On 9 February 2016 the FCA (previously the FSA) published its Final Notice in settlement of its investigation of Achilles Macris, a former senior manager employed by JP Morgan Chase. Mr Macris agreed to pay a fine of £792,000 in respect of his breach of Statement of Principle 4. This requires an approved person to deal with the FCA in an“open and co-operative way and [to] disclose appropriately any information of which the Authority would reasonably expect notice.”

During the relevant period (which the FCA defines as 28 March 2012 to 29 April 2012) Mr Macris was the main contact for the provision of information to the FCA about the JPM department which he managed. He was also aware that JPM was effectively in special measures which meant it was the subject of FCA ‘close and continuous’ supervision. Mr Macris was responsible for a number of huge JPM positions one of which was called the Synthetic Credit Portfolio (SCP). It was his failure to be candid with the FCA about the SCP that led to this final notice.

The Final Notice

From January 2012 the SCP began to suffer unexpected losses which worsened throughout the Relevant Period.  This situation became a crisis in March 2012 resulting in Mr Macris taking a number of emergency measures. By the end of March 2012 however JPM’s losses were still increasing.

The FCA’s Final Notice focuses on two specific moments when it says Mr Macris should but chose not to reveal to the FCA information about these problems. These were a meeting with the FSA on 28 March 2012 and a call with the FSA on 10 April 2012. At the meeting Mr Macris reported on the SCP. The Final Notice states that the FSA was updated on both positive and negative developments including that it had made a loss of $200m. However, Mr Macris did not provide the FSA with “an update covering the full extent of the difficulties that the SCP was then facing.” Mr Macris failed to disclose that (1) the SCP had breached its risk limit during the first quarter of 2012 (2) no further trades were to be executed in respect of the SCP until a discussion had taken place and (3) Mr Macris was putting in heightened measures to address the difficulties being faced by the SCP.

During the call Mr Macris adopted a similarly reticent approach. He failed to disclose (1) the SCP had breached several limits and (2) the SCP had incurred year to date losses of approximately $610m which were likely to significantly increase. By not disclosing any of the above information, and in so doing discouraging less senior members of JPM present at either encounter from doing so, the FCA determined and ultimately Mr Macris agreed that he violated Principle 4. In determining the sanction for Mr Macris, the FCA applied its five step framework to determine the level of penalty to be applied. At the end of it Mr Macris was fined £792,000.

This is a strong message from the FCA to senior managers that a failure to be transparent about matters of interest or concern to the FCA will be sanctioned. It is not necessary to mislead or to make a false representation, an omission may suffice.

Mr Macris’ position

Following the publication of the Final Notice and despite it being the outcome of his settlement with the FCA, Mr Macris has publicly described it as a “major-climb down by the FCA.” Furthermore he has grandly claimed it represents another victory for him in his protracted and ongoing battle with the FCA. His previous alleged victory being the Court of Appeal’s decision last June to uphold the decision of the Upper Tribunal regarding his claim that the FCA should have recognised him pursuant to s393 of FSMA before agreeing the settlement with JPM in 2013 concerning the ‘London Whale’ trades.

As to why Mr Macris contends that the Final Notice is a climb-down, he cites that in the 2013  notice against JPM, the FCA claimed  that it had been “deliberately misled” by virtue of the conduct of CIO London Management (Mr Macris being CIO London Management). However in the notice against him the FCA, having had to hear and consider his representations, could only justify a finding that he had acted negligently.

This highly significant change in position reinforces the argument put forward to the Court of Appeal by Mr Macris that the FCA during its 2012 and 2013 investigation of JPM, by denying him recognition under s393 with its concomitant right for him to be heard, acted unfairly towards him and conducted an inadequate investigation. This change is moreover likely to be highly relevant to the forthcoming hearing by the Supreme Court of the FCA’s appeal against the judgment of the Court of Appeal in Mr Macris’ favour. How before this hearing will the FCA reconcile its two inconsistent findings about Mr Macris’ conduct? Does this not demonstrate that the FCA should not have reached the settlement which it did with JPM without allowing him an opportunity to make representations?

Due to Mr Macris’ willingness to litigate against the FCA in order to have the FCA’s imputation of his dishonesty contained in the 2013 notice removed, this tension between how the FCA deals with individuals in the context of its willingness to reach corporate settlements is never more apparent than now.

This highlights more than ever a need for the FCA to ensure that individuals are properly considered before agreeing a corporate settlement. Why S393 rights which FSMA vested in individuals are important.

This article is also published in FTSE Global Markets and Compliance Monitor.