Comment: Odey Case Shows Tension Between Regulation and Justice

The publication of a string of allegations about Crispin Odey prompts questions about the relationship between regulation and justice 

Ollie Smith 14 June, 2023 | 1:09PM James Gard
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City of London

Why would a chief executive demote themselves?

That’s not the most important question people are asking about Crispin Odey, the multi-millionaire founder and boss of Odey Asset Management, who last week found himself at the centre of another media storm over his conduct at his eponymous hedge fund firm.

But it is certainly a relevant one.

Readers of the Financial Times will now be familiar with the string of allegations against Odey, which he strenuously denies.

Moreover, it is important to emphasise that, following a criminal trial in 2021, Odey was also found not guilty of indecent assault.

But as the soul searching once more starts in the wake of yet another extensive list of allegations of sexual assault, harassment, and gross misconduct in the world of high finance, it is right to wonder how all this happened, and in the order it did.

To that question of demotion, however, we can look not at allegations, but at plain facts.

One specific timeline in this story shows a series of events that may lead to difficult questions about the capacity of regulators to oversee wealthy, politically-connected and (at one time) admired individuals like Odey.

Pre-Emptive Action?

Morningstar has looked at the sequence of events leading up to Crispin Odey’s trial in February 2021.

From a regulatory standpoint, one thing stands out.

Four months prior to the trial, on 3 November 2020, Odey’s personal regulatory status was downgraded from chief executive and partner to a solely "client dealing" role. The latter is still a "controlled function", albeit at a lower level.

Few people would have noticed this specific change in November 2020, but the information is available in the public domain as part of the FCA’s public register of approved persons.

We have reached out to Odey Asset Management to ask why this change occurred, as it could have been a routine business decision.

However, it could also be interpreted as a pre-emptive act ahead of a difficult period for Odey Asset Management and Crispin Odey himself. Depending on the outcome of the trial, Odey could have been stripped of that status by the Financial Conduct Authority (FCA).

This question of Odey’s "status" is a regulatory one, and the system governing it is relatively new. It’s called the Senior Manager’s Certification Regime, or SMCR.

An eventual consequence of the fallout from the financial crisis of 2008, SMCR was introduced in 2016. Itself a bid to impose tougher standards of conduct and probity on UK financial services, it was in some ways a compromise: a tacit admission on the one hand that nothing much could be done about the "bad apples" of yesteryear, and a hopeful baseline for the financiers of the future.

One obvious criticism, however, was that it was not nearly tough enough on bad behaviour, and that it effectively gave financial services firms the chance to mark their own homework.

Nor was SMCR ever really devised as a moral framework.

It is, rather, a practical solution, designed to ensure there are clear statements of responsibility at the top of businesses, and that people in positions of authority over client money are appropriately qualified and behaving well.

Initially rolled out in banks, the regime was extended to include insurers in 2018, and by 2019 applied to most financial services businesses. Crispin Odey would have been within its purview by that later date.

That said, there is undoubtedly a moral element baked in.

SMCR features a set of so-called "conduct rules", which set minimum standards of professional behaviour for all "professional employees", with additional rules for senior managers. The working assumption is: the higher up the chain you are, the better your behaviour should be. You, the manager, will be responsible.

These rules demand, among other things, that staff in a "controlled function" (including senior managers) act with integrity. Where breaches of the rules are identified, the FCA can ultimately remove permissions from individuals directly.

According to the Chartered Institute for Securities & Investment, a professional body for the asset management industry, the FCA takes this seriously. Before it will act, it will take a number of things into account.

"The FCA recognises that withdrawing approval will often have a substantial impact on those concerned," it says in its own handbook.

"When considering withdrawing approval, it will take into account the cumulative effect of all relevant matters, including: […] the previous disciplinary record and compliance history of the approved person".

That may relate to regulatory breaches within the business, such as improper dealing or money laundering failures. But it can also include criminal behaviour.

Where an individual has been prosecuted and found guilty, there may be strong grounds for a regulator to immediately review their permissions and potentially remove them altogether.

Systems Intertwined

On paper, this might sound like a good system.

But the Odey case might show the FCA’s own hand is weakened by legal factors beyond its control in the courts.  

Tony Langham chairs the financial services public relations firm Lansons. He says more is at play than just regulatory and legal forces.

"The demise of Crispin Odey is a parable for our times," he said on Twitter this week.

"Despite his behaviour, he got away with it in a court of law and would always have – because our legal system favours the wealthy and we're still a patriarchy".

Is that why, then, at the conclusion of Odey’s 2021 trial, the judge didn’t just confirm his innocence, but actually congratulated him on reaching age 60 "without a stain on your character?"

Some people might think so.

Overall, is that why it took newspaper reporting – rather than a successful criminal trial authorised by the Crown Prosecution Service – for Crispin Odey to fully step away from Odey Asset Management this week? 

Overall, Crispin Odey strenuously refutes the allegations levelled against himt, and there is no suggestion this saga is complete. Following the 2021 trial, he was never re-elevated to senior manager status. He retains a "client dealing" role, according to the FCA register.

But one thing is certain: to reject trial by media is to rely on the established and formal process working well. Time will tell if that has been the case.

We reached out to Odey Asset Management to ask about its handling of Crispin Odey’s 2021 case and the allegations made in the FT. Our emailed enquiries to the firm were referred to an outside communications consultancy, which has not responded. 

The FCA declined to comment.

With additional reporting from James Gard, senior editor, Morningstar.

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Ollie Smith

Ollie Smith  is editor of Morningstar UK

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