When can a public body depart from the recommendation of an independent review?

In R (on the application of the All-Party Parliamentary Group On Fair Banking) v The Financial Conduct Authority [2025] EWHC 525 (Admin) the Administrative Court deemed the Financial Conduct Authority's (FCA) decision not to do anything further, following an independent review of its regulatory action, rational and reasonable. In doing so, the court considered the broader question of when a public body can depart from the recommendation of an independent expert it has commissioned, and the threshold required for unreasonableness to be made out in that context.

Key Points

• It is open to a public body to reject the recommendation of an independent report from an expert in the field who has undertaken a detailed review where it holds a reasonably based disagreement. There is no presumption that a public body should follow such a recommendation and/or there is no onus on the public body to show that it had a good, very good or cogent reason not to do so.
• When considering the threshold for irrationality, judicial intervention is not confined to a decision so bizarre that its author must be regarded as temporarily unhinged: it suffices if there is an error in reasoning which renders the decision lacking in logic.
• Where there is a discrepancy between the independence of the reviewer relative to the public body, bearing in mind the potential for a natural self-defensive reaction and the scope for unconscious bias in its own favour, the court will scrutinise carefully whether the disagreement was reasonable or in good faith.

Background

In 2012, in response to allegations relating to potential mis-selling of Interest Rate Hedging Products (IRHPs), the then Financial Services Authority (FSA) agreed a voluntary redress scheme (the Scheme) with various banks. The Scheme included the Sophistication Test which differentiated between certain types of customers to exclude those who were deemed "sophisticated" in terms of their knowledge and experience of financial products, their financial resources and their ability to source independent professional advice (the Excluded Customers).

Subsequently the FCA (as successor to the FSA) committed to a review of its supervisory intervention on IRHPs (the Review). The Review concluded that while the voluntary agreement was appropriate for non-sophisticated customers, the FCA should not have confined the Scheme to a subset of customers via the Sophistication Test. The Review recommended that there should be consistent treatment in relation to regulatory intervention, unless there is an objective justification founded on strong evidence and tested through consultation.

The FCA disagreed with these findings and concluded that it was not appropriate or proportionate to take further action (the Decision).

The claimant challenged the Decision by way of judicial review, arguing that:

1. it was irrational to reject the findings of the Review concerning the Sophistication Test and to decide to do nothing further; and
2. there was procedural unfairness in failing to consult stakeholders prior to announcing the Decision.

Judgment 

Test for disagreeing with an independent review

A number of issues were covered in the judgment. One of the most interesting was whether, having set up an independent Review to report on the lessons to be learnt, and in circumstances where it was not contended that the Review outcome was unreasonable or unlawful, it was irrational to depart from the Review. The claimant argued that in that context, having spent £8.6 million on the Review and given the independence of the Reviewer (unlike the position of the FCA which was considering its own conduct), it made no sense to depart from the Review simply because of a merits-based disagreement.

This gave rise to the broader question of whether, when a public body commissions an independent report from an acknowledged expert in the field who has undertaken a painstaking review, it is sufficient to justify departing from the recommendation if there is a reasonable merits-based disagreement, or whether the particular disagreement has to be based on a good or very good or cogent reason.

Freedman J considered the case of Secretary of State for Justice v Sneddon [2024] EWCA Civ 1258 and highlighted that the scrutiny was not on whether the Reviewer was correct or whether the recommendation of the Review was rational, but whether the public body's departure from the recommendation was rational.

The court found that it was open to a public body to reject a recommendation where it held a reasonably based disagreement. There is no presumption that a public body should follow a recommendation in these circumstances, absent a good, very good or cogent reason. Nor does it matter if the court prefers the view of the Reviewer or disagrees with the view of the public body, unless there is irrationality or common law unreasonableness about the decision of the public authority.

Reasonableness

In assessing whether the disagreement was reasonably held, the court considered the test for irrationality and that the FCA has a wide measure of "subjective discretion afforded by Parliament" as the specialist and expert regulatory body seeking to apply powers and rules in general terms. However, there was no extra hurdle of having to show "exceptional circumstances" before a court would interfere, unlike other contexts such as criminal prosecution decisions. In fact, the court confirmed that, despite the colourful use of language about rationality, "judicial intervention is not confined to a decision so bizarre that its author must be regarded as temporarily unhinged: it suffices if there is an error in reasoning which renders the decision lacking in logic".

Much will depend on the context, but the court noted there may be situations where the decision which is the subject of disagreement is the result of a body which has so many advantages over the regulatory authority or Government as to make it difficult to justify the disagreement as rational or reasonable.

Freedman J also explained that, in light of the independence of the Reviewer relative to the defendant, the potential for a natural self-defensive reaction and the scope for unconscious bias in its own favour from the FCA, the court needed to scrutinise carefully whether the disagreement was reasonable or in good faith.

Ultimately, the court found that it was rational of the FCA to disagree with the recommendations of the Review that differential treatment of Excluded Customers had to be justified by reference to "strong evidence" and should be regarded as exceptional. Instead, it was considered a rational basis for reasonable disagreement for the FCA to target intervention when and where it was most needed, without the luxury of the time required to research and prepare detailed evidence - it was entitled to act with greater urgency. A number of broader regulatory and practical considerations meant it was rational for the FCA to consider that it had a reasonable basis for disagreement with the Review.

The regulator was entitled to take into account its statutory objectives, including consumer protection. Questions as to the circumstances, manner and extent to which a regulator should intervene are for the regulator, taking account of statutory objectives, regulatory principles and its regulatory priorities. There was no presumption that all customers should receive the same degree of regulatory protection. Freedman J commented that it was not apparent that there was any real prospect within the very limited time framework and the need for urgent solutions for small to medium enterprises that the FSA could have found a different way of defining non-sophisticated customers that would have been more satisfactory.

In all the circumstances, it was not irrational or contrary to common law reasonableness to decide to take no further action.

Consultation

The second ground of challenge considered by the court was whether it was unlawful to time the announcement of the Decision so as to present interested persons with no opportunity to advance views that the FCA's response to the Review ought to be different.

The court characterised this as a consultation challenge and noted that where Parliament intended to impose a duty to consult on the FCA, it made provision to that effect in legislation. In the absence of a statutory duty to consult or a legitimate expectation of consultation arising from a promise or practice, a duty to consult will only be imposed at common law where it would be conspicuously unfair not to do so, which is a high threshold. The court quickly concluded it was not conspicuously unfair or irrational or unreasonable at common law for the FCA not to seek more information before reaching the Decision, emphasising repeatedly that the FCA was already aware of the criticisms and dissatisfaction.

Comment

This is an interesting judgment on when public bodies can depart from independent review recommendations ie if they have rational grounds for disagreement, notwithstanding the cost of the review and expertise and independence of the reviewer. This is a point of potentially broad application given the increase in the use of independent reports or reviews by public bodies in all sorts of contexts. However, despite acknowledging the wide discretion afforded to public bodies, the court was careful to shut down additional hurdles in the legal tests to be applied and to row back from the sometimes extreme language used to describe the test for irrationality.

In addition, the court was very conscious of the lack of independence in the public body reviewing its own conduct and emphasised the court's responsibility to look at the material with particular care to ensure that the final decision was reasonable and in good faith.