In a previous blog we described how the FCA is facing a number of challenges from individuals arguing that they are identifiable from regulatory notices addressed to their employers. Individuals are granted third party rights under section 393 of the Financial Services and Markets Act 2000 (“FSMA“), which essentially provides that, if an FCA notice identifies someone other than the person to whom the notice has been given and is prejudicial to that person, a copy of the notice must be given to that person. Section 394 then allows the individual to make representations and request relevant documents before the notice is published. In several live cases the FCA is accused of failing to respect those safeguards.
In mid-October the UK Supreme Court heard the FCA’s appeal from the Court of Appeal judgment in FCA v Macris . In that case the FCA had issued warning, decision and final notices informing JP Morgan that it was to be fined (to the tune of £138 million) due to failings in respect of a credit derivatives trading portfolio that lost the bank over $6 billion: the so-called “London Whale” trades.
Achilles Macris had a role in managing the portfolio. He has been personally fined £793,000 by the FCA for not raising the alarm about the trades being undertaken by JP Morgan’s chief investment office (“CIO“). Whilst the FCA notices to JP Morgan did not refer to Macris by name, he argued that references in them to the “CIO London Management label” meant that he could be identified and that his third party rights should have been respected.
The Upper Tribunal and the Court of Appeal have both previously decided that Macris was identifiable in the notices. The Court of Appeal applied the following two stage test:
- whether the relevant statements in a notice said to identify a third party, construed in the context of the notice alone, refer to someone other than the person to whom notice was given; and if so
- whether (in the opinion of the relevant authority) words used in the notice would lead persons “acquainted” with the third party or who operate in the relevant industry (and who therefore have specialist knowledge of the circumstances) to believe, at the date of the notice, that the third party is prejudicially affected by the matters in the notice.
This test has subsequently been applied in Bittar v The Financial Conduct Authority  (also discussed in our earlier blog). In that case it was decided that Mr Bittar was identifiable in a notice given to Deutsche Bank. Mr Vogt (also a former Deutsche Bank employee) made a reference to the Upper Tribunal at the same time as Mr Bittar. But it was decided that Mr Vogt could not be identified in the relevant notice. Mr Vogt is seeking permission to appeal this decision. His application has been stayed pending the Supreme Court decision in Macris.
The FCA appeal to the Supreme Court in respect of Macris was heard before Lord Neuberger, Lord Mance, Lord Wilson, Lord Sumption and Lord Hodge. A date for the handing down of judgment is awaited. We will report on the court’s ruling once it is published.
If the Supreme Court agrees with the decisions of the tribunals below, the FCA will clearly need to exercise more caution as to the level of detail it includes in future decision notices. It may be diffficult for the FCA to make references to individuals in a way that does not make them identifiable by others in the financial services industry, particularly in respect of high profile matters. There is a risk this will neuter FCA notices and make it even harder to discern the full reasons behind adverse regulatory findings.
A related issue in some cases has been the risk of identification prejudicing the positions of individuals facing criminal prosecutions before a jury. Also, if individuals are identifiable, their rights to make representations and request disclosure of relevant material held by the FCA could further delay and complicate future investigations. There is a fine balance to be struck by the FCA between avoiding a more complex process, having the ability to make clear public criticism of financial services firms, and safeguarding individuals’ rights under FSMA. The Supreme Court decision is awaited with interest.