The Curious Case Of Banque Havilland – A Firm Held Vicariously Liable For A Lack Of Integrity

The Upper Tribunal backs the FCA's finding that Banque Havilland breached Principle 1.

In Rangecourt SA (Formerly Banque Havilland SA) and Others v The FCA [2026] UKUT 00047 (TCC), the Upper Tribunal has upheld the FCA and the Regulatory Decision Committee's (RDC's) finding that the bank breached Principle 1 of the FCA's Principles for Businesses (a firm must conduct its business with integrity). However, the Upper Tribunal significantly reduced the FCA's penalty, taking a more liberal view of mitigating factors.

Background

The Banque Havilland case centred on the production of one document – referred to by the Upper Tribunal as the 'Disputed Document' – a presentation which contained a strategy that purportedly could force Qatar into expending its foreign reserves in order to try to maintain the peg between the Qatari Riyal and USD. This was at a time when a coalition of Gulf States, including the UAE, had severed diplomatic relations with Qatar. The FCA alleged that the Disputed Document was intended to be presented to a UAE sovereign wealth fund with the aim of illustrating the lengths to which Banque Havilland was willing to go to for its clients. It was common ground among the parties at the Upper Tribunal that the Disputed Document was improper, as the strategy it presented would have involved market manipulation, had it been implemented.

FCA action

The FCA investigated the production of the Disputed Document and issued Warning Notices to Banque Havilland and three of its employees:

• Mr Edmund Rowland, CEO of the UK Branch of the bank;
• Mr Bolelyy, whose job titles varied from personal assistant to Mr Rowland, to senior investment analyst; and
• Mr Weller, Head of Asset Management at the UK Branch.

Mr Weller was not party to the proceedings at the Upper Tribunal, having settled with the FCA in 2023; he did give evidence at the hearing.

With regard to the bank, the FCA issued the Warning Notice for breaches of Principles 1, 2 and 3 of the FCA's Principles for Businesses. Banque Havilland admitted the breaches of Principles 2 and 3 (due skill, care and diligence, and systems and controls, respectively). However, it argued against a breach of Principle 1 because:

• the conduct of the individuals did not form part of the bank's 'business';
• the conduct of the individuals was not attributable to the bank; and
• the conduct did not involve regulated activities, nor ancillary activities in relation to a designated investment business.

Banque Havilland also argued that the FCA's fine of £10 million was arbitrary and disproportionate.

The Upper Tribunal Decision

The Upper Tribunal upheld the FCA's decision that Banque Havilland breached Principle 1. However, it reduced the fine imposed to £4 million. We discuss three aspects of the Upper Tribunal's decision:

• why the Upper Tribunal considered the creation of the Disputed Document constituted 'ancillary activities';
• the reasons why the Upper Tribunal considered that the employees' acts in relation to the Disputed Document were attributable to the bank for the purposes of a breach of Principle 1, and why these reasons appear inconsistent with previous authorities in relation to attribution; and
• the reasoning for reducing the fine.

Ancillary Activities

The Bank argued that the Disputed Document was outside of the scope of the FCA Principles for Businesses pursuant to PRIN 3.2.1A as it did not relate to either regulated activities or ancillary activities in relation to a designated investment business.

The Upper Tribunal concluded that the Disputed Document could not constitute regulated activities on the basis that it was not actually 'given' to the UAE sovereign wealth fund – a requirement for the regulated activity of 'Advising on investments' under Article 53, Financial Services and Markets Act 2000 (FSMA) (Regulated Activities) Order 2001 (RAO). Additionally, it was not about a 'particular investment' – a requirement for the regulated activity of 'Arranging deals in investments' under Article 25 FSMA RAO.

However, the Upper Tribunal found that the conduct did amount to ancillary activities in relation to a designated investment business. It was not disputed that the transactions in government or corporate bonds, options and CDS that were contemplated in the Disputed Document would constitute designated investment business.

The point of debate was therefore whether the creation of the Disputed Document should be considered an ancillary activity. The relevant part of the definition of an ancillary activity applied is whether an activity is 'carried on in connection with a regulated activity'. The Upper Tribunal found that production of the Disputed Document was carried on in connection with the regulated activity of advising on investments. The fact that the bank generally carried out that activity was not in dispute.

The question was about the application of the 'in connection with' part of the test. The Upper Tribunal described this phrase as 'a broad one' and cited Rix LJ in paragraph 19 of Campbell v Conoco EWCA Civ 704 who described the phrase as 'being as wide a connecting link as one can commonly come across'. The Upper Tribunal concluded that it was 'satisfied that the Disputed Document can be viewed as being in connection with that activity even if the advice was not given to [the UAE sovereign wealth fund]. It was also in connection with that activity even though no particular investments had yet been identified'.

The judgment therefore confirms that activities that may be merely preparatory to, or an early stage in the development of, a regulated activity may be classed as an ancillary activity and therefore within scope of the FCA Principles for Businesses.

Attribution

As the Disputed Document was within the scope of Principle 1, it was necessary for the Upper Tribunal to consider whether the acts of the bank's employees should be attributed to the bank for the purposes of it being held liable for a breach of Principle 1.

The Upper Tribunal's approach to this question is of wider interest, not least as it appears to depart from previous authorities which have considered when a corporate entity should be held 'personally' or directly liable for the acts of its employees. It seems that the Upper Tribunal's approach was partly motivated by the concern that if the employees' acts were not attributable to the bank, then this may have resulted in the firm taking the benefit of its employees' actions without taking any regulatory accountability for those actions. However, in seeking to address this perceived lack of accountability, the Upper Tribunal applies tests for vicarious liability in circumstances where a breach of Principle 1 necessarily involves findings of culpability or 'personal' or direct liability on behalf of the bank. In this post, we explain why we consider this approach to be inconsistent with previous authorities in relation to the question of attribution.

The Upper Tribunal directed itself to address the following two questions when deciding whether the bank had breached Principle 1:

1. Did the Disputed Document form part of the bank's 'business' for the purposes of Principle 1? (the 'Bank Business Question'); and
2. If it was part of the bank's 'business', then was the conduct of Mr Edmund Rowland and/or Mr Weller attributable to the bank for purposes of Principle 1? (the 'Attribution Question')

Those two questions are of course necessary in such an assessment, and it is logical to ask the Bank Business Question first. After all, if the Disputed Document did not form part of the bank's business, then there could be no question of whether the bank breached Principle 1.

However, the Upper Tribunal appears to have blurred the distinction between the two questions in how it formulated the Bank Business Question. By describing it as being 'for the purposes of Principle 1', it brought into its assessment an implied attribution of the conduct onto the bank. It is not clear why that is necessary. In our view, the bank was correct to argue that the Bank Business Question is essentially a factual question, that focuses on in what capacity the relevant individuals were acting in respect of the Disputed Document.

In making that assessment, the bank argued that it was not Bank business, as it was conducted on behalf of the Rowland family. In assessing that claim, the Upper Tribunal adopted the common law test on vicarious liability of employers in tort and the common law test of agency to inform and guide its determination of the capacity in which the relevant individuals were acting.

However, the Upper Tribunal did not stop there. In assessing whether it was the bank's business 'for the purposes of Principle 1', it:

• adopted what it called the 'policy rationale' for the imposition of vicarious liability to third parties for the actions of employees; and
• applied it in the regulatory context for imposing liability on a firm for conduct by its employees that lacked integrity: 'The policy rationale for the imposition of vicarious liability for the actions of employees was described in BXB at [47]. It is not deterrence but what is known as "enterprise risk". Namely, that an enterprise which takes the benefit of activities carried on by a person integrated into its organisation should also bear the cost of harm wrongfully caused by that person in the course of those activities... ... In the present context there is certainly a deterrence aspect to Principle 1 which in our view strengthens the argument that vicarious liability in tort is at least a helpful guide in identifying the business of a firm and the extent to which a firm should be accountable in regulatory terms for the actions of its employees. We agree with the Authority that it would be inimical to the proper functioning of relevant markets and the integrity of the UK financial system for firms to take the benefit of their employees' conduct in the course of their employment but escape the regulatory consequences of that conduct. The statutory objectives also support an approach which recognises that where an employee has mixed motives, seeking to further their own interests as well as the interests of their employer, then the firm should be accountable if the intention is to further the firm's interests in some significant way. That is particularly the case where the personal interests and the firm's interests are closely intertwined.'

There are at least two problems with this approach.

First, at the stage of assessing whether relevant conduct was performed in an individual's capacity as a bank employee or director, it is not necessary to consider the policy rationale for Principle 1. It is a factual question of the capacity in which an individual is acting. That appears consistent with the Upper Tribunal's judgment that the test for vicarious liability is 'a helpful approach', 'a helpful guide', and 'a useful guide' in answering the Bank Business Question.

Second, even if it were necessary to consider the policy rationale for Principle 1, it is not clear why the Upper Tribunal considered that unless Principle 1 applied to such conduct, a firm would 'take the benefit of their employees' conduct in the course of their employment but escape the regulatory consequences of that conduct'.

Many other regulatory consequences may appropriately apply to the bank's business where there has been poor conduct, even if Principle 1 does not apply. Indeed, in this case the bank admitted that, if as it argued Principle 1 did not apply, then it breached Principles 2 and 3 by allowing the conduct to take place using the bank's systems. In this way, a firm can still 'be accountable in regulatory terms for the actions of its employees', even if that may not involve a breach of Principle 1.

To determine whether a firm should be held in breach of Principle 1 for the actions of its employees or directors, it is necessary to answer the Attribution Question. The Upper Tribunal surveyed the relevant authorities, including Lord Hoffman's judgment in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500, the leading recent authority on attribution, which explains that a company's 'primary rules of attribution' (i.e. authority provided in its articles of association or by a board or shareholder resolution) in addition to 'the general principles of agency, vicarious liability' are usually sufficient to determine a company's rights and obligations.

But in 'exceptional cases' the nature of the liability will be such that it cannot be attributed by general principles of agency or vicarious liability, as it is expressed to be a personal or direct liability (e.g. it 'may be stated in language primarily applicable to a natural person and require some act or state of mind on the part of that person "himself"'). In those cases, Lord Hoffman explained that the Court will either need to conclude that the obligation was not intended to apply to companies, or that it can only apply if the act giving rise to the liability was authorised by the company's board (or other primary rule of attribution), or (if the law was intended to apply to companies and the primary rules of attribution would defeat that purpose) there should be a 'special rule of attribution for the particular substantive rule'.

According to Lord Hoffmann, determining the special rule of attribution 'is always a matter of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy'.

Given the significant jurisprudence in this area, it is surprising that the Upper Tribunal considered it sufficient to address the issue and conclude a breach of Principle 1 should be attributed to the bank in one paragraph:

'We do not consider that in the context of Principle 1 it is necessary to look any further than whether the relevant conduct amounts to the firm's business. If it does relate to the firm's business then we see no reason why the firm should not be held culpable for that conduct. In our view the policy argument underpinning vicarious liability, namely enterprise risk, together with the policy imperative of deterrence strongly suggest that a firm should be culpable for conduct of which it takes the benefit. It is true that vicarious liability is a rule of liability and not attribution. However, it is the underlying test of whether the conduct is carried out in the course of the individual's employment or office which in our view should guide culpability. The obligation under Principle 1 is not merely to conduct with integrity that part of the firm's business of which the directing mind had knowledge. It is to conduct all the firm's business with integrity. The firm has control over its employees and there is no policy reason why it should not be accountable for the conduct of those employees acting in the course of their employment.'

It is difficult to see how such a conclusion is consistent with existing case law as to matters of attribution where a corporate entity is alleged to have direct or personal liability. As explained by Lord Sumption in Jetvia SA v Bilta (UK) Limited (in liquidation) [2015] UKSC 23, the law has developed a clear distinction between liability which is 'personal' to a corporate (and therefore involves an attribution of 'wrongdoing' and culpability to the corporate) and liability which is vicarious:

As explained by Lord Sumption, the distinction is one that applies both to criminal and civil liability. The key is to consider what sort of liability is alleged by the relevant breach of law or regulation. There can be no doubt that an alleged breach of Principle 1, where a firm is alleged to have not conducted its business with integrity, involves the 'personal' or direct liability of the firm. This is consistent with the FSA's (as it then was) views when it consulted on the introduction of the Principles for Businesses, in particular Principle 1 involving a 'moral concept' and any breach of it 'likely to be among the gravest breaches of the Principles'. Of course, the firm can only conduct its business through its employees or agents, but where it is alleged that a firm has acted without integrity – has been dishonest and acted without moral principle – that necessarily involves a 'personal' or direct liability on the firm that goes further than merely being vicariously liable for the acts of its employees.

The Upper Tribunal's judgment does not grapple with this distinction. Indeed, many of its conclusions are inconsistent with it:

• The test for vicarious liability cannot'guide culpability', as culpability only applies if the firm is directly or 'personally' liable.
• Whilst the obligation of Principle 1 is to 'conduct all the firm's business with integrity', this does not mean that any instance of a firm's employee acting without integrity results in the firm being 'personally' liable or culpable for a breach of Principle 1.
• The statement that a firm 'has control over its employees and there is no policy reason why it should not be accountable for the conduct of those employees acting in the course of their employment' ignores the clear policy reasons why different tests are applied where 'personal' or direct liability on a firm is alleged.

It is noteworthy that the Upper Tribunal considered that the FCA was right not to rely on the conduct of Mr Bolelyy for the purposes of a breach of Principle 1 as '[w]hilst he was acting in the course of his employment he was a very junior employee and standing back it would not be fair and just if the Bank were to be held culpable and to have acted without integrity in relation to his conduct'.

It is not clear how the Upper Tribunal could think this consistent with its view that tests for vicarious liability should 'guide culpability' for breaches of Principle 1, as there is no doubt that the bank could be held vicariously liable for the acts of Mr Bolelyy in the course of his employment. It appears that it is on the basis that the Upper Tribunal considered that it should 'first ask what was the nature of the employee's role and then ask whether there was sufficient connection between the role and their wrongful conduct to make it right for the firm to be held accountable. In doing so, it is important to stand back and ask whether the objective of Principle 1 requires the activity to be characterised as part of the firm's business'. But such an approach is inherently subjective and uncertain, essentially leaving one to guess whether an employee is sufficiently senior for it to be 'fair' for a firm to be culpable for their actions for the purposes of Principle 1.

This lack of certainty stems from the Upper Tribunal's judgment failing to sufficiently address the core tension in attributing a breach of Principle 1 to a firm – that, on the one hand, a lack of integrity inherently involves a 'personal' liability so as per Meridian and Bilta it is not sufficient to apply tests of vicarious liability or principles of agency, whilst on the other hand, insisting on primary rules of attribution, such as board or shareholder resolutions, is arguably too high a threshold for Principle 1 to have teeth vis-à-vis firms.

Given the facts of the case, which involved the conduct of senior employees such as the CEO of the bank, there was opportunity for the Upper Tribunal to have grappled with this issue more substantively, which may have resulted in a test that provided greater guidance for future cases than just relying on what is 'fair' or 'just' in the context of the particular facts.

Penalty and Mitigation

Although the Upper Tribunal found that Banque Havilland had breached Principle 1, it considered that the FCA's proposed fine of £10 million should be reduced to £4 million.

The Upper Tribunal criticised the FCA for being able to give no answer on why £10 million was more appropriate than £20 million or £5 million and therefore agreed with the bank that the fine was arbitrary.

That said, the Upper Tribunal itself struggled to ground its approach on relevant evidence of the seriousness of the breach and harm caused. With regards to the starting figure, the Upper Tribunal commented that the £2.5 million spent by Banque Havilland on the PwC investigation into the Disputed Document 'may be viewed as some indicator in financial terms as to the seriousness of the breach and the potential harm'. The logic to the link between harm and the cost of investigating that harm is not particularly clear, nor does the Upper Tribunal appear to place much weight on it, beyond commenting that 'it sets a base line figure', and then applying instead a starting figure of £5 million. This was on the reasoning that it 'falls between the revenue-based approach using relevant income of the Bank as a whole and relevant income of the UK Branch'. This was despite agreeing with the FCA 'that the revenue of the Bank is not a reliable proxy for the potential harm the breach may have caused'. Despite the Upper Tribunal's criticism of the FCA's approach, its efforts to make it less arbitrary only appear to further highlight the innately subjective nature of the exercise.

The Upper Tribunal's approach to mitigation follows its trend of tending to take a more liberal approach to mitigating factors compared to the FCA. It applied a reduction of 20% (from £5 million to £4 million) in light of mitigating factors, compared to the FCA who did not consider any reduction was appropriate.

Of interest, the Upper Tribunal noted that a mitigating factor in this case was the fact that 'there was no organisational or systemic lack of integrity at the level of the Bank as a whole', the concern was just in relation to two individuals from the UK branch. This was perhaps in an attempt to balance out the consequences of findings of a breach of Principle 1 based on the test for vicarious liability (although one would normally consider such factors to go to the seriousness of the breach rather than mitigation).

Other mitigating factors included that the Disputed Document was never disseminated, nor was the strategy it contained implemented which is in contrast to the FCA's usual approach that the potential for harm is sufficient for breach and the fact that no harm occurred should not be a mitigating factor. The Upper Tribunal also noted:

• that the bank brought the conduct to the attention of the FCA and the Commission de Surveillance du Secteur Financier (the bank's Luxembourg regulator);
• that it fully co-operated with both regulators' investigations;
• that the bank paid for a thorough investigation by PwC; and
• that the relevant employees had either resigned or had their employment terminated since the events.

It is worth noting that this is not the first time the Upper Tribunal has given more credit for co-operation with an FCA investigation than the regulator has – see, for example, the outcome in the Upper Tribunal's consideration of Donaldson and Arden v FCA.

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