FCA bare teeth over ethics of creative “remuneration planning”

2nd December 2019

HMRC are not the only regulator looking at husband and wife “remuneration planning” with a degree of scepticism. These arrangements have been coming under increased scrutiny looking at ensuring that amounts paid in husband and wife arrangements are commensurate with their responsibilities and duties. Diversion of profits in this way may seem like proactive tax planning but it has become apparent that the FCA take a dim view when it gets beyond a reasonable level.

A recently published (contested) decision by the FCA tribunal regarding an individual employed in a small mutual firm the regulator has taken this a step further by deeming the activity to be a serious ethical breach. Read the published decision here.

Picking the bones out of this case it is a colourful example with evidence of records being altered and both the remuneration committee and the PRA being misled but there is a clear underlying theme.

The Tribunal’s decision was to both fine the individual £78k (more than four times the tax he was deemed to have evaded by diverting salary to his spouse and significantly more than 100% of the tax plus interest that HMRC might levy) AND to issue a prohibition order preventing him from holding a regulated position under FCA purview.

Whilst this case is now being referred to the Upper Tribunal it leaves little doubt as to the direction of travel for FCA registered individuals when it comes to how seriously the ethical standards will be applied. Transparency and integrity are the ever present theme of FCA directives and their publication of this decision is as much a sanction of the individual as a warning to others:

“The principal purpose of the financial penalty is to promote high standards of regulatory conduct by deterring persons who have committed breaches from committing further breaches, helping to deter other persons from committing similar breaches…”

Food for thought.

In small and medium businesses these arrangements are relatively common and generally reasonable but are they transparent enough to meet the standards outlined in the detail of this judgement? The remuneration committee itself is not exonerated for a lack of knowledge of what was transpiring or for failing to act where there was evidence of remuneration being excessive compared to duties.

This serves as a good reminder for companies (regulated or otherwise) with spouses on the payroll to review any historic arrangement and to schedule and document regular reviews going forward to ensure that remuneration and duties are at market rate.


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