advised his customers to invest in high-risk and unsuitable products while at the same time hiding high exit fees and forging documents.

Mr Reynolds' misconduct exposed hundreds of people to serious financial loss. Over £17.6 million has been paid in compensation to more than 470 affected customers, many of whom suffered losses more than statutory compensation limits.

In addition, Mr Reynolds permitted two unapproved people to give pension advice, which put customers at risk. When confronted with his misconduct, he lied to regulators, allowed important evidence to be destroyed, and moved his family home into a trust to avoid paying his debts.

The Tribunal noted that 'Mr Reynolds is clearly guilty of dreadful misconduct over a protracted period, which had very serious adverse impacts on many retail customers. He is, as the Authority alleged, a corrupt and dishonest man lacking integrity.'

In addition to the FCA's enforcement action, Mr Reynolds was disqualified in May 2021 from acting as a company director for 13 years following an investigation by the Insolvency Service.

Key takeaways

Mr Reynolds' reference to the Upper Tribunal ultimately addressed two grounds: limitation and disgorgement. The key takeaways from the judgment on these two grounds are as follows.

Limitation: how to determine the point at which conduct could and should reasonably have been inferred by the FCA from information available to it.

The Upper Tribunal considered the three cases on limitation cited to it: Jeffery v FCA, (Ref: FS/2010/0039) (decided at a time when the limitation period was 2 years rather than 6 years); Burns v FCA, [2018] UKUT 246 (TCC); and Page & Ors v FCA, [2022] UKUT 124 (TCC) (a very long and complex decision of which limitation forms only a very small part).

From those cases, the Upper Tribunal identified the following considerations concerning limitation:

• The FCA cannot start proceedings under section 66 of the Financial Services and Markets Act 2000 ("FSMA") more than six years after the first day on which it knew of the misconduct in respect of which it is taking action.
• As well as actual ("subjective") knowledge, the FCA is treated as knowing about (it has "objective knowledge" of) misconduct if it has information from which that misconduct can reasonably be inferred.
• As a result, the first step is to identify the precise misconduct which the FCA contends the person is guilty of, including both what the person did or did not do that was wrong and any relevant attitude or state of mind.
• So far as objective knowledge is concerned, the next step is to identify the information the FCA had at a particular point in time and ask if that was sufficient for that misconduct to be reasonably inferred. To start the limitation clock running, the FCA must have information which gives it a broad knowledge of the essence of the issue in question, which addresses all the required features of the misconduct (including any subjective factors such as recklessness or dishonesty on the part of the subject), and that information must be of a quality that enables a conclusion (rather than just a suspicion) to be drawn.
• It is not possible to infer (as opposed to allege or suspect) dishonesty, or recklessness for that matter, without some information about what an individual actually knew or believed (in the case of dishonesty) or appreciated (in the case of recklessness).
• Knowledge of misconduct not included in the warning notice does not start the limitation clock running in relation to the misconduct in question, even if it is very similar behaviour by the same person, or related behaviour by connected people.

In Mr Reynolds' case, the warning notice and decision notice alleged dishonest misconduct, and the date at which the FCA had information from which it could infer that Mr Reynolds' misconduct was dishonest was such that the limitation ground failed.

Disgorgement

When calculating the financial penalty, the Step 1 calculation is designed to make an individual disgorge any benefit obtained from their wrongdoing and is not intended to penalise the individual for their wrongdoing, which is the proper function of subsequent steps in the penalty calculation. Where some of the benefit received may need to be repaid to third parties, but if any repayment will be made is in doubt and the amount of any potential repayment is not known, the penalty may be subject to subsequent adjustment either before or after it is paid.

When it comes to the element of the benefit that may need to be repaid to HMRC, the calculation of any tax liability should take the full value of all available losses, reliefs etc into account (even if they might also be available against other unrelated amounts), to make sure that any reduction in the financial penalty is not effectively funding tax that the individual, here Mr Reynolds, might otherwise be liable to pay at some point.

The FCA noted that in this matter, Mr Reynolds was very unlikely to be able to pay the financial penalty, and that once a final notice was issued he would probably be declared bankrupt. The FCA agreed that, if that situation arose, it would not claim the full financial penalty in Mr Reynolds' bankruptcy. It would reduce its claim by the amounts that third parties successfully claimed for the benefit he received from the wrongdoing, as long as the bankruptcy trustee accepted those claims.

Lastly, concerning interest on the disgorged amount, the FCA conceded following Toni Fox-Bryant & Anor v FCA, [2025] UKUT 87 (TCC), that the rate of interest should not automatically be 8%. The Upper Tribunal decided in Mr Reynold's case that the Step 1 (disgorgement) amount was to be increased by reference to (a) any measurable economic benefits derived by using or investing all or part of those monies or (b) in the absence of any such benefits, or if such benefits do not fully reflect the value to Mr Reynolds of having received benefits some time previously, by charging interest on those monies using an interest rate equal to the Bank of England Base Rate from time to time compounded every six months.

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