Interpretation of the “fit and proper person” test for broadcast licensing – Jaron Lewis and Benjamin Roe

22 09 2011

Ofcom operates a “fit and proper person” test for broadcast licence-holders.  This test has received much attention recently in the context of allegations of phone-hacking at the News of the World, and the potential impact upon BSkyB’s broadcast licence.  The News of the World was owned by News Corporation, and News Corporation owns 39% of BSkyB. 

MPs and commentators have raised the question of whether BSkyB is a fit and proper person to hold a broadcast licence, due to its association with News Corporation.

These questions have in turn highlighted the uncertainty which exists over the interpretation of the fit and proper person test.  Compared to other regulators operating similar tests, Ofcom has published little or no guidance on interpretation.  Furthermore there has only been one previous case of a licence being revoked, leaving little to be drawn from precedent.

The “fit and proper person” test

Under section 3(3) of the Broadcasting Acts 1990 and 1996, Ofcom has a duty to be satisfied that any person holding a television or radio broadcasting licence is, and remains, a “fit and proper person” to hold a licence.

There are numerous detailed provisions in the Broadcasting Acts stipulating categories of persons who may not hold broadcast licences (political organisations, newspapers with market share in excess of 20%, etc).  The fit and proper person test therefore implies something more than simply not falling into a restricted category.  However, there is no specific guidance in the legislation as to how “fit and proper person” should be interpreted.

Ofcom has periodically published information on how it interprets the fit and proper person requirement.  However, there are no formal published guidelines.  Ofcom does not publish rejected applications for broadcast licences, and there has only been one previous occasion when an existing broadcast licence was revoked.  This was in November 2010, when Ofcom ruled that Bang Media – which operated “adult chat” channels – was not a fit and proper person to hold a licence.  In this case there had been serious and repeated breaches of licence terms.  This could not be said to be a borderline case and as such it shines no light on where the boundaries lie.

Other organisations

The concept of a “fit and proper person” test is not unique to the Broadcasting Acts and the test appears frequently in UK regulatory statutes.  Ofcom’s lack of guidance on the “fit and proper person” test may be contrasted with the approach taken by other regulators and government bodies.

The Financial Services Authority

The Financial Services Authority operates a statutory “fit and proper person” test with regard to authorised persons in the financial services industry.  Although the purpose of this test is entirely different to that in the Broadcasting Acts, it is notable that the FSA provides detailed written guidance on the main factors it takes into account when assessing fitness and propriety.

For example, the FSA states that the most important considerations will be the person’s (i) honesty, integrity and reputation; (ii) competence and capability; and (iii) financial soundness.  Further guidance exists for each of these headings.  So under “honesty, integrity and reputation”, a further thirteen factors are listed which are taken into account, such as “whether the person has been convicted of any criminal offence”.  The FSA complements these formal guidelines with other guidance which outlines the FSA’s approach in a given theoretical situation.

HM Revenue and Customs

Similarly, the Finance Act 2010 requires HM Revenue and Customs to apply a “fit and proper person” test to managers of charities in order for those charities to fall within the remit of Gift Aid.  Again there is no definition in the legislation of “fit and proper person”, but HMRC has published guidance explaining how it applies the test.  This lists several factors that may lead to HMRC to decide that a manager is not a fit and proper person, including individuals “with a history of tax fraud”, “with a history of other fraudulent behaviour”, “barred from acting as a charity trustee by a charity regulator or Court”, and so on.

The Pensions Regulator

The Pensions Regulator has the power under the Pensions Act 1995 to prevent pension scheme trustees (corporate or individual) from acting if it is satisfied that they are not “fit and proper persons” to be trustees.  The Pensions Regulator has issued guidance on the subject.  It states that the regulator will take into account matters such as: “any attempt to deliberately deceive the regulator, or any other regulator”; “any misuse of trust funds”; “any breaches of trust law if these are significant, persistent or deliberate”; “if a trustee were to persistently or seriously overcharge its clients”, and so on.

Recent developments

The lack of clarity as to Ofcom’s approach is particularly problematic given the political sensitivities which may accompany regulatory decisions in this area.  Matters came to a head in early July this year at the peak of press interest in the phone-hacking allegations and in the context of News Corporation’s (now abandoned) bid for full control of BSkyB.  Questions were raised as to how Ofcom would actually apply the fit and proper person test in this case.

Ofcom’s open letter of 8 July 2011

As a result, Ofcom sent an open letter on 8 July 2011 to John Whittingdale MP (Chairman of the Culture, Media and Sport Committee) with the intention of “setting out as clearly as possible what Ofcom’s role, powers and duties are in these matters”.  Ofcom confirmed that “person” includes controlling directors and shareholders, and also that it would not act on unsubstantiated allegations.  However, Ofcom did not provide any general guidance on the factors it takes into account when assessing fitness or propriety, simply stating that it will consider “any relevant conduct of those who manage and control such a licence“.

Ofcom’s open letter of 22 July 2011, and note of Frequently Asked Questions

Ofcom’s letter resulted in further enquiries from a group of Liberal Democrat MPs.  As a result Ofcom sent a further open letter on 22 July 2011, clarifying various specific issues with regard to News Corporation but giving no further general guidance on the application of the fit and proper person test.

In the same week, Ofcom also published a note of “Frequently Asked Questions” on the fit and proper test.  Again this provided no general guidance on the application of the fit and proper test beyond a statement – a slight rephrasing of that given on 8 July 2011 – that Ofcom would take into account “any relevant misconduct of those who manage and control the licensee”.

With specific respect to the ownership connection between News Corporation and BSkyB, Ofcom confirmed that in its opinion “News Corporation’s current shareholding of 39.14% gives it material influence over BSkyB” (letter of 22 July 2011) and that “Ofcom must take account of News Corporation’s conduct in assessing whether BSkyB is and remains fit and proper” (Frequently Asked Questions).

Conclusions

It may be the case that other regulators may have found it easier to issue guidance on interpretation because it is fairly obvious who an unfit or improper person would be in their particular industries – in short, someone who is untrustworthy, unreliable or incompetent.  The position is less obvious when it comes to a broadcast licence.

It must also be considered that the government has set out in detail in the Broadcast Acts the types of person who are banned from holding a broadcast licence.  However, the fit and proper test has still been included in the legislation.  It is possible to view the fit and proper person test simply as a longstop, not to be used in the normal run of events, to avoid awarding broadcast licences to operators who are unsuitable for previously uncontemplated reasons.  If this is the case, it may help to explain why interpretative guidance has not been forthcoming.

However, a broadcast company faces considerable financial consequences if its licence is withdrawn, or even if there is uncertainty over the security of its licence.  Recent events have shown that the current position is unsatisfactory; it is in Ofcom’s power to remedy this.

Jaron Lewis is a partner and Benjamin Roe an associate in the RPC media team

This post was originally published as an RPC Media Bulletin and is reproduced with permission and thanks

About these ads

Actions

Information

One response

22 09 2011
Who is a fit and proper person? « The Law Of Surfing (The Internet)

[...] at the Inforrm blog, there is a great piece on the ‘fit and proper’ ownership test in the Ofcom code. It outlines that in many areas of UK regulation, like pensions and HM Revenue and Customs, there [...]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s




Follow

Get every new post delivered to your Inbox.

Join 3,701 other followers

%d bloggers like this: