The UK’s financial integrity standards are evolving beyond simple honesty requirements, with recent decisions establishing clearer boundaries around recklessness and institutional accountability. Howard Kennedy partner David Hamilton examines landmark cases to reveal how courts now assess integrity failures through the lens of ethical awareness, adequate training and organizational support rather than just individual misconduct.
The requirement to act with integrity is a longstanding feature of the UK’s financial regulatory framework. The Financial Conduct Authority’s handbook lists it as both the first principle for businesses and the first of its COCON individual conduct rules.
While the concept is not defined in exhaustive terms, it has always been subject to legal scrutiny. What has evolved is the way in which courts and tribunals have interpreted and applied the standard, particularly in cases where dishonesty is not alleged but where conduct nonetheless raises serious regulatory concerns.
The legal threshold for integrity failures: insights on recklessness
The courts have consistently drawn a distinction between dishonesty and a lack of integrity. In Ivey v Genting Casinos UKSC 67, the UK Supreme Court confirmed that dishonesty is assessed by reference to the individual’s actual knowledge or belief, judged against the standards of ordinary decent people. However, integrity is a broader concept. It encompasses not only honesty but also ethical awareness, sound judgment and a willingness to engage with regulatory obligations.
In Markou v FCA EWCA Civ 1575, the Court of Appeal reaffirmed that recklessness can amount to a lack of integrity. Markou, a mortgage broker CEO, failed to maintain valid professional indemnity insurance and gave inconsistent evidence about when his firm ceased regulated activity. The Upper Tribunal had found that he had not acted dishonestly or recklessly. The Court of Appeal disagreed, holding that the tribunal had failed to properly assess whether Markou had appreciated the risks and unreasonably disregarded them. The court concluded that his conduct, particularly his failure to verify key facts when he had the means to do so, demonstrated recklessness and a lack of integrity.
This decision confirms that integrity may be compromised not only by what a person does but also by what they fail to do when regulatory obligations are engaged.
Another instructive case centered on FCA enforcement action against three senior figures at Bank Julius Baer & Co. The case arose from the individuals’ involvement in a commercial arrangement with a third party linked to the Yukos group. The regulator alleged that the individuals, each holding senior client-facing or supervisory roles, were instrumental in enabling a series of transactions in which Yukos-affiliated funds were transferred to the third party as part of an introduction agreement. These introductions, in turn, led to Yukos entities becoming clients of the bank, often on terms less favorable than standard.
The FCA’s case rested on the assertion that the individuals had failed to interrogate the nature and risks of the arrangement, thereby acting recklessly. It further advanced a broader interpretation of recklessness, one that would allow liability where a reasonable person in the same position would have perceived the risk, regardless of the individuals’ actual state of mind.
The tribunal rejected this expansive view. It reaffirmed that recklessness, in the regulatory context, requires both subjective awareness of a risk and an objectively unreasonable decision to proceed. On the facts, the tribunal found no evidence that the individuals had recognized the potential for impropriety. It also noted that the use of intermediary payments — so-called “finder’s fees” — was not unusual in Swiss private banking at the time. Crucially, the bank had failed to provide adequate compliance training or guidance, particularly in relation to higher-risk jurisdictions such as Russia. In the absence of such institutional support, the tribunal was unwilling to attribute recklessness to the individuals.
Compliance implications: Integrity as a practical and strategic obligation
The evolving UK case law on integrity — particularly the emphasis on recklessness and ethical oversight — has significant implications for how firms approach compliance. While integrity has always been a regulatory expectation, recent decisions underscore that it is also a compliance risk: one that must be actively managed, documented and embedded into the operational fabric of a firm.
From policy to practice: operationalizing integrity
Firms cannot rely on high-level statements of values or generic codes of conduct. Regulators and tribunals are increasingly focused on how those values are translated into day-to-day decision-making. This requires a shift from passive compliance to proactive ethical governance. Policies must be specific, actionable and tailored to the firm’s risk profile, particularly in areas involving third-party relationships, cross-border transactions or high-risk jurisdictions.
Training as a risk control, not a formality
The Julius Baer case illustrates the consequences of inadequate training. The tribunal’s findings made clear that the absence of guidance on how to navigate complex or ethically ambiguous arrangements — such as “finder’s fees” in high-risk markets — was a material factor in its decision not to attribute recklessness to the individuals involved. This highlights the importance of contextualized training that goes beyond regulatory basics to address real-world scenarios, gray areas and the kinds of ethical dilemmas that arise in practice.
Documenting judgment and escalation
Where integrity is inevitably assessed in hindsight, the availability of contemporaneous records can be decisive. Firms should encourage, and systematize, the documentation of decisions involving regulatory or ethical risk. This includes recording the rationale for proceeding with a transaction, the steps taken to assess risk and any internal discussions or escalation. Such records not only support internal accountability but may prove critical in demonstrating that decisions were made in good faith and with due regard to regulatory obligations.
Whistleblowing and cultural signals
A firm’s ability to detect and respond to integrity risks also depends on its internal culture. Whistleblowing mechanisms must be more than procedural — they must be trusted, accessible and supported by leadership. Equally, firms should monitor for cultural indicators, including reluctance to challenge senior decisions, tolerance of “commercially necessary” shortcuts or the normalization of opaque practices. These are often early warning signs of deeper integrity risks.
Board-level oversight and accountability
Finally, integrity is not just a frontline issue. Boards and senior management must take ownership of the firm’s commitment to ethical conduct. This includes setting the tone from the top, ensuring that integrity risks are considered in strategic decisions and holding business units accountable for ethical as well as financial performance. Regulatory expectations increasingly demand that senior leaders demonstrate not only that they have delegated appropriately but that they have exercised meaningful oversight.
Conclusion: Sharpening regulatory focus
While recent tribunal judgments do not mark a departure from established principles, they certainly indicate a sharpening of their application. As noted earlier, integrity has always been a legally enforceable standard; what has evolved is the clarity with which courts and regulators are now articulating its boundaries, particularly in relation to recklessness, ethical disengagement and failures of oversight.
The decisions in Markou and the Julius Baer proceedings illustrate two sides of the same coin. On one hand, the courts have been willing to find a lack of integrity where individuals fail to engage with obvious risks or provide misleading accounts, even absent dishonesty. On the other, they are equally prepared to recognize the limits of individual culpability where institutional failures have left employees without the tools to navigate complex ethical terrain.
For firms, this dual message is instructive. Regulatory expectations now extend beyond the prevention of misconduct to the cultivation of ethical awareness and accountability at every level. Integrity will not be assessed solely in terms of outcomes but also in terms of process: how decisions are made, how risks are evaluated and how responsibilities are discharged.
In this context, integrity is not just a matter of personal character but a function of organizational culture. It is embedded in governance structures, reinforced through training and culture and evidenced through documentation and oversight. As regulatory scrutiny continues to evolve, firms that treat integrity as a dynamic, operational standard rather than a static principle will be best placed to meet both the letter and the spirit of the rules.
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