FCA charts ‘middle courseʼ in pleadings before UK Supreme Court

The Financial Conduct Authority (FCA) proposed a middle route between the “two extremes” of treating all motor brokers as fiduciaries and abolishing the tort of bribery, during the Supreme Court hearing on April 3.

The former would be “too sweeping”, the latter a “surprising outcome”, said Jemima Stratford KC, intervening for the FCA. Adopting the middle ground would address a potential lacuna in the law regarding agents who do not owe fiduciary duties, she added.

The FCA’s primary concern was with conflicts of interest arising from secret payments by third parties to agents — motor dealers, in the cases before the Supreme Court. The tort of bribery should be available in instances where there is a “real prospect of a conflict of interest between the agent’s underlying duty and their personal interest in receiving a commission”, Stratford said.

Intervention

Stratford said the FCA had sought to intervene in the cases — Hopcraft versus Close Brothers, Wrench versus FirstRand and Johnson versus FirstRand — to assist the court in understanding what the regulator required of firms. Its Principle 8 obliged firms to manage conflicts of interest fairly, including between itself and its customers.

“[Principle 8] does not presume that regulated firms are always performing an advisory function, such as to owe fiduciary duties, and it does not prohibit conflicts of interest. Rather, it requires them to be managed fairly,” she said.

Principle 8 was a “highly pertinent example” of regulation that differs from the obligations recognised by the Court of Appeal, whose decision effectively said that motor dealers owed a fiduciary duty to their customers.

Clarity

Common law and regulation could diverge, Stratford said, but when this occurred it “should be acknowledged and explained” — not least so there could be certainty for future cases, and the FCA could consider if its handbook should be changed.

Legal certainty was important to the FCA’s review of historic motor finance sales and its wider work Stratford said. The court’s decision, and that in the Court of Appeal judgment in the separate Barclays versus the Financial Ombudsman Service case, were “key elements” for the regulator when it decides the outcome of its motors sales review.

The FCA was “seeking as much certainty as possible” from the Supreme Court.

Lord Reed, president of the Supreme Court, said the court aimed to provide its decision by mid-July.