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JP Morgan trader unfairly dismissed: how do employment tribunals align with FCA compliance considerations?

Posted: 04/04/2022

Jones v JP Morgan Securities Plc (No.1) [2021] 6 WLUK 722.

This case serves as a useful reminder that natural justice and an assessment of fitness and propriety go hand in hand in financial services firms and, if they do not, the penalties for a firm can be significant. JP Morgan was ordered to pay Mr Jones £1.5 million in lost earnings and to re-engage him in its Hong Kong office.

In 2016 Mr Jones was investigated for 'spoofing', a form of market abuse where a trader places orders with the intention of cancelling them before execution in order to change the impression of the demand or supply of a particular commodity to manipulate the market. At the time, JP Morgan concluded that the 2016 orders were 'not suspicious' and, therefore, decided it had no regulatory obligation to make a report to the FCA or to take disciplinary action against Mr Jones, who it subsequently certified as 'fit and proper' under the Senior Managers and Certification Regime (SMCR).

However, in 2019, following a change in its internal spoofing policy, JP Morgan decided to discipline Mr Jones retrospectively for the 2016 orders. He could not remember the reasons for the 2016 trades but gave various explanations which were not fully investigated by JP Morgan. Instead, JP Morgan concluded that Mr Jones had engaged in spoofing and he was dismissed for gross misconduct.

The Employment Tribunal (ET) found that the dismissal was unfair under the Employment Rights Act 1996. Rather than have a genuine or reasonable belief in Mr Jones’ misconduct, JP Morgan was attempting to appease its regulators by appearing to be tough on compliance following a Department of Justice Investigation into its precious metals traders.

The ET found that there were several errors in JP Morgan’s disciplinary procedure and each of the explanations that Mr Jones offered after the event were more plausible than if he had simply engaged in spoofing as this would have generated negligible commission for him.

The ET held that it was unfair to apply the new spoofing policy to Mr Jones retrospectively. JP Morgan’s investigation had not been thorough and an instruction and training to document the details of suspicious-looking trades was only given after the 2016 investigation. The firm had adopted an inconsistent approach by initially exonerating Mr Jones in 2016 and then finding him culpable four years later. JP Morgan had not carried out a reasonable investigation, given its size and the potentially criminal and career-ending implications of a finding that Mr Jones had engaged in spoofing.

In the remedy judgment (Jones v JP Morgan Securities Plc (No.4) [2021] 12 WLUK [538]), the ET ordered JP Morgan to re-engage Mr Jones. There was some discussion about whether reinstatement or re-engagement was appropriate, partly because Mr Sippel, the Senior Manager accountable to the regulators for certifying Mr Jones as 'fit and proper', felt that, notwithstanding the tribunal’s findings, Mr Jones could not prove that he had not engaged in spoofing.

However, the judge disagreed and said that if Mr Jones was reinstated, it would be open to another member of staff to certify him as fit and proper to perform his role. In doing so, the judge clearly indicated that the tribunal did not agree with Mr Sippel’s assessment of Mr Jones’ fitness and propriety. The judge also stated that, if Mr Jones was reinstated, the regulators would be unlikely to take any action against JP Morgan. Rather, they would accept the decision to reinstate him as flowing from the reasoned conclusions of the ET.

The ET noted that, if Mr Jones was not re-engaged and sought employment at another employer in the financial services sector within the UK in a regulated role, Mr Sippel would provide a negative regulatory reference stating that JP Morgan did not consider Mr Jones to be fit and proper. Although reinstatement was not practical due to changes in Mr Jones’ team, re-engagement with an associated employer in Hong Kong was. This was regarded by the ET as the only sensible way of allowing Mr Jones to continue working within the sector.

This case, in which an employment tribunal commented on the regulatory processes of a major bank, illustrates that, although HR decisions and compliance decisions involve separate considerations, they should generally align. Both the HR and compliance teams should be involved in all disciplinary decisions involving conduct breaches or issues of fitness and propriety. A firm must remember that natural justice is expected by the FCA of a regulated firm.

The same reasons as to why the dismissal was unfair indicate that Mr Jones should be assessed as 'fit and proper' to perform his role. Both of these decisions should involve a fair and thorough investigation and, if they do not, employers run the risk of a re-engagement order and a significant compensation order.

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