The Court of Appeal judgment in Achilles Macris on 19 May 2015 opened the floodgates to individuals who could claim to be prejudiced by FCA warning and decision notices, and who therefore must be permitted to submit representations challenging their content and conclusions. A decision of the Upper Tribunal (Tax and Chancery Chamber) on Thursday dismissing a reference by Christopher Ashton, former Global Head of G10 Spot FX at Barclays Bank, has left the gates ajar.
Section 393 of the Financial Services and Markets Act 2000 (FSMA) requires that the FCA allow an individual prejudiced by being identified in a decision notice given to another person the opportunity to make representations to the FCA. The FCA must also provide the individual with access to information on which the notice is based.
What is considered ‘prejudicial’ is not defined within the FSMA; it may include references which could damage the individual’s reputation, adversely affect how jurors perceive them in criminal proceedings, or lead to civil claims against them.
The judgment in Macris confirmed that the question of whether an individual is “identified” is to be approached in two stages. The first stage is to consider whether there is some sort of “key or pointer” in the notice which refers to a particular person other than the person to whom the notice is given. If so, the second stage is to consider whether persons acquainted with that third party, or persons operating in the relevant area of the financial services industry, might reasonably have identified the person on the basis of public information available at the date of the promulgation of the relevant notice.
Christopher Ashton argued that he had been identified in two decision notices promulgated by the FCA against UBS and Barclays. Both notices imposed substantial financial penalties on these banks for their failure to prevent the manipulation of FX benchmarks. These notices, when citing evidence of this misconduct, quoted messages sent by traders in chat rooms.
Mr Ashton averred that references to “Firm A” in the UBS notice were to Barclays, and that the evidence of Firm A/Barclays’ misconduct were his messages. Other information in the public domain would have enabled people working in the financial service industry to attribute these to him.
The Upper Tribunal found that the FCA’s use of direct quotes when describing misconduct at Barclays was a “pointer” to an individual. However, information in the public domain would only have enabled someone reading the notices to attribute the quotes to a member of one of a number of FX trader chat rooms. The members of these chat rooms fluctuated and there was nothing so distinctive in the quotes that would enable a particular participant to be identified. There was therefore nothing in either notice that would lead a reader reasonably to conclude that it was, or must be, Mr Ashton who wrote these messages.
The Court of Appeal judgment in Macris is the subject of an appeal to the Supreme Court and news reports suggest that Mr Ashton intends to similarly appeal this decision. The rights of third parties pursuant to s.393 FSMA could therefore change significantly during this year. This decision shows that for the moment at least, notwithstanding the decision in Macris, the pool of individuals who might reasonably claim to be identified in an FCA notice, and who thereby may assert rights under s.393 FSMA, will be interpreted restrictively.
Against this unpredictable backdrop an individual should carefully consider the merits of challenging the FCA if its interpretation of s.393 resulted in it deciding not to allow him/her to make representations. Would that individual really want to make any if there was a threat of proceedings being instituted against them in some quarter? Whilst they may wish to obtain early disclosure of documents from the FCA which may be helpful in resisting anticipated criminal or regulatory proceedings against them, this possible advantage may be outweighed. For example because the individual risks greater publicity of their name and their alleged conduct. This may well be as or more prejudicial to them than the FCA notice. Secondly it may play out adversely if they demanded the opportunity to be heard but then opted to remain silent having received the material.
Counterbalancing these potential drawbacks of obtaining s393 recognition is the possibility of inhibiting any self-interested deal-making between the FCA and the authorised firm following a perfunctory investigation. The content of the final notices published simultaneously against five banks in November 2014 following the FCA’s FX investigation is redolent of the single rotten apple theory which the banks have an interest in propagating. “One bad hire” was how JP Morgan was able to explain away its paying of a hefty fine by way of settlement with the FCA. For its part, the FCA has been criticised for preferring reaching a settlement over discovering and telling the truth about what really went wrong. So if the individual perceives that settlement negotiations between the firm and regulator are likely to culminate in a final notice which implicitly blames them, then their interference and an attempt to alter the direction of this process might be sensible.
Whilst the FCA and firms will probably always resist having their negotiations over the outcome of an Enforcement investigation opened up to scrutiny, the latter being especially sensitive to the threat of follow-on litigation against them, an increasing recognition of s393 rights nonetheless seems likely. In an appropriate case this change should encourage the FCA to be less concerned with securing a pragmatic outcome over a desire to uncover the root-causes. This change of priority is what the new director of enforcement at the FCA says is what he wants anyway.
  EWCA Civ 490
This article has also been published in The Barrister.