Judgment summary
This case concerns references to the Upper Tribunal (Tax and Chancery Chamber) by Rangecourt SA (formerly Banque Havilland SA), Mr Edmund Rowland and Mr Vladimir Bolelyy against Decision Notices issued by the Financial Conduct Authority (FCA) on 17 January 2023 (paragraph 3).
The Decision Notices followed an FCA investigation into a document ("the Disputed Document") produced in September 2017 by employees of the Bank, which described a strategy involving unlawful market manipulation intended to put pressure on the Qatari Riyal and harm the Qatari economy amid the Gulf diplomatic crisis (paragraphs 1-2, 67).
The FCA alleged that the Bank breached Principle 1 (integrity) of the FCA Handbook, that Mr Rowland and Mr Bolelyy breached Individual Conduct Rule 1, and it imposed financial penalties on all three together with prohibition orders on Mr Rowland and Mr Bolelyy (paragraphs 5-10). A fourth individual, Mr David Weller, was also subject to enforcement action but did not refer his Decision Notice, though he gave evidence (paragraph 3). Mr David Rowland, father of Mr Rowland and protector of the family trust owning the Bank, made third party references challenging certain inferences drawn about him in the Decision Notices (paragraph 13).
The Tribunal made extensive findings of fact, concluding that Mr Rowland had instructed Mr Bolelyy to prepare the document, that the task mutated into an unlawful strategy of market manipulation (likely at a meeting in September 2017), that Mr Weller made a substantial contribution, that Mr Rowland was aware of the document's contents well before he claimed, and that following publication of the document by The Intercept in November 2017, Mr Rowland and Mr Bolelyy engaged in a cover-up involving false statements to the Bank, the CSSF and the Authority (paragraphs 456-498).
The Tribunal held that the Bank's conduct, through Mr Rowland and Mr Weller acting in the course of their employment, amounted to a breach of Principle 1, applying principles analogous to vicarious liability in tort to determine what constitutes a firm's 'business' (paragraphs 502-571). It also held that the activities constituted ancillary activities in relation to designated investment business under PRIN 3.2.1A (paragraphs 602-611).
The Tribunal reduced the Bank's penalty from £10m to £4m, taking into account mitigating factors including the Bank's cooperation and investigation costs of approximately £2.5m (paragraphs 631-641). It confirmed the penalties of £352,000 on Mr Rowland and £14,200 on Mr Bolelyy, and upheld the prohibition orders against both individuals (paragraphs 660-697, 723-725). Mr David Rowland's third party references were largely accepted in substance but dismissed as no remittal was sought (paragraph 726).
Background
The Bank was a privately-owned bank established in 2009 following the restructuring of Kaupthing Bank Luxembourg, owned by a family trust of which Mr David Rowland was protector and Honorary President (paragraph 18). Mr Rowland was a Board director and employee of the Bank's UK Branch, Mr Weller was Head of Asset Management (UK Branch), and Mr Bolelyy was employed as Mr Rowland's personal assistant with the contractual title of senior investment analyst (paragraphs 20-24).
In 2017, Gulf states including the UAE imposed sanctions on Qatar amid a diplomatic crisis (paragraph 39). Following a meeting on 30 August 2017 between Mr Al Mubarak of Mubadala (a UAE sovereign wealth fund), Mr David Rowland and Mr Rowland, Mr Al Mubarak made a request relating to protecting UAE banks' Qatari investments (paragraphs 46, 298).
Mr Rowland subsequently instructed Mr Bolelyy to prepare a document. With input from Mr Weller and others, the document evolved through 12 versions between 12 and 18 September 2017 into a strategy involving 'crossing transactions', wash trading, purchase of credit default swaps, and use of a PR campaign to place pressure on the Qatari Riyal, described as intending to 'control the yield curve' for Qatari bonds (paragraphs 50-67).
The document came into the public domain via an Indian newspaper article on 12 October 2017 and an article by The Intercept published on 9 November 2017 (paragraphs 77, 93). Mr Bolelyy resigned on 9 November 2017 and took responsibility for the document; Mr Weller was later dismissed (paragraphs 95, 120). The Bank commissioned an internal investigation ('Project Gulf') by PwC costing approximately £2.5m (paragraph 108). The Authority commenced its own investigation in early 2018, issuing Warning Notices in October 2021 and Decision Notices in January 2023 (paragraphs 122-123).
Core dispute
The central issues were whether the Disputed Document formed part of the Bank's 'business' for the purposes of Principle 1 of the FCA Handbook, whether the conduct of Mr Rowland and Mr Weller could be attributed to the Bank, and whether that conduct amounted to regulated activities or ancillary activities in relation to designated investment business under PRIN 3.2.1A (paragraph 129, 499).
For Mr Rowland, the dispute was whether his conduct in connection with the Disputed Document breached Individual Conduct Rule 1 (acting with integrity), whether Rule 1 applied to his conduct, and whether the penalty and prohibition order were proportionate (paragraphs 7-8, 139-140).
For Mr Bolelyy, the dispute included whether he fell within the 'personal assistant' exception in COCON so that the Individual Conduct Rules did not apply to him, whether his conduct lacked integrity given his state of mind (including a disputed diagnosis of autism), and whether disciplinary action, penalty and prohibition were appropriate (paragraphs 141-146).
A further dispute concerned whether and to whom the Disputed Document was disseminated, particularly whether it was provided to representatives of Mubadala, which bore on the seriousness of the conduct (paragraphs 404-424).
Mr David Rowland's third party references disputed specific adverse inferences drawn against him in the Decision Notices concerning his influence over the Bank, his awareness of the Disputed Document, and whether it was created to promote 'Rowland Family interests' (paragraphs 147-149).
Court findings
The Tribunal found that Mr Rowland's evidence was 'most unsatisfactory' and in significant respects untrue, including as to his role after relinquishing the CEO title, the instructions he gave Mr Bolelyy, his attendance at the key September meeting, and his knowledge of the Disputed Document's contents before November 2017 (paragraphs 159-160, 440-456).
The Tribunal found that Mr Bolelyy's evidence was also unsatisfactory and in significant respects untrue, though it accepted, on balance, that he likely suffers from autism; nevertheless this did not excuse his conduct or explain away his lack of integrity, as he understood the improper nature of the strategy by the time later versions were produced (paragraphs 191-194, 667-681).
The Tribunal found that the task set for Mr Bolelyy mutated from a legitimate hedging request into an unlawful market manipulation strategy, most likely at a meeting on or about 12 September 2017 attended by Mr Rowland, Mr Bolelyy, Mr Weller, Mr Unwin and Mr Henry, and that Mr Rowland was aware of and approved this development (paragraphs 340-358).
The Tribunal found that following publication of the Intercept Article, Mr Rowland and Mr Bolelyy engaged in a deliberate cover-up, providing false accounts to the Bank, the CSSF and the Authority, portraying the document as a non-Bank hedging note unreviewed by Mr Rowland (paragraphs 457-498).
The Tribunal was not satisfied that the Disputed Document was actually disseminated to anyone at Mubadala, and considered it would be procedurally unfair to make such a finding given pleading deficiencies (paragraphs 422-424).
On the legal test for 'business' under Principle 1, the Tribunal held that principles analogous to vicarious liability in tort (rather than the 'directing mind' test from Tesco Supermarkets v Nattrass) were the appropriate guide, and found that Mr Rowland and Mr Weller were acting in the course of their employment such that their conduct was Bank business and attributable to the Bank (paragraphs 502-571).
The Tribunal held that the Disputed Document did not amount to 'advising on investments' (Article 53 RAO) or 'arranging deals in investments' (Article 25 RAO) because it did not relate to particular identified investments, but did constitute an ancillary activity in relation to designated investment business under PRIN 3.2.1A (paragraphs 584-611).
The Tribunal found the Bank's breach of Principle 1 to be very serious (level 5), warranting a Step 2 figure of £5m, reduced to £4m for mitigating factors including cooperation with regulators and the £2.5m investigation cost (paragraphs 631-641).
For Mr Rowland, the Tribunal found a level 5 breach with serious aggravating factors (lying to the Authority and orchestrating a cover-up), concluding that the £352,000 penalty set by the Authority was the minimum required for credible deterrence (paragraphs 654-661).
For Mr Bolelyy, the Tribunal found a level 4 breach reflecting his junior status, with no aggravating or mitigating factors warranting adjustment, and confirmed the £14,200 penalty (paragraphs 685-690).
The Tribunal upheld the prohibition orders against both Mr Rowland and Mr Bolelyy as within the range of reasonable decisions open to the Authority (paragraphs 693, 697).
On Mr David Rowland's third party references, the Tribunal found insufficient evidence to support inferences that he had influence over the Bank's management, that he was aware of the Disputed Document's contents before 18 September 2017, or that he knew it had been provided to Mubadala, though it accepted that Mr Rowland had intended to promote both Bank and wider Rowland Family interests (paragraphs 703-718).
Outcome
The Tribunal reduced the Bank's financial penalty from £10m to £4m for breach of Principle 1 and remitted the matter to the Authority with a direction to give effect to that determination (paragraph 723).
The Tribunal confirmed Mr Rowland's financial penalty of £352,000 for breach of Individual Conduct Rule 1 and dismissed his reference in relation to the prohibition order (paragraph 724).
The Tribunal confirmed Mr Bolelyy's financial penalty of £14,200 for breach of Individual Conduct Rule 1 and dismissed his reference in relation to the prohibition order (paragraph 725).
Mr David Rowland's third party references were dismissed, as he did not seek remittal to the Authority for reconsideration despite the Tribunal accepting most aspects of his case (paragraph 726).
Major issues / areas of contention
- Whether the Disputed Document, describing an unlawful market manipulation strategy against Qatar, formed part of the Bank's 'business' for the purposes of Principle 1 of the FCA Handbook.
- Whether the conduct of Mr Rowland and Mr Weller in producing the Disputed Document was attributable to the Bank, including the correct legal test for attribution (vicarious liability analogy versus the 'directing mind' test from Tesco Supermarkets v Nattrass).
- Whether the conduct amounted to the carrying on of a regulated activity (advising on investments or arranging deals in investments) or an ancillary activity in relation to designated investment business under PRIN 3.2.1A.
- Whether Mr Rowland acted without integrity in breach of Individual Conduct Rule 1, including whether he was truthful about his knowledge of the Disputed Document and his role in an alleged cover-up.
- Whether Mr Bolelyy, as Mr Rowland's personal assistant, fell within the COCON exception for personal assistants such that the Individual Conduct Rules did not apply to him.
- Whether Mr Bolelyy acted without integrity, taking into account his state of mind, understanding of the strategy, and disputed diagnosis of autism.
- Whether the Disputed Document was disseminated to representatives of Mubadala, and the procedural fairness of the Authority's pleaded case on dissemination.
- Whether the financial penalties imposed on the Bank, Mr Rowland and Mr Bolelyy were proportionate and correctly calculated under the Authority's five-step penalty framework.
- Whether the prohibition orders against Mr Rowland and Mr Bolelyy were reasonable decisions open to the Authority.
- Whether adverse inferences drawn against Mr David Rowland in the Decision Notices, concerning his influence over the Bank and awareness of the Disputed Document, were justified.