Integrity – a Cornerstone of the Island’s Finance Industry
All principals of regulated financial services businesses are required by Jersey's regulatory laws and Codes of Practice to ensure their business is conducted with integrity at all times.
In the recently-released landmark judgment in the appeal of Francis v The JFSC the Royal Court has fully endorsed the JFSC’s findings that Mr Francis, the former CEO and principal shareholder of the Horizon Group, had acted with a most serious lack of integrity and incompetence of a very serious kind. The Royal Court also agreed with the JFSC that a ban from working in the Island’s finance industry was a reasonable sanction.
The Royal Court specifically considered whether the correct approach had been adopted in relation to the concept of “integrity”. In Mr Francis’ case, in advance of the final hearing before the Board of Commissioners, it was made clear that the JFSC would be adopting the approach set out in English legal authorities and that legal position was explained.
The Royal Court found Mr Francis had failed to give any meaningful consideration to the risks and appropriateness of the series of investments made with Horizon client monies. Client monies were invested under a form of debt instrument owed by the media rights company, Handmade, which was in deep financial difficulty and at risk of insolvency when the investments were made. The Royal Court took particular notice of the fact that banks invariably look not only to the value of the security offered but also to the ability of the debtor to service the debt. The security in this case was found to be clearly illiquid. Finally, Mr Francis was found to be “scrambling around” trying to find available client monies to fund urgent payments to creditors to try to keep Handmade afloat. There was found to be ample evidence that Mr Francis was not fulfilling his fiduciary obligations towards the Horizon clients in question.
The English cases recognise the difficulty in defining “integrity” in a vacuum and have guarded against a comprehensive definition. Indeed, “integrity”, or acting with a lack of it, should be readily recognisable by those with the experience and knowledge of the particular business being conducted. It will always have to be assessed as against the specific facts of the case.
In Hoodless and Blackwell v FSA (2003) the UK Financial Services and Markets Tribunal endorsed the following guidance:
“integrity” connotes moral soundless, rectitude and steady adherence to an ethical code. A person lacks integrity if unable to appreciate the distinction between what is honest and dishonest by ordinary standards.”
In Milan v Vulkelic v FSA (2009) the complainant was found to be “not dishonest but lacked integrity” in turning what was considered a blind eye to the obvious. In First Financial Advisors Ltd v FSA (2012), the Upper Tribunal concluded that:
“even though a person might not have been dishonest, if they either lack an ethical compass, or their ethical compass to a material extent points them in the wrong direction, that person would lack integrity.”
In that case, the individual’s failure to appreciate or manage conflicts of interests was held to go to the question of a person’s integrity and reputation as well as competency and capability. The Court did not accept that there was any distinction between a conflict of interest and a potential conflict of interest. Similar issues lay at the heart of the Francis v JFSC case with conflicts of interests not having been managed at all: the Royal Court found the guidance in First Financial Advisors to be particularly helpful and concluded that the evidence that Mr Francis had lost his ethical compass was overwhelming.
Advocates Beverley Lacey and Eloise Layzell appeared on behalf of the JFSC. Solicitor Michelle Cabot project-managed the case. Such appeals to the Royal Court ordinarily take half a day of court time and are heard within four months of the appeal being issued. In this unprecedented appeal, 20 interlocutory hearings took place, the appeal took almost four years to conclude and the hearing itself spanned four days. The Royal Court found Mr Francis’ appeal was a root and branch attack on the JFSC’s procedures and integrity. After lodging a further appeal to the Court of Appeal, when faced with the Commission’s application for security for costs and for enforcement of an interim payment order of £150,000, Mr Francis abandoned the appeal. The Judgment and JFSC Public Statement were then released.